Crossed lines in the boardroom

IT IS A tale that might have been written by Shakespeare. It features hubris, nemesis and partial redemption, as well as clashing personalities and losses in the billions of dollars. And it all takes place in the most unlikely of dramatic settings: a Finnish boardroom.

Risto Siilasmaa is the chairman of Nokia, which is today a very different and much smaller company than in 2008 when he joined its board as a non-executive director. His book* recounts the gripping saga of how Nokia was driven out of the mobile-phone business it dominated, and had to reinvent itself.

When Apple launched the iPhone in 2007, Nokia at first seemed to view it as a niche competitor with a high price-tag that would capture only a small slice of the market. After all, Nokia’s phones appeared to have all the bells and whistles needed to succeed. Users could download music and listen to the radio; they could use their phones to take photos and videos; they could send and receive email; and even use maps.

Mr Siilasmaa had a front-row seat for the drama that ensued when he first joined the firm, but very little real influence. As he explains, board members have limited access to limited quantities of important company information. With his software background, however, he quickly perceived the firm’s big problem. Its devices could rival the iPhone mechanically, but the operating system could not compete. Nokia’s Symbian system was cumbersome for users, who had to send confirmations whenever any function was added to the phone.

Nokia also had a wide range of devices with different operating requirements, making it difficult for app developers to customise their offerings. Apple, by contrast, had only one platform and enjoyed the benefit of being able to design a system from scratch.

Increasingly concerned about these problems, Mr Siilasmaa wrote a strategy document suggesting that the company should consider embracing the Android operating system for phones, which was rapidly gaining market share. He sent it straight to Nokia’s chairman, Jorma Ollila.

Every good play needs a villain, and this book casts Mr Ollila in that role. Before becoming chairman, he had been Nokia’s chief executive from 1992 to 2006, the years of its rise to dominance. He did not seem to appreciate a non-executive director putting his oar in. Mr Siilasmaa writes that “with a sharp-tongued and thin-skinned chairman at the helm, intent on maintaining iron authority, raising questions can be close to mutiny”. He tried again, this time sending his memo to the chief executive and other board members, but says his concerns were never addressed in board meetings.

Mr Ollila, now 68, has described Mr Siilasmaa’s claims as exaggerated or not true. But Nokia’s performance deteriorated sharply during his last years in charge, and nothing he did was able to stop it. The company did team up with Microsoft to launch a Windows-based phone, the Lumia. But by 2012, when Mr Ollila left the board, Nokia’s market value had fallen by 92% since Apple’s iPhone was launched and the firm was making a loss.

The mutineer was then obliged to move to centre-stage. Mr Siilasmaa came in as the new chairman when the company’s fortunes seemed to be at rock-bottom. Instead, the news got worse: the Lumia phone received good reviews but failed to gain market share.

So Mr Siilasmaa acted. In 2013 Nokia sold the phone business to Microsoft and struck out in a different direction. The company bought out the share of Siemens in a joint venture called NSN and acquired Alcatel-Lucent. Now Nokia offers “end-to-end” digital infrastructure, supplying network equipment and software to telecoms operators. It is profitable, but its share price has barely moved in the past five years and future success is dependent on a wave of spending on 5G telecoms networks, which may come slowly.

Nokia was already a classic example of the perils of disruptive innovation for industry leaders. Mr Siilasmaa’s account underlines how little influence board members often have when faced with an entrenched management team. He insists that a board’s role must be to challenge management. Bosses must have an attitude of “paranoid optimism”, always on the lookout for potential threats. Nokia’s story shows why.

Economist.com/blogs/bartleby

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