Are Nokia Investors Looking To Oust CEO Stephen Elop?

| About: Nokia Corporation (NOK)

On Tuesday, Nokia (NYSE:NOK) held its annual meeting with the shareholders in Helsinki. In the meeting, there were a lot of good and bad points, but what gained the most attention was the reaction received by the company's CEO Stephen Elop. There were several shareholders who were clearly upset with Mr. Elop, as they reminded him that he may not have a lot of time unless the company starts showing solid results soon.

In the Helsinki Stock Exchange, Nokia is up by 4.15%, and in the New York Stock Exchange, the company's stock price is up by 3.38% for the day, which means that most investors are taking the annual meeting nicely. In the last 3 trading days, Nokia is up by 8%, which also confirms that investors of the company are mostly happy with the recent developments. Of course, there will be always some investors who are not happy.

While there are a lot of investors that are happy with the progress Nokia has made in the last couple of years, there are also as many investors who believe that things aren't happening fast enough. This reminds me of Ford (NYSE:F) in 2006 when Alan Mulally took over. Some investors were happy with the changes Mr. Mulally implemented in the company, whereas others wanted to see results quickly. Eventually, it took 3 years for Mr. Mulally's efforts to bear fruit, because (believe it or not) it takes more than a few months to turn around a multi-national corporation that is bleeding cash and has 100,000+ employees.

Hannu Virtanen, one of the shareholders told Mr. Elop:

You're a nice guy... and the leadership team is doing its best, but clearly, it's not enough. Are you aware that results are what matter? The road to hell is paved with good intentions. Please switch to another road.

When Mr. Virtanen mentions "switching to another road," he means abandoning Windows Phone (NASDAQ:MSFT) and switching to another operating system such as Google's (NASDAQ:GOOG) Android. Mr. Elop's response was clear:

We make adjustments as we go. But it's very clear to us that in today's war of ecosystems, we've made a very clear decision to focus on Windows Phone with our Lumia product line. And it is with that we will compete with competitors like Samsung and (Google's operating system) Android.

Another investor asked Mr. Elop why Samsung is "10 times more successful than Nokia" which is a very valid question. When another investor mentioned how Nokia is not "as cool as Apple" Mr. Elop talked about how iPhone 5 did not show much innovation over the previous iPhone, mentioned how Apple's share price has been on a decline and claimed that Apple wasn't that cool anymore. Many of the investors who were clearly upset with Mr. Elop's performance and decisions as a CEO were Finnish investors. This is important to note, because Nokia is the largest company in Finland, and it used to account for a large chunk of Finnish GDP alone; therefore, it made a large portion of a lot of Finnish investors, many of whom may have to delay their retirement plans due to Nokia's performance in the last 5 years.

While some people believe Nokia should switch to Android and others believe that it should stick with Windows Phone, I wish the company could find a middle way. It would be nice if Nokia could stick with Windows Phone but still launch a few Android phones so that it could maximize its chances of gaining market share. Launching a few Android phones alongside the existing Windows Phone devices will capture many people who want to own a Nokia phone but who dislike the Windows Phone operating system. Those who want a Nokia operated by Windows Phone would get a Windows Phone-powered Nokia and those who want a Nokia operated by Android would get an Android-powered Nokia. Of course, this would be bad for Microsoft, because it could lose more market share to Android; however, Nokia should put its interests before those of Microsoft.

It is clear that Mr. Elop will be very persistent about sticking with the Windows Phone project. There won't be a switch to another operating system anytime soon unless Nokia goes back to cash burning. In the end, this may cost him his job, but he will continue to defend the Windows Phone project to the end. This may turn into a staring contest between Mr. Elop and the shareholders who want Nokia to move away from the Windows Phone. If Mr. Elop insists on Windows Phone for long enough, those who don't agree with him are more likely to sell their Nokia shares and look for somewhere else to invest than try to oust him. In the end, we may see "survival bias" where the only investors still holding Nokia shares are the ones that believe in Mr. Elop, which would give him more power in the company.

What does this all mean for the investors? It depends on whether they believe in Mr. Elop's Windows Phone project. Those who believe in the project should hold their stocks and wait for the success to come over time. Those who don't believe in the project may find better value elsewhere, because Mr. Elop isn't likely to change his opinion on Nokia's partnership with Microsoft anytime soon. I still believe in the partnership, even though I criticized some aspects of it over time. If it wasn't for Microsoft, Nokia could have been in a far worse shape than it is right now. Microsoft helped Nokia directly with cash, the company put a lot of its money into marketing the Windows Phone, and it helped Nokia with differentiating itself from the competition. Nokia wouldn't have many opportunities in differentiating itself by becoming "another Android phone maker." There are too many of those as it is.

In fact, I believe that Nokia will be the only company that builds Windows Phone devices in a matter of few years. Currently, Nokia dominates the market, with 4 out of every 5 Windows phone devices made by the company. The other phone makers are losing money on Windows Phone, and they have to spend the money they make on Android phones to sponsor their Windows Phone project. I can see some Windows Phone producers stepping out soon if they don't start making money from the project.

Looking back, many people think that Alan Mulally became the CEO of Ford after the stock price bottomed and that he helped the stock price go up significantly, but this is far from the truth. When Mr. Mulally became the boss of Ford, the company's share price was around $7. Later on, when the stock price fell below $1.50, Mr. Mulally was celebrating his third year as a CEO. The stock price didn't recover until nearly his fourth year. I'm giving Alan Mulally as an example because he started the most successful turnaround story of a large corporation in the last decade. Turning a large company around takes time, and I believe in Stephen Elop as the boss of Nokia.

Disclosure: I am long MSFT, NOK, F. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.