There is no substitute for a culture of integrity in organizations. Compliance alone with the law is not enough. History shows that those who make a practice of skating close to the edge always wind up going over the line. A higher bar of ethics performance is necessary. That bar needs to be set and monitored in the boardroom.  ~J. Richard Finlay writing in The Globe and Mail.

Sound governance is not some abstract ideal or utopian pipe dream. Nor does it occur by accident or through sudden outbreaks of altruism. It happens when leaders lead with integrity, when directors actually direct and when stakeholders demand the highest level of ethics and accountability.  ~ J. Richard Finlay in testimony before the Standing Committee on Banking, Commerce and the Economy, Senate of Canada.

The Finlay Centre for Corporate & Public Governance is the longest continuously cited voice on modern governance standards. Our work over the course of four decades helped to build the new paradigm of ethics and accountability by which many corporations and public institutions are judged today.

The Finlay Centre was founded by J. Richard Finlay, one of the world’s most prescient voices for sound boardroom practices, sanity in CEO pay and the ethical responsibilities of trusted leaders. He coined the term stakeholder capitalism in the 1980s.

We pioneered the attributes of environmental responsibility, social purposefulness and successful governance decades before the arrival of ESG. Today we are trying to rebuild the trust that many dubious ESG practices have shattered. 


We were the first to predict seismic boardroom flashpoints and downfalls and played key roles in regulatory milestones and reforms.

We’re working to advance the agenda of the new boardroom and public institution of today: diversity at the table; ethics that shine through a culture of integrity; the next chapter in stakeholder capitalism; and leadership that stands as an unrelenting champion for all stakeholders.

Our landmark work in creating what we called a culture of integrity and the ethical practices of trusted organizations has been praised, recognized and replicated around the world.


Our rich institutional memory, combined with a record of innovative thinking for tomorrow’s challenges, provide umatached resources to corporate and public sector players.

Trust is the asset that is unseen until it is shattered.  When crisis hits, we know a thing or two about how to rebuild trust— especially in turbulent times.

We’re still one of the world’s most recognized voices on CEO pay and the role of boards as compensation credibility gatekeepers. Somebody has to be.

Despite RIM’s co-CEO Jim Balsillie’s valiant efforts to twist himself into a pretzel and downplay the significance of RIM’s stock options and backdating fiasco, a sampling of which follows below…

“A heartbeat ago, it was just Mike and me and a half-dozen others where we shared an office and had the metal desk.”

“Was I trained in these governance matters? No.”

“Mike and I have voluntarily put US$5-million each
into this to cover costs, so it’s a bit of our Warren Buffett kind of moment.”

“I haven’t read the Canadian rules handbook for 20 years.”

“So did we do backdating? Yeah. We did backdating. Did we do it knowingly to line our pockets? No. No. Did we do it recklessly? No.”

…there are important corporate governance concerns connected with RIM’s internal report on the company’s stock options fiasco. The most basic questions: Where was the board, what did it know and what did it do about it?

The report fails to explore what role, if any, RIM’s directors had in approving backdating of options for the co-CEOs. We know the report claims Balsillie, Lazaridis and Kavelman engaged in the manipulation of grant dates for their subordinates. How did the dates get rejiggered for the benefit of top management? The report is silent.

The report gives no details as to the dollar value of options that have been backdated or for whom or when the dates were contrived. Perhaps the company can at least confirm that there was not backdating in the period immediately following the terrorist attacks on America which eventually led to a steep drop in shares on all North American exchanges.

A further question: Why was this so-called management initiated review commenced “at the initiative of Dennis Kavelman, the Company’s Chief Financial Officer, with the support of Jim Balsillie, the co-Chief Executive Officer of the Company, and the executive management team amidst the heightened public awareness and concern regarding stock option granting practices by publicly-traded companies?” Why did the audit committee or the board’s compensation committee not take the appropriate action to initiate the review? Was the board even aware of the media coverage regarding stock options in the United States? As in many things involving RIM, the board seemed not entirely on top of things.

Having decided to investigate, why did the audit committee permit members of the board’s compensation committee to participate in the investigation? More important, since top management was involved in backdating and knew it, at what stage in the probe was this disclosed to the committee? And why did it take seven months for this information to be put into the hands of investors?

As for the board’s role in receiving backdated options, the report found:

“Certain of the Company’s outside Directors also received an in-the-money benefit from the Company’s options granting practices. Such amounts currently appear to be immaterial. As the selection of grant dates used on grants made to outside directors was not apparent to those directors, they were unaware that they were receiving grants with dating issues.”

If the probe determined the amount of such benefits was “immaterial,” the exact amount must be known. Why does the report hide that figure? Why not put it out and let the investing public decide whether it is “immaterial”? The report claims the directors were unaware of the dating issues associated with their options. They didn’t fall out of the sky, so who approved them?

RIM’s board wanted the world to think it was in control over stock option decisions. As it stated in the most recent company proxy filing:

The Stock Option Plan is administered by the Board of Directors and the Compensation Committee. Each of the Board of Directors and the Compensation Committee has full and complete authority to interpret the Stock Option Plan.

Yet the report finds to the contrary:

The Review revealed that until after the commencement of the Review in August 2006, all stock option grants, except grants to RIM’s co-CEOs, were made by or under the authority of co-CEO Jim Balsillie or his delegate in accordance with an apparent delegation of such authority by RIM’s Board. For a number of years after the Company’s initial public offering in 1997, Mr. Balsillie was directly involved in approving grants, including grants that have been found to have been accounted for incorrectly. Mr. Balsillie’s direct involvement in approving grants diminished over time, as more responsibility for approving certain grants was delegated, without explicit conditions or documentation, to the Company’s Chief Financial Officer, Dennis Kavelman, and to other employees. Mr. Kavelman and other, less senior, personnel were also involved in the granting of options that have been found to have been accounted for incorrectly.

Note the phrase “apparent delegation of such authority by the board.” There appears to be no basis for this so-called delegation, which begs the question: Was the board so disconnected and disengaged from stock option concerns and compensation matters that it had no idea what kind of decisions were being made and by whom? Surely it must have known huge numbers of options were being granted. Did it ever wonder how option dates were being set and how much that might be costing shareholders? The board appears to have been merely a passive bystander in these events.

It seems to me that since certain directors received backdated stock options, and the board itself played an overly passive role in the company’s governance and control, an investigating committee of two audit committee directors was not in the best position to objectively detail the failures that led to these problems. The report assigns no blame or responsibility to the board or its committees for the failures and improprieties that occurred, nor is there any critical statement made about its actions. This is in stark contrast to the report of Enron’s special board committee which examined that company’s debacle, and placed considerable responsibility at the boardroom door.

Some might think it’s a little too cozy for the board to be investigating its own actions given that one of the committee’s members, James Estill, has been on RIM’s board since 1997 and has served with other directors on the compensation and audit committees for the past ten years. Clearly, he would be a key part of any weaknesses detected in corporate governance and board oversight, as would be his colleagues on RIM’s board with whom he has served for the past decade.

The report does make the following reference, which is enough to send chills up the spine of any serious investor:

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…

But again, the committee assigns no responsibility for this failure. It speaks in the passive tense about the Company. Is the “Company” referring to top management or the board? Was the audit committee at fault? Mr. Estill is a member of the audit committee. It does get complicated when people are wearing several hats and trying to tap dance at the same time.

There are many questions the board does not seem to want to answer. But the riddle is: Is it even able to? This appears to be a board that doesn’t really know how often it meets.

During interviews this week, were he compared himself to Warren Buffet in terms of philanthropic generosity, co-CEO Balsillie, claimed repeatedly that the board generally has just four meetings a year. Prior to stepping down from the position a few days ago, Mr. Balsillie served as board chair from the IPO in 1997. The number of meetings he claims is well below the frequency recommended for the boards of publicly traded companies. More to the point, however, the statement is at odds with RIM’s latest proxy release, which claims the board met formally a total of 11 times. This is another discrepancy the company should explain. Keep in mind, investors were for the past several years provided with the following assurance in the company’s proxy statement:

The Company believes that it has a sound governance structure in place for both management and the Board of Directors.

As it turns out, RIM’s former board chair confirmed in a whirlwind of media interviews after the report’s release that the company was less attentive to these matters than it needed to be. We detailed RIM’s serious corporate governance shortcomings some months ago at Finlay ON Governance at a time when few seemed to see any problem. Clearly, as these findings and RIM”s own proposed changes reveal, RIM did not have a well evolved corporate governance culture. It didn’t have one because management called the shots and dominated the affairs of the company. I see little to suggest that will change given the disingenuous nature of the spin that has been put out to explain why the company’s governance practices fell into the appalling and costly state they did. RIM has had the level of board involvement and governance practices the founders wanted. I doubt if real change is on their agenda, given Jim Balsillie’s expectations of “just four meetings a year that last two or three hours.”

What all this comes down to is an incomplete report that skated over key questions, failed to provide necessary details and turned a blind eye to the board’s own role in the debacle that involved weak controls and absent compensation committee landlords.

The kids have marked their own exam. Perhaps now we can have some adults conduct the real investigation and get to the bottom of what happened, why it happened and what should be done about it.