My Photo

Ordering Information

Tomi on Twitter is @tomiahonen

  • Follow Tomi on Twitter as @tomiahonen
    Follow Tomi's Twitterfloods on all matters mobile, tech and media. Tomi has over 8,000 followers and was rated by Forbes as the most influential writer on mobile related topics

Book Tomi T Ahonen to Speak at Your Event

  • Contact Tomi T Ahonen for Speaking and Consulting Events
    Please write email to tomi (at) tomiahonen (dot) com and indicate "Speaking Event" or "Consulting Work" or "Expert Witness" or whatever type of work you would like to offer. Tomi works regularly on all continents

Tomi on Video including his TED Talk

  • Tomi on Video including his TED Talk
    See Tomi on video from several recent keynote presentations and interviews, including his TED Talk in Hong Kong about Augmented Reality as the 8th Mass Media

Subscribe


Blog powered by Typepad

« Now We Know Why - Nokia's Elop had a $25M personal bonus clause from the Nokia Board if he was able to sell the handset unit to Microsoft | Main | Compare Elop to his Predecessor Kallasvuo. One was Bad. One was The Worst Ever »

September 26, 2013

TrackBack

TrackBack URL for this entry:
http://www.typepad.com/services/trackback/6a00e0097e337c8833019aff9b103f970b

Listed below are links to weblogs that reference Elop 25 Million Dollar Golden Handshake for Destroying the Company - How Could This Happen at Nokia (analysis and speculation) - Tomi plays detective again:

Comments

Benoit

We want names! The CEO is called "CEO" or "Elop" in the article but the board is always "the board". Please tell us the names of people who decided to hire, to agree such clauses, and to keep that CEO. Is the board anonymous?

The Recusant

Tomi, you must publicize this as much as possible, esp. to EU & Finnish mainstream media, before the usual suspects cloud the issues with FUD & payola-driven RDF marketing propaganda.

- Sent from my Nokia 808 PV powered by Symbian Belle FP2

Sander van der Wal

For this theory to work you need to prove that MeeGo was ready for general release when it was killed. Everything I heard indicates this was not the case at all. Hunderds of show-stopping errors, lots of missing functionality.

For an alternative theory. The Nokia board had already made up its mind. If we go with Microsofts platform that might work. In that case, share prices rise and everybody is happy. And if this Plan A doesn't work, plan B is to sell the handset business to Microsoft. By that time the smartphone business is in even more trouble than it is now, and the feature phone business will be worthless too. And more importantly, Microsoft will be quite desperate and they will pay more than the business is worth.

The logic should be simple. Microsoft wants its platform to succeed, which means lots of devjce sales, which means device makers making lots of money, which means device makers are expensive.

If the platforms fails, Microsoft will have lost the mobile platform war. That also means device makers being cheap, but that will be an excellent example of throwing good money after bad.

If ghe first part of the war is lost, then buying a device maker might make sense, if Microsoft wanted to be like Apple. It is possible that Microsoft thought they could be like Apple, but would they have thought that in 2010? The pundits did not think like that until 2012 or so.

No, for my money, this is the Nokia Board seeing a way to offload a failing business.

Anoop SK

Tomi, is there any chance that the Nokia board will disapprove the sale to Microsoft in the meeting going to be conducted in November?

EmmanuelM


I'am asking a question that I already asked ...

What is the finnish governement doing ? What are the Nokia employee doing ?

At some point your need to fight for your country and fight for your job !!

Winter

For all the sympathy I have for your theory, I must resort to the catch all quote:

Do not attribute to malice what can adequately be attributed to stupidity.

khim

@Sander van der Wal: The Nokia board had already made up its mind. If we go with Microsofts platform that might work. In that case, share prices rise and everybody is happy. And if this Plan A doesn't work, plan B is to sell the handset business to Microsoft. By that time the smartphone business is in even more trouble than it is now, and the feature phone business will be worthless too. And more importantly, Microsoft will be quite desperate and they will pay more than the business is worth.

May be. But this twist will not make the story any less criminal - it'll only change the person to blame. Serious investigation should find out who secretly decided to burn all the bridges, but such decision itself is unjustifiable if it was not voted by shareholders.

Why? It's easy: discussions with Google and RIM. If it was already decided that "Plan B" is to sell out to Microsoft then these talks where conducted on uneven playing field - but they were presented to shareholders as if they were honest. That's your fraud right there.

Tomi T Ahonen

About Sander's point that Nokia Board had decided Plan A is Microsoft and Plan B is also Microsoft. That might have been, but we know the Microsoft contract clause was in the original Elop contract in 2010. So it was agreed BEFORE the negotiations were had with Microsoft - AND Google. Its possible that in February (or late January) this plan was agreed by the Board, its A Microsoft or B Microsoft. But that could not have been in the summer of 2010, at that point they went ahead to allow Elop to solicit bids from at least RIM, Google and Microsoft - plus evaluate MeeGo. If the Board knew in the summer of 2010 that they will go Microsoft, they wouldn't have bothered with the others and MeeGo would have been killed then, not bothering with expensive device launches etc...

No, the Board very definitely had not settled on Microsoft when Elop was hired, but the Board had clearly authorized Elop to seek alternatives and would want to decide on those, probably on a time scale of 'within 6 months' haha..

Winter - good point. Do you mean the whole Eloppomess or only some parts of it. I do think some of this may have been stupidity, but no, with Elop having 25 million reasons to create a very peculiar, highly unlikely series of events - to perfectly match them - that took a lot of orchestration by Elop. That was malice not stupidity.

Tomi Ahonen :-)

Ifko

Eldar Murtazin claims (in his blog) that Lumia with Android (aka Mountain View) was created just to threaten Microsoft and force them to buy this unit

foo

> So now we know, its been confirmed by Nokia, that outgoing CEO Stephen Elop, who came from Microsoft, had a contract from 2010,
> which would pay him a peculiar bonus of 25 million dollars, if this deal we now heard of three weeks ago - Nokia selling its handset
> unit to Microsoft - were to occur.

That explains EVERYTHING.

Elop worked since the beginning to align Nokia to Microsoft.

He killed all the internal competitors -- Symbian, Meegoo, etc. He trashed and pre-announced the death of Symbian (the company's cash cow!!!), and said N9 would be discontinued even if it was successful. (!!!)

He gave strategic control to Microsoft, so that Nokia became entirely dependent. Please remember that back in 2011 Nokia didn't need Microsoft, but Microsoft needed Nokia desperately.

Please read Michael Porter's description of the five competitive forces to understand why it was a terrible mistake to give control of a strategic asset to a powerful supplier. This is no secret -- it's Strategy 101, something any CEO should know.

Android allowed differentiation, reduced cost, and independence -- three important strategic advantages that Microsoft couldn't provide.

Elop tied the company's success to Windows Phone -- the least popular operating system, which was not even ready when he announced the deal.

He talked and acted like a Windows Phone advocate.

He invited competitors to join the "ecosystem"!!!

If you believe that Elop was working for Nokia's best interest, I must quote the Duke of Wellington: "If you believe that you will believe anything."

foo

@Sander van der Wal

> For this theory to work you need to prove that MeeGo was ready for general release when it was killed.
> Everything I heard indicates this was not the case at all. Hunderds of show-stopping errors, lots of missing functionality.

As far as I remember the N9 received excellent reviews, but Elop said that it would be discontinued no matter what. What kind of CEO says something like this? One determined to kill all the possible exits.

And if "show-stopping errors" and "missing functionality" was such a big problem, please tell me, why would Elop choose Windows Phone, with the famous list of 101 problems? In many aspects Windows Phone was worse than Symbian, a.k.a. the "burning platform".

foo

@Winter

> Do not attribute to malice what can adequately be attributed to stupidity.

There was malice in the strategy, and stupidity in the execution.

foo

Tomi,

I strongly disagree with the idea that Elop and the board intentionally devaluated the company so it could be bought.

The idea since the beginning was to "sell" the company without actually selling it -- Microsoft would have all the benefits of owning Nokia, without the issues.

Please remember that by 2010 Microsoft's plan was to continue as a software developer. They wanted to sell software licenses to manufacturers in the same way they did with PC makers.

The idea of Microsoft becoming a "devices and services" company came much later, after the debacle of Windows Phone and Windows 8.

So, what was the purpose of the partnership?

Microsoft needed a strong manufacturer to give credibility to Windows Phone, and force other manufacturers to join the platform.

If Microsoft had bought Nokia, no other company would be interested in the platform. Thus, Microsoft proposed the partnership -- which tied Nokia's destiny to Microsoft's operating system.

Doing that was malice. Then came stupidity.

Elop was so eager to help Microsoft that he badmouthed Symbian and pre-announced Windows Phone -- causing the infamous "Elop Effect".

*That* started the collapse, which was unintended. Remember, Microsoft wanted a strong partner.

But from that moment on, Elop tried to manage the crisis.

Nokia didn't have a new product to show, and nobody wanted to buy the obsolete product.

To make things worse, when the first WP 7.5 smartphones were ready, Microsoft pre-announced WP 8 -- making the brand new line obsolete.

(That's part of Microsoft's DNA as software maker -- they always announce their next OS before availability, so developers and manufacturers can get prepared to it).

Fast forward to 2013.

Nokia was responsible for 80% of the Windows Phone market. (That shouldn't be like that -- remember that Elop invited competitors to join the "ecosystem")

And Nokia was about to die.

What could Microsoft do? Let Nokia die? No.

Microsoft had no option other than buying Nokia.

willebra

I think Tero Kuittinen at Forbes describes a sequence of events which lead to a massive payout. He doesn't describe the actual contract terms. I don't know, but it seems to me that the actual contract terms could be more like this:
- share value based incentive of x shares
- measured based on the average value of the shares during the last (e.g.) 18 months
- if there is a change of control of Nokia or important sale of a business area, then the incentive is immediately released in comparison to the share value at change of control + 1 month.

If the contract terms were like I describe, then the events explained by Tero Kuittinen would indeed lead to this payout. The actual terms weren't probably anyhow tied to Microsoft, just a change of control.

This doesn't change what Tomi describes. I just think that Tomi perhaps misunderstood this bit of Kuittinen's blog.

Tomi T Ahonen

foo

good points but one critical fact changes it. Microsoft not only wanted handsets, it had already bought a handset maker, Danger and was in the process of launching its first actual phones - the Kin phones - in the summer of 2010, right when these discussions were happening. Microsoft very definitely already in 2010 wanted to make devices (Zune, Xbox etc).

But I agree, Microsoft didn't want this outcome, they wanted Nokia as their slave but with a strong smartphone market share and Elop in charge. If they had known what Elop was doing, they would have been furious - no doubt this is what Ballmer learned in 2012 when he and Elop had their 'falling out' haha.. by then it was far too late. This was a lose-lose situation for both Microsoft and Nokia, only Elop came out as a winner (well, Elop and his wife haha)

Tomi Ahonen :-)

foo

Tomi,

After re-reading the article, I must say: you have some very good points.

I agree that the board was unaware of Elop's intentions.

I agree that, since Elop had the buyout clause, he was biased to choose Windows Phone.

I only disagree with the date when Elop decided to "destroy" Nokia.

I think he actually believed that Nokia could be successful with Windows Phone. Making the partnership work was Plan A. Selling it was Plan B.

He must have decided to pursue Plan B when it became clear that Nokia couldn't succeed with Windows Phone -- probably after Windows Phone 8, which was released on October 29, 2012.

When he realized that WP8 was a flop, he threw the towel -- it was easier to sell Nokia than to make the partnership work.

The two turkeys didn't fly.

Tomi T Ahonen

Hi foo

Yeah, that is definitely also a plausible scenario of how it happened, as I said, my thinking here is pure speculation. What I want to do, and this will take some time, is a total time-line of major Elop decisions and statements, and Nokia share prices on the previous day, to see is there a correlation with Nokia share movements and his statements/actions. If we find that when Nokia shares go up, Elop does another madness, then the evidence is very conclusive. If Elop mismanagement of Nokia has no correlation with Nokia share price (gains) then it was just bad management. We may also uncover an explicit point in time when Elop behavior changes - assuming of course that early there was no correlation, and suddenly there appears a strong correlation with share price increases and Eloppian madness - in that case we can isolate the exact point of time when Elop decided to go for the $25 mil.

But yeah, that will take some serious time and motivation. Currently I'm just hopping mad haha.. Oh, if Elop thought Tomi Ahonen was the thorn on his side, he has seen nothing yet. I will haunt him till our mutual deaths - my family has long lifespans so him being only a few years younger than me, we may be doing this for many more decades to come. I will do my best that his name becomes synonymous with corporate corruption and destruction, worse than Bernie Madoff.

PS foo - 'rereading' gosh, I felt that dagger, sorry sorry sorry. My regular readers suffer so much reading my long rants, to find the few new points hidden somewhere haha, but for you to read this twice? Thanks foo, I truly appreciate it

Tomi Ahonen :-)

Tomi T Ahonen

Willebra

Thanks! The one part missing from your summary was the 'and stock price has to recover after the announcement' but yeah, it could be somewhat as you say.

The curious part then is - we know Microsoft said no to the first discussions of February, and the restarted the negotiations late in the spring/early summer. If there was no 'Microsoft' in the clause, Elop would have/could have/should have seeked any other vendor bids, to get the handset deal that Microsoft had now rejected - just to rescue his 25 million dollar package. But there was none of that, what we heard instead, was other vendors complaining that Nokia won't even let them bid on anything, they would like to buy parts of Nokia (Lenovo, Huawei etc). So I do think the Microsoft part was explicit, but yeah, I'd love to see the actual contract in its entirity haha.. I expect that will never be revealed (unless the case ends up in court, boy would I love that to happen haha)

Tomi Ahonen :-)

Kristian Nilsson

Very interesting work of research and speculation!

The contract seems to have been like the Nokia board handing over a gun to the new CEO, where the gun is pointing at the literary "head" of the company.

While handing over the gun, the board states that the CEO will get 25 million if he pulls the trigger.

Tough choice for a CEO.

willebra

Tomi

The point of such an incentive is to reward the increase of the share price. If this is measured by comparing a) 18 months average of the share price and b) price after the change of control (1 month average after the coc-event), then the requirement "share price has to recover" is built in.

And, it's quite natural: if you create a share price based contractual incentive, you need to determine a trigger and a comparison point. If the share price recovers in between, you are rewarded.

(Side discussion.)

Louis

@Tomi: There was no "Microsoft" clause. There was a generic "change of control" clause, which is pretty standard. You are the only one to report that.

hduty

Tomi, you say that first discussions between MS and Nokia started in Feb 2013, as per the official version.
But you forget that Eldar leaked in Jan 2012 that talks of an MS buyout had taken place all the way back in May 2011:

http://www.forbes.com/sites/terokuittinen/2012/01/06/interview-with-murtazin-will-microsoft-buy-nokias-smartphone-unit/

At that point the stock nose-dive had already started, after Elop's burning platform memo in Feb 2011:

https://www.google.com/finance?chdnp=1&chdd=1&chds=1&chdv=1&chvs=maximized&chdeh=0&chfdeh=0&chdet=1325883600000&chddm=95044&chls=IntervalBasedLine&q=NYSE%3ANOK&ntsp=0&fct=big&ei=DzREUujLE-mNwAPARg

Of course we don't know for sure if Eldar had inside-information, but given how everything has played out it seems extremely unlikely that it was just a wild guess on his part. That would mean that Elop was preparing and making the corresponding decisions for an MS buyout already in H1 2011, which explains why the CEO publicly put a bullet in the head of the N9 in Jun 2011, all while the N9 was receiving rave reviews:

http://www.engadget.com/2011/06/22/editorial-dear-nokia-you-cannot-be-serious/

It therefore seems very implausible to be a matter of stupidity, but rather deliberate actions on his part towards the single objective of selling Nokia to MS; I'm sure he ran with his N9 carcass to show it off to his master MS, just like a cat proudly brings home to its owner the dead mouse it has killed.

zlutor

@Sander van der Wal: "Hunderds of show-stopping errors, lots of missing functionality."

Well I use the device from PR1.1 - yes, there were bugs but majority of them were corrected in coming releases (+added feature). At the end of the day it was just usable quite OK.

There were no any showstopper issues - especially after PR1.2 - I use it today, too...

Tomi T Ahonen

BARON95 !!!

Dont you dare put words in my mouth - or I'll ban you and remove every posting you ever made...

You know perfectly well I was talking about what Elop would think, not what I think or what the Board of Nokia knew

BE VERY CAREFUL BARON95 you are now officially on my shit list, you try this again and I will ban you

Tomi Ahonen

Aviezer

Tomi,
One should wonder if Elop had such "arrangemnts" (like described here) also with Macromedia.
Then, Elop acting as its CEO sold it to ADOBE only to become president of worldwide field operations at Adobe.

Verify your Comment

Previewing your Comment

This is only a preview. Your comment has not yet been posted.

Working...
Your comment could not be posted. Error type:
Your comment has been posted. Post another comment

The letters and numbers you entered did not match the image. Please try again.

As a final step before posting your comment, enter the letters and numbers you see in the image below. This prevents automated programs from posting comments.

Having trouble reading this image? View an alternate.

Working...

Post a comment

Available for Consulting and Speakerships

  • Available for Consulting & Speaking
    Tomi Ahonen is a bestselling author whose twelve books on mobile have already been referenced in over 100 books by his peers. Rated the most influential expert in mobile by Forbes in December 2011, Tomi speaks regularly at conferences doing about 20 public speakerships annually. With over 250 public speaking engagements, Tomi been seen by a cumulative audience of over 100,000 people on all six inhabited continents. The former Nokia executive has run a consulting practise on digital convergence, interactive media, engagement marketing, high tech and next generation mobile. Tomi is currently based out of Hong Kong but supports Fortune 500 sized companies across the globe. His reference client list includes Axiata, Bank of America, BBC, BNP Paribas, China Mobile, Emap, Ericsson, Google, Hewlett-Packard, HSBC, IBM, Intel, LG, MTS, Nokia, NTT DoCoMo, Ogilvy, Orange, RIM, Sanomamedia, Telenor, TeliaSonera, Three, Tigo, Vodafone, etc. To see his full bio and his books, visit www.tomiahonen.com Tomi Ahonen lectures at Oxford University's short courses on next generation mobile and digital convergence. Follow him on Twitter as @tomiahonen. Tomi also has a Facebook and Linked In page under his own name. He is available for consulting, speaking engagements and as expert witness, please write to tomi (at) tomiahonen (dot) com

Tomi's eBooks on Mobile Pearls

  • Pearls Vol 1: Mobile Advertising
    Tomi's first eBook is 171 pages with 50 case studies of real cases of mobile advertising and marketing in 19 countries on four continents. See this link for the only place where you can order the eBook for download

Tomi Ahonen Almanac 2009

  • Tomi Ahonen Almanac 2009
    A comprehensive statistical review of the total mobile industry, in 171 pages, has 70 tables and charts, and fits on your smartphone to carry in your pocket every day.

Alan's Third Book: No Straight Lines

Tomi's Fave Twitterati