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RIM trips on offering options to employees

JANET MCFARLAND AND PAUL WALDIE

From Tuesday's Globe and Mail

Latest comment posted at 8:44 AM EDT 05/03/07

'So did we do backdating? Yeah, we did backdating,' CEO of BlackBerry firm says ...Read the full article

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  1. Joshua Laycock from Toronto, Canada writes: It's good to see Canadian companies beginning to take corporate governance seriously - albeit in response to irresponsible events.

    Hopefully this will start a trend in the marketplace.
  2. Gravol Insomnia from gatineau, Canada writes: Restating results, another Canadian tradition.

    Internationally, we must really look like amateurs.
  3. Stude Ham from Outremont, Canada writes: Nice of RIM to keep company with NT!!
  4. R. Carriere from Maritimes, Canada writes: Was this true 'corporate governance' at its best, or was this initiated by an outside force-let's say Rev. Can....? Who was the accounting firm responsible for auditing statements and signing off before submitting? Why, 5 years later, are corporate profits and stock option irregularities only now being reported. There appears to be a lack of information here.

    Maybe it is time for a single Canadian securities entity!

    The Ontario government has been pressing for a single regulator but encountering resistance - primarily from Quebec, Alberta and British Columbia - because of fears of a loss of regional flexibility and provincial authority.

    Canada is the only major developed country without unified securities regulation, and bad actors who have been fined or barred from activity can simply move from province to province.

    There may also be a lack of concern among the public and politicians - and even judges - about the seriousness of white-collar crime.
  5. Ontario Man from whitby, Canada writes: The Chairman and CEO roles should never be held by the same person. I think it is time to update some of our laws to better protect the shareholders!
  6. Jim Cairns from St. Catharines, Canada writes: Moose
    Mounties
    Mountains
    Tim Hortons
    Restatement of Financials... a new Canadian tradition, eh?

    That's what happens when the likes of NT get away with it... others follow their lead.
  7. H W from Waterloo, Canada writes: Isn't Balsillie a chartered accountant with a Bachelor of Commerce and an MBA from Harvard? Obviously, at least HE should have known better, or at least known what was going on in his own company. Calling it 'informal' is no excuse - a company of RIM's financial resources cannot whimsically lose 250M$ of options without a paper trail. What about the HR executives that signed these employment offers? No charges, no fines, and no jail time? Impressive! RIM remains the Canadian sweeheart, no matter what it does.. No intentional misconduct? All this was accidental? They better hope that the Canadian Revenue Agency is as understanding.
  8. Howard Beale from Canada writes: 'some will rob you with a six gun, some with a fountain pen.' Never trust big business, big government or big labour. Of the three however, at least big business will let the small investor have some crumbs, if you're careful.
  9. Jam ie from Canada writes: They trade on a US exchange so they are open to charges. Maybe the SEC will have a further look.
  10. Howard Beale from Canada writes: The phrase 'mis-priced options' implies some type of innocent error or an incompetent bookeeper. Perhaps 'mal priced options' would be more appropriate.
  11. TERRI ROBSON from Kimberley,, Canada writes: This is a good start. Lets see some action on the rest of Canada's big corporate stock option process. Although I doubt Alberta will ever do that,the oil/gas industry would take a nosedive.
  12. mitchell roy from Calgary, Canada writes: It is better to keep the company or companies private.

    Mitchell
  13. Joe D'Agostino from saint catharines, Canada writes: Yeah, I heard that there's a virus going around affecting TSX listed companies. It's called Nortelitis. Does anybody know of a cure?
  14. anderson Stevenson from Canada writes: Surprised that they would have the CEO also serve as Chairman,given all the disussion in recent years about corporate governance. If the role of the board is to oversee the officers of the company then I think shareholders should be concerned whenever they see an organization goven itself without an independant board.
  15. Marie Eliott from Victorola, Canada writes: Mea culpa.
    Mea maxima culpa.
    Cha-Ching!
  16. Geoffrey L from Hamilton, Canada writes: So now the NDP will have the Conservative government shutdown the publicly traded corporate structure due to accounting violations rampant?
  17. Becca Schortinghuis from Vancouver, Canada writes: 'stepping down,' huh? to what... a cushier, more relaxed job that's slightly less in the public spotlight and still at the same salary he was making before... real magnanimity and sacrifice, I tell ya. I definitely feel relieved that he isn't suffering in the least for his innocent 'mistakes.'
  18. Chris Payne from Canada, Canada writes: Trash 'business' all you want but my issue is with the auditing firms. Their financial audit is supposed to look at ALL key financial numbers in accordance with Generally Accepted Auditing Standards. For tech companies, one of the larger 'numbers' is options. Who audited RIM's statements and what is the consequence of doing a poor job? Oh yeah, nothing as these public accounting firms are all self regulated.
    A national regulator of businesses will do very little... a national regulator for accounting firms may actually do some good for the investor - something like the Public Company Accounting Oversight Board which audits the audting firms and is (supposed to) keep them in line.

    Funny, the shareholder ends up paying millions for these audits but of what what actual value are they?
  19. Jimmy K from Toronto, Canada writes: We don't know the details, but the details can't be THAT bad considering they are moving the CFO into COO position as opposed to moving him into the unemployment line. Besides this isn't NT, they're talking about 250mil over 10 years, but just year they will book a bil in profit.
  20. Spencer Lanthier from Canada writes: My understanding is that officers and directors have been overpaid by $250 million or possibly more pre-tax.It is called an accounting error.RIM is a great Canadian story but why wouldn't the overpayment be returned to the company by those who benefitted.Accounting error = under-expence of compensation = over-payment of compensation. What am I missing?
  21. Robert Ross from Surrey, BC, Canada writes: Having weak security regulations in Canada lead to this kind on nonsense. It is no wonder Canada is viewed as a joke on the international scene in terms of governance, regulation and enforcement. Hard to do when each province has their own little fifdom.
  22. bill thecat from calgary, Canada writes: no big deal you say Jimmy K. Here is a board responsible for, as you state, a billion in profit, and they did not realize that locking in options systematically at the lowest prices was not appropriate? This is stock manipulation pure and simple. It happens all the time at smaller companies, but usually they realize that there is a point where it is too visible and they no longer do it. If it is only a paltry $250 million, then in addition to stepping down, he and the rest of the executive should be happy to return their ill gotten gains.
    I am glad that i have no money in this Dog.
  23. Neil W. Humphrey from Vancouver, Canada writes: Pretty hard to believe a lot of high paid professionals missed such a basic understanding of setting option dates & prices. I guess you can expect shareholder lawsuits & tax man problems next.
  24. alex loss from Canada writes: Could someone explain how this redating affects the corporation's books. Is it not the total number of options outstanding that dilute shareholder value, and is this number not unchanged? I don' understand the math. I do however see how this fraudulent practice negates the very principle of granting options to employees: they are supposed to make the corp more profitable in order to maximize their own returns. Obviously this incentive is a big fake when backdating is used. Still wondering though why this affects the bottom line directly and requires restatement.
  25. M Horon from Calgary, AB, Canada writes: I though CSOX was supposed to prevent this type of thing. Isn't RIM listed on the NASDAQ? I am sure the American Regulators are already reviewing it, I wonder if they will persue the matter? I'll bet this one gets lots of play in the long run.
  26. bill thecat from calgary, Canada writes: I am no accountant either Alex, but options should be awarded on a given date at a fixed price on that closing date. It may be that the stock is higher or lower than average on that date and the options may be in or out of the money. By backdating, you pick a date when the stock is at its' lowest and lock yourself in. Further guaranteeing positive returns on their options. Something that the average investor can not do.
    When I looked at their annual report, it shows that they have close to 9 million outstanding shares. If you have 100000 options, as I am sure that some of the executive do, it is a pretty easy way to make $100000.
  27. mitchell roy from Calgary, Canada writes: By the comments on here, keep a business private is the way to go. My original statement, has been confirmed.

    Mitchell
  28. Spencer Lanthier from Canada writes: For Alex Loss The impact results from the cost of the options granted which is a charge to the income statement.Options granted at a lower cost would have a lesser income statement impact.As i said above, compensation cost has been understated and the officers therefore overpaid. let's see a reimbursment to the corporation.
  29. Ariel Laver from Vancouver, Canada writes: Chris Payne writes: 'A national regulator of businesses will do very little... a national regulator for accounting firms may actually do some good for the investor - something like the Public Company Accounting Oversight Board which audits the audting firms and is (supposed to) keep them in line.'

    We have an equivalent to the PCAOB in Canada. It's called the Canadian Public Accountability Board (CPAB). Please do your homework before you claim that the auditing profession is purely self-regulated.
  30. Ariel Laver from Vancouver, Canada writes: R. Carriere, I really don't understand how you think that a single securities regulating entity would have prevented this from occurring. Considering that it would simply be a carbon-copy of the OSC just a little bit larger (let's face it, nearly all public companies in Canada fall under the scope of the OSC). Since it's the OSC which is overseeing RIM's securities right now, how will this get rid of any 'bad actors' that you claim to exist?

    It's amazing how many people on this board are quick to judge each and every possibly connected person/entity/regulating board for this misstatement. The fact is, this is not an 'only in Canada' occurrence. These things happen in many other jurisdictions, in the US, in the EU, and elsewhere.

    As for RIM's handling of the situation, it seems as though they are properly dealing with the issue. All money wrongfully earned by those who exercised options will have to be repaid, with interest. Members of RIM's management and board have voluntarily admitted their mistakes and stepped down from their positions. Lazaridis and Balsillie (co-CEOs) have each offered $5 million to RIM in light of this mistake. And, perhaps most importantly, the market has not reacted negatively -- the impact on RIM's shares is practically nothing.

    Sure, it would be nice if these errors never occurred, just as it would be nice if errors never occurred in any other area (eg, scientific research, engineering, journalism, etc...). At least these errors are not being concealed by RIM's management, board, and auditors.
  31. CPT America from United States writes: looks like another company Bernie Ebbers (proud to be a Canadian) could run...into the ground.
  32. Cat Cat from Canada writes:
    How contrite of Balsillie to step down as chairman. That must have been quite a decision, and he must have laboured over it all weekend. He's now simply a co-CEO - boy, what a fall from the top ranks.
    Lets star a fund raiser to help him out through these difficult times...
  33. Rick Drysdale. from Canada writes: If they didn't do it for financial gain what would be the reason. I'll tell you why they did it . It was for financial gain.
    I don't believe this company, the guy will cost them hundreds of millions of dollars and all he has to do is change hats. If I was a stockholder I would be screaming at the next Gen. meeting.
  34. Steve Wilkinson from Canada writes: Ahh, a Pump and Dump! a wonderful Canadian Tradition, started on the Vancouver Exchange! Yum Yum when you control the cheque book
  35. D Burns from Mississauga, Canada writes: Until a regulatory audit is completed, I don't personally have an opinion on whether malfeasance was at the root of this mistake or not. Having worked in big business for almost a decade now, and being locked in a room with auditors and accountants for days on end for small projects, I can see how this might happen... rapidly expanding company, cross-border tax and regulatory implications, changing laws in the wake of Sox404 and Sorbanes Oxely, cutthroat recruiting from your opposition... options are a necessary tool for staff retention. I know 'big business' = 'evil' for most of the NDP following crowd, but hopefully one of the few recent tech success stories in Canada has a better ending than Nortel.
  36. Diogenes the Cynic from Sinope, Greece writes: It's all legit. All legit. 'I'm not a crook'. 'We're not in China, here.' -- Wish you were!
  37. Michael Richardson from OakvilleMontreal, Canada writes: Looks like most posters here did not read the article to its conclusion. First, the probe was started internally without any other company or agency involvment (meaning the mistake was recognized and an attempt to rectify the situation was undertaken by the ofenders prior to outside knowledge of the infraction). Second, over half the companies on the S&P 500 are involved in stock option back-dating, which up until recently was not considered an illicit practice (within limits). Third, the accounting errors have been quickly delineated and the advantages conveyed by the practice ae being repayed to the company. Fourth, the conflict of interest between CEO and Chairman that Mr. Balsillie occupied is now over. Fifth, the expense to the company incurred to investigate the issue will be refunded out of the twio CEOs pockets. Sixth, this is a wonderful company, that is trying to be honest about something that goes on in almost every boardroom in America, as they have been stung by legislative hurdles in the past (i.e. the patent dispute). Let's hope some silly pencil neck paper pusher doesn't pull the rug out from under them on this, like that ridiculous pension fund lawsuit that is so st*pid, it merits a group of pensioners getting together and suing the pension fund for reckless mismanagement of their funds.
  38. Green Canada from Edmonton, Canada writes: of course investors weren't unnerved --as long as they make money corporations could cook and eat peoples grandparents for breakfast and investors wouldn't care. It's one pathetic truth about the corporate system we live in. Investors don't care if a company breaks the law, they don't care if the company is ethical or not, all they care about is making money for nothing. I should say 'most' investors.
  39. Rob R from Toronto, Canada writes: Per the G&M article - “The special committee determined that the company failed to maintain adequate internal and accounting controls with respect to the issuance of options in compliance with the company's stock option plan, both in terms of how options were granted and documented, and the measurement date used to account for certain option grants. The grant process was characterized by informality and a lack of definitive documentation, and lacked safeguards to ensure compliance with applicable accounting, regulatory and disclosure rules.”....... and the CFO responsible is promoted to COO - amazing - be incompetent and get promoted - sounds just like a government department. I guess that now that the 'cat's out of the bag!' the persons who gained 'by accident', or the CFO's incompetence, will do the honourable thing and return these 'ill gotten gains' no matter who is at fault, to the shareholders!
  40. ann lancaster from Portimao, Portugal, Portugal writes: No popint in commenting, looks like its the wild west and RIM can pretty well get away with anything!

    Ridem cowboy!
  41. A Reader from Canada writes: When Ontario Power Generation was found in an audit to have spend $300 thousand, or $25 per employee, on gifts that weren't properly accounted as part of the employee's taxable income, they are accused on these discussion boards of hugely mispending taxpayer money. (even though the auditor's report said this spending was fully justified, just improperly accounted for)

    Meanwhile, when RIM, the multinational corporation, is found in an audit to have overpaid and imporperly account for $250 million, or $65000.00 per employee (including their executives 'volunteering' to pay back $5 million each despite their claim they had no financial gain as a result) , yet their stock price goes up, despite having taken essentailly no diciplinary action and still have the continued admiration of analysts and investers here.
  42. Ariel Laver from Vancouver, Canada writes: Green Canada writes 'of course investors weren't unnerved --as long as they make money corporations could cook and eat peoples grandparents for breakfast and investors wouldn't care.' Perhaps investors don't care about cooking and eating people's grandparents for breakfast, but they generally do care when earnings are misstated. This misstatement of earnings only affect investors (CRA will still collect the usual amount of taxes despite this as the definition of taxable income is very different from that of accounting income). The fact that they don't care provides reason to believe that this issue isn't as big a deal as some scaremongers on this board are making it out to be.

    P.S. I hardly believe that corporations go about cooking and eating people's grandparents for breakfast... After all, that would generally be bad for business as it could result in reduced demand and definitely bad PR. Thanks for the delightful mental image though.
  43. A Reader from Canada writes: And as for comparasons with Nortel, Nortel's scandal in 2003 was overstating revenue by $250 Million, and booking about $2 billion in the wrong year to increase bonuses (which would be a small fraction of these figures) for executives. RIM is 1/5th the size of nortel, yet was found to have directly overpaid its executives $250 million- this is much worse, because all of that money (equal to 1.5 billion if Rim was the same size as Nortel) was given directly to the executives/employees. The fact that investors let companies get away with this sort of behavior with barely a slap on the wrist means it will continue to happen...
  44. Gordon Franks from Carleton Place, Canada writes:
    'We thought the day of the decision was when you priced it'

    I wonder if he would have thought the same if the price had gone down $10 and not increased $10 since the day of the decision.

    Not a chance, the stock would have been priced at the lesser amount or the option issue would have been delayed to see if the price dropped any more.

    Do they think we are complete fools.
  45. R. Carriere from Maritimes, Canada writes: .
    .
    Ariel Laver from Vancouver, Good evening.

    I only stated I could support a national entity like the SEC as in the USA. I also question the 'Accounting firm' involved. Regardless of the Chairman and CEO's (same) background as my post clearly states, I also agree the Chairman should not be the CEO-a conflict of interest just waiting to happen-if we use hockey as an analolgy-the GM being the coach-long term aspirations vs short term goals......

    As I also mentioned, I am happy if true governance occurred in this situation-and I belive that, until proven otherwise contrary to some ignorant posts the G&M allowed to appear.

    I was also thinking to make aware to some posters with accusations to be very careful as their diatribe and accusations could be considered both libellous and defamatory.......be careful
  46. Jim Summers from Waterloo, Canada writes: Here's an example of how option 'back-dating' might be innocent. I don't know if this applies in the RIM case, but I think it is worth considering. In many places of work, employees are awarded options as part of their salary review. For these options to be official, they have to be approved by the board. Now which date should you use to price these options? The (earlier) date that the salary review occurred or the (later) date of the board meeting that officially approves the options? I think it would be more 'just' to award the options at the same time as the salary review, but I'll bet the legal answer is the date of the board meeting. Sure backdating options to the date of the salary review might be 'illegal', but I think it is arguable whether this is fraud or an innocent mistake.
  47. Apu Nahasapeemapetilon from Vancouver, Canada writes: I guess it's now lights out on the Pens ever coming to K-W or Hamilton.
  48. Mai Larebilaton from Toronto, Canada writes: Overstatement to net earnings due to backdating of stock option grants ... US $250 million;

    Reallocation of wealth that was rightly the shareholders' to your friends and associates through back-dated stock option grants ... US $250 million;

    Telephone conference charge for a teleconference where you attempt to talk your way out of it ... $ 250.00;

    Resigning from your position as Chairman of the company that you co-founded before you and your firm are served with a class-action lawsuit brought by angry investors ... PRICELESS.

    'When you're a greedy bugger who thinks he's above the law, there's always 'market spin'. For everything else, there's shame in resigning'.
  49. Louis Pacella from Canada writes: Hei, it's all about choice. That's why they're called stock options.
  50. Proud Canadian from Ancaster, Canada writes: 'We did backdating. Did we do it knowingly to line our pockets? No.

    Well well what else is he going to say? Either way knowingly or unknowingly boy that lining in pocket feels so goooood
  51. Mark M from Halifax, Canada writes: To Chris Payne: I don't think you have any understanding what an audit is. An audit does NOT look at 'all' financial numbers. There are millions of transaction that occur in every large corporation, so examining all of them is impractical. Auditors will sample transactions on a test basis to obtain reasonable assurance on the numbers. Furthermore, audits are not designed to detect fraud or error. That is management's responsibility as is clearly described in the terms of the audit engagement. With respect the evils of self regulations, firstly there is no Public Company Accounting Oversight Board in Canada, this is an american organization. In Canada, the Canadian Public Accountability Board is responsible for this function. This line is brought up every time a company commits fraud or makes a mistake and people want someone to burn at the stake. The reason the status quo has been maintained is because it is the best and only viable alternative. Would you rather have the government in charge of regulating audits and have the regulations blow to political left of right after every election? Furthermore, the CPAB is independent. Current only 3 of the 11 members of the board are Chartered Accountants, and per the bylaws a minimum of 7 must always be individuals without a professional accounting designation.
  52. Ian from Calgary from Calgary, Canada writes: Oh, what a shock!? Another (of many) white collar criminal(s) walking away with millions, while the OSC sits on its rear & does nothing. This is why we continue to watch these 'executives' print their own money and the average Joe gets pooreer, while the rich get richer. I am not a socialist, but when is the OSC and RCMP fail to do anything about these actions, it only invites other motivated professionals to try the same course of action. Come on Harper, tighten the laws.....if you care about the 'grassroot' Canadians! Scrap the powers of the OSC...it is useless.
  53. The Objectivist from Toronto, Canada writes: a read from Canada, and yet since the NT team lead the parade how many homegrown Canadian success stories have fallen from grace and what has been the sum of sanctions against them? seems like just about every Canadian self made billionaire has made the headlines at least once - how many have/are serving time? just let it fade away and pay a couple of grand in OSC fines. The nortel gang is still living on lakeshore blvd and driving Ferrari's, while mom and pops were wiped out. can you imagine his take home 100m the year before the lies caught up and 97% of shareholder value was destroyed! if we weren't so complacently Canadian there would have been a lynch mob

    i don't know whether RIM's actions were malicious or whether it was just a very large booboo. One thing i do know is that a Canadian investigation will do nothing resolve matters for me .....its not like there is a clear precedent of our white collar criminals going to jail. Good guys, bad guys, they all seem to 'get off'. this is an area the US has done very well at and we could learn from, swift and brutal sanctions against the guilty is the way to minimize damage and resotre credibility in the capitalist system
  54. Kay Stanford from Canada writes: Internationally, we must really look like amateurs: did we intentionally mis-spell 'Amateurs' - or did we mean the other 8-letter 'A' word...
  55. Maple Leafs Suck from Scarborough, Canada writes: And by the way to avoid the differences between the american and canadian accounting rules usually involves hiring 1 guy in charge of canadain accounting stuff and another who is in charge of the amercian stuff.
  56. Maple Leafs Suck from Scarborough, Canada writes: These guys should have bought a accounting textbook (both canadian and american versions) and hired some students (accounting majors)to help them keep track of things from both the U.S and Canada. What does a textbook cost like $100 to $150 each ... saved the shareholders millions in the process
  57. R. Carriere from Maritimes, Canada writes: The ignorance on this post is amazing...or is it? People who have no idea of how a company/ corpration functions.... and only collect checks from government.....
  58. Howard Beale from Canada writes: If some of the options were overpriced and an approximately equal number were underpriced (as the law of large numbers would have you conclude), then I guess you could say it was an innocent error. If they were all underpriced, then to say that everybody else does it just doesn't cut it as an excuse.
  59. Michael Bowen from Halifax, Canada writes: Okay, I've often been described as considerably 'cynical' and sometimes even as non-big business. But even I don't know how to describe most of the posters here. The company suspected there was a problem, they audited it, they found the problem, they repaid the money that was undeserved. The company leaders paid for the audit.

    I just don't see the problem. Now if it happened a second* time.....that's a different story....but as it was, that's the type of responsibility I *want a company to show.
  60. Michael Bowen from Halifax, Canada writes: Howard Beale: That's only true if the up/down trends in the stock were (a) equal and (b) randomly distributed. Both are unlikely to be the case with a company like RIM whose stock value has consistently risen over long periods (in all likelihood corresponding with the distribution of stock options). That's not to say that there's not a statistical way of checking for improprieties, just that what you proposed is too simplistic to show those patterns.
  61. Vickky Angstrom from Calgary, Canada writes: Could also read: 'Would we have backdated if we thought we would lose money? No. And you can trust us - we know how to manage our financials.' Which is it? Lying or incompetency? Must be one or the other.

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