This highly valued company enjoys a global reputation for technological innovation. The chair of its board helped to found a think tank to examine issues of global governance, and heads that board. Yet the company’s own governance falls well below best practices, with three members of management sitting on its small board of seven, a stock options plan for directors, and its insistence on having its co-CEO also head the board to which he reports.
When the company launched its internal investigation into possible stock option irregularities last September, it established a committee of four outside directors who are also members of its audit committee to conduct the review. The company assured shareholders at the time that no material restatements would be required –despite not having completed the investigation. During the course of the review, with no explanation to investors and a stunning disregard for the optics of such a move, the co-CEOs exercised more than 750,000 stock options even while the company was in default of its statutory financial filings for the second quarter. Shortly after, the company advised the Ontario Securities Commission that it had found hundreds of thousands of additional documents as part of its investigation and that the restatement anticipated would be “substantially larger” than previously projected.
Late last Friday, in yet another surprising twist, the company announced that two directors would be stepping down from the probe over matters involving the “perception” of objectivity in the investigation, leaving only two others to complete the review that has already produced too many surprises. The board itself continues to be headed by a co-CEO who is a central figure in its stock options investigation. These matters have been the subject of continuing attention at Finlay On Governance.
It would be hard to imagine a more clumsy approach to an important issue from a board and a company that should have done much better. All of this reflects a persistent undervaluing of both principles of sound governance and common sense that have compromised the integrity of the internal investigation and the reputation of the company in ways that were entirely avoidable, which makes this latest episode in Research In Motion’s mishandling of its stock options fiasco the Outrage of the Week.