R esearch In Motion is a $30-billion company that often acts like a startup. The maker of the BlackBerry, Canada's only globally famous brand, has made juvenile mistakes, ranging from the minor but embarrassing to the major and costly. Until the options scandal hit last year, it lacked a full understanding of the term corporate governance. Should the brilliant minds who built RIM still run it?
It's easy to say the time has come and gone for the co-CEOs, Jim Balsillie and Mike Lazaridis, and that new bosses should be recruited. But doing so would be a mistake. Ask shareholders sitting on 1,000-per-cent returns or better, if they'd be happy to see the duo replaced with slick professional managers. They'd wonder if you had the IQ of lettuce.
In the dynamic world of value creation, there is a rule of thumb: He or she who has the talent to build the company has no talent to manage the company. At a certain point, said person should step aside and let professional managers take over.
Determining that point is never easy and mistakes can be made. Take Apple. In the mid-1980s, co-founder Steve Jobs lost a power struggle with John Sculley, the newly appointed CEO, and disappeared from the company. Apple went nowhere. Two more bosses came and went. Mr. Jobs returned in 1997 and ultimately became CEO. Apple's growth since then has been phenomenal. The iPod inventor constantly reinvents itself, never abiding by the rules and always surprising the market.
RIM is Canada's Apple, or at least has that potential. It never followed the how-to-build-a-company handbook. Most tech companies owe their existence to a big idea and bigger venture capitalists. Not RIM. It relied on private money at first, then hit the stock market with a bang in 1997. The wireless e-mail device called the BlackBerry was launched in 1999. It never second-guessed itself, even when the short sellers piled on for the kill, only to retreat with knives sticking out of their own backs. It never used outside managers at the very top level. Mr. Balsillie, the marketing and finance master, and Mr. Lazaridis, the gizmo god, always ran the show.
True, mistakes were made that might not have been made had public company pros been dealing with the lawyers, the bean counters and the corporate governance gurus. At the height of the tech boom in the late 1990s, Mr. Balsillie played a bit role in the obstruction-of-justice trial of Frank Quattrone, the former all-star tech banker at Credit Suisse First Boston. The court heard that Mr. Quattrone was involved in a request from Mr. Balsillie for an allocation of shares in the potentially hot AvantGo IPO.
Two bigger embarrassments were to come. The first was the patent-infringement suit with NTP, which was ultimately settled last year for $612.5-million (U.S.) after the courts threatened to shut down RIM's American wireless service. It could have been settled for one-tenth that amount, or less, years earlier. The second came last August, when the stock options scandal hit. Monday, the company acknowledged using “hindsight” to pick favourable option grant dates and announced a $250-million profit reduction related to options accounting.
The admission was an embarrassment for RIM and its top executive, all the more since Mr. Balsillie is a Harvard MBA, a chartered accountant and once had a career at Ernst & Young. He should have known better than to allow the company to award in-the-money options — options above market prices — to employees, and not have them appear on the financial statements as a compensation expense. As far as corporate governance boo-boos go, this one was a beaut.
So is it time to tuck Mr. Balsillie and Mr. Lazaridis into the corner and let the pros take over? Forget it. This is one case where the entrepreneurs should be forgiven. RIM acknowledged the mistakes and went to the regulators before the regulators came knocking. Mr. Balsillie is to step down as chairman but retain the co-CEO job, a change that should have happened several years ago. The company will bring in two new directors, including Royal Bank of Canada chief operating officer Barbara Stymiest, to give the board a more independent flavour. A new board oversight committee with independent directors is to be established, and so on.
Over all, it's a nice compromise. Adult supervision has finally come to the RIM romper room and the most creative kids in the class, Jimmy and Mikey, are still around to keep things interesting. In the future, RIM should have fewer judgment lapses. If the opposite happens, the dynamic duo may be invited to find non-management roles. In the meantime, the entrepreneurs are free to do what they have done superbly for a decade, which is to create scads of shareholder value from a world-beating product.
ereguly@globeandmail.com
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