RIM bruises a few berries

2 responses

  1. Duncan says:

    Hi Mark,

    I am tempted to agree with you, and based on the stock market’s reaction (more or less indifferent)it does seem that the backdating story will blow over in a day or two. But there are a few things that make me want to at least explore the contrarian argument.

    1) All we have seen so far is the result of an INTERNAL investigation. While I am sure that those conducting the investigation wanted to be as fair, balanced and independent as possible…those attributes are very difficult for insiders to attain. What we know of groupthink and bureaucratic politics tells us that insiders are almost never capable of accurately and dispassionately viewing situations like this.

    2) Jim Balsillie is quoted in the paper as suggesting that the backdating issue was mainly due to someone being hired on day X and being given options priced as of that date, whereas RIM ought to have priced them on day Y at a subsequent board meeting. However, that is at least a partial mis-characterization – the internal report states that in at least some instances the option date was neither X nor Y, but day Z when the share price was at its lowest. It may not seem a huge discrepancy, but I think shareholders (and regulators/courts) need to be told how many (both in number and dollar value) of the backdated options were granted at “date of hire” and how many were granted according to some other methodology. If 99% were as Jim has represented then I don’t think anybody will care…but if a significant number were granted at arbitrary dates, then I think this issue may not go away as quickly as you suggest.

    3)There is also a disquieting vagueness about the $250 million. I may not be a lawyer…but I do know a useful question is cui bono (who benefited?) Several of the media stories today imply that these options were used to hire all the people RIM has needed to fuel its hypergrowth. If so…why has that number not been published? If, on the other hand, senior RIM management and board members have benefited disproportionately I think the regulators and courts might care very much. I don’t know what an excessive number would be…perhaps any amount to Jim/Mike/Dennis/board in excess of $25 million? I am NOT suggesting that they have benefited to that extent…but until I hear what the dollar amount is I think this is a potentially important and controversial datum.

    4) I am very worried about the rationale of “we can’t imagine RIM without Jim/Mike/Dennis, therefore this will all blow over.” It was unimaginable that the President of the United States would break laws, run cover ups, and generally act and talk like a corrupt thug. But even his paramount high office could not protect Nixon.

    In no way am I intending to compare the management of RIM to the Nixon White House. I am just saying that the criticality of a CEO to their firm’s enterprise value is probably an insufficient bulwark against regulatory or legal censure. If enough “smoking guns” were/are found against Steve Jobs…he would probably be forced to leave too.

    I suspect you are right and three days from now there won’t be much written about the RIM option story. But I am less confident that things will still be that quiet three months from now.

  2. Kul Mani says:

    The OSC may have similar sentiments, and given their track record on enforcement (assuming there is something here), doesn’t worry me

    But it is the SEC that one has to worry about. And I highly doubt that the SEC will share the same sentiments about any Canadian Apple, let alone a Canadian Blackberry.

    And much like Nortel, Fidelity might have loved it at $125 per share, but probably didn’t care much for it at $3.00 per share (at 1/40th of the high price).

    So, if RIM financial results are materially restated (which is doubtful) and share price takes a bit hit (even more doubtful), and US class action lawsuits begin, no cows will be sacred.

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