Ekholm's handling of an internal probe into Ericsson's operations in Iraq has come under scrutiny after the U.S. Department of Justice (DoJ) said the company was in breach of a 2019 deferred prosecution agreement for failing to inform U.S. authorities of potential misconduct it had uncovered there.

The risk of a hefty fine for that breach has lopped a quarter off Ericsson's market value and angered investors, who were not given any information about the company probe until media enquiries about it earlier this year.

At the group's annual general meeting (AGM) on Tuesday, shareholders representing more than 10% of Ericsson shares voted against discharging board members of liability for the previous year. That means Ekholm and other board members could be held personally liable for their actions.

Under Swedish law, if board members are not annually discharged of their liabilities by shareholders owning at least 10% of the stock they can be sued by the company and its investors.

Shareholders, however, approved a proposal to reappoint the CEO and the board.

Several criticised the handling of the Iraq probe during the meeting. But many questions were left unanswered, with Chairman Ronnie Leten and CEO Ekholm saying they were unable to give details due to the ongoing DoJ investigation.

"I fully understand the concern over the recent turbulence in Ericsson. I want to emphasise again the full commitment to rebuild your trust in Ericsson," Leten told the meeting.

Ericsson shares closed down 1.6% at 85.87 crowns.

In comments after the AGM, Leten said Ekholm and the management team had the full support of the board.

"We have made good progress, but there is much still to do," he said in emailed comments, noting his work on ethics and compliance in five years at the helm.

While losing the vote may not mean Ekholm has to step down, it will raise further questions over his stewardship.

Ekholm, the company's chief financial officer Carl Mellander and Ericsson have been named as defendants in a U.S. class action lawsuit accusing them of misleading investors over the company's dealings in Iraq.

In 2014, a scandal over business dealings in Uzbekistan at telecoms company Telia Company, then called TeliaSonera, led shareholders to vote against discharging former CEO Lars Nyberg from personal liability in 2014.

Nyberg was later charged with bribery, but was acquitted by a Swedish court.

TRANSPARENCY

Ekholm took https://www.reuters.com/article/ericsson-ceo-idINASM00072G the helm at Ericsson in 2016 after a string of poor results https://www.reuters.com/article/us-ericsson-ceo-idUSKCN1050IT and when the company was under investigation by U.S. authorities over bribery allegations.

Backed by top shareholder Investor AB, he revived the company's performance and paid https://www.reuters.com/article/us-usa-ericsson-idUSKBN1YA2HU a $1 billion fine to the DoJ to settle bribery cases in several countries.

In the same year, a company probe into its operations in Iraq identified payments designed to circumvent customs at a time when militant organisations, including Islamic State, controlled some routes.

While Ekholm has been fostering transparency and urging employees to speak up about improprieties, the company did not disclose details of the new probe to shareholders.

Ekholm told Reuters in February the substance of its findings did not pass the threshold to make a disclosure.

Last week he told investors that he had instructed his staff to disclose the investigation to the authorities. The company replaced Chief Legal Officer Xavier Dedullen, who handled the settlement in 2019, earlier this month.

An Ericsson spokesperson said Dedullen declined to comment.

Cevian, which owns just under 5% of Ericsson shares, had said it would have to vote against discharging board members of their liabilities because it did not have enough information to do otherwise, while it would support their re-election.

Investor AB said it would vote in favour of discharging the board and it had full confidence in the board and CEO.

(Reporting by Supantha Mukherjee in StockholmEditing by Mark Potter and Carmel Crimmins)

By Supantha Mukherjee and Helena Soderpalm