For the second time, a shareholder advisory firm is calling on Research In Motion Ltd. RIM-Tto change the relationship between its top executives and its board of directors.
Institutional Shareholder Services Inc., which advises more than 1,700 clients, called on Monday for RIM to split the roles of chief executive officer and chairman. Currently, Mike Lazaridis and Jim Balsillie share both roles – a situation that has frustrated many investors, who claim the joint roles hinder the board's independence from management.
The two CEOs are also RIM's biggest individual shareholders.
“There seems to be no compelling rationale for the company to resist handing over all of the duties of chair along with the title, that signals strong board leadership, to an independent director who will preside over all board meetings and decisions,” the ISS report states, according to an excerpt provided by the firm.
“Additionally, the company's recent corporate governance issues, coupled with financial underperformance, strengthens the idea that the separation of the co-chairs and co-CEOs roles is necessary and in the best interests of RIM's shareholders.”
The ISS report adds to already intense pressure on RIM to shake up its management structure. With a little more than two weeks to go before the company's annual general meeting, several investors and analysts are not only calling for a more independent board, but for the co-CEOs to consider handing control to a new management team.
Those calls are in large part spurred by RIM's disappointing financial results so far this year. As a result of a couple of lacklustre quarters, delayed product launches and a recent profit warning, RIM shares have dropped 52 per cent so far this year. According to Zacks Investment Research, only nine analysts rate the company a “strong buy,” compared to 23 this time last year.
At RIM's annual meeting, investors will get a chance to vote on splitting the CEO and board chair roles. Northwest & Ethical Investments LP, an investor in the company, has put forward a resolution to divide the jobs.
Last week, shareholder advisory firm Glass Lewis & Co. issued a report supporting the resolution, saying the current structure “provides inadequate independent checks on executives and management, particularly since the co-CEOs … are its largest shareholders,” the Glass Lewis report says.
RIM's co-CEOs have so far resisted calls for managerial change. During the company's most recent quarterly earnings call, the two men argued that nobody else is better positioned to lead the company through the transition from its old product lineup to a new generation of smart phones and tablets powered by an entirely new operating system.
The Glass Lewis report also urges investors to vote against the re-election of one of the board members, John Richardson. The report says Mr. Richardson should no longer be on the board because he was a member of the audit committee when RIM became embroiled in a stock option backdating scandal, which eventually led to a $250-million financial restatement in 2007. The scandal first prompted some investors to call for an independent board chair. Instead, RIM announced last December that the co-CEOs would take over that role.
In urging investors to vote against the motion to split the CEO and chair roles, RIM has argued that Mr. Richardson is an independent director who essentially functions as the head of the board.
