Research In Motion holds the distinction of being Canada’s top company in terms of market capitalization. Its boardroom governance practices fall considerably short of that mark. It is a seismic shift in Canada’s corporate governance landscape that appears to have passed The Globe and Mail by without causing a ripple.
The Globe and Mail’s Report on Business came out with its annual corporate governance survey on Monday. I’ve been on the front line in the battle for corporate governance reform for a few decades now, but I have never been a fan of these kinds of beauty contests. BusinessWeek began the idea some time ago but dropped it several years back because it seemed in a perverse way to give comfort to the worst offenders while discouraging those who took the subject seriously. In between, a lot of people and companies were just plain confused about the findings. BW rated Computer Associates a big improver ?that was just before its CEO, Sanjay Kumar, was indicted for accounting fraud. Tyco was also once considered a darling of the cause by some corporate governance champions, like Robert Monks. That fleeting honor will be of little consolation to its former CEO, Dennis Kozlowski, who along with Mr. Kumar and numerous other CEO colleagues, is currently a guest of the United States Federal Bureau of Prisons. They also have a space ready for Conrad Black, another convicted former CEO who seemed unable to distinguish between other people’s money and his own.
When the Globe started its annual contest in 2002, the series was published over five days. There were a number of insightful comments about the state of corporate governance in Canada and its future. It was the first and only time I participated in the survey and recall spending several hours with a couple of reporters to help them with their stories. Five years later, the Globe’s commitment to that issue has shrunk to a slim Saturday and Monday effort.
What struck me about the Globe’s survey, in addition to its rather obtuse and non-sequential rankings, was the fact that nothing qualitative was said about Research In Motion, which it rated 78 out of 190 companies. The silence was odd for a number of reasons. RIM was caught up in a high profile stock options backdating scandal earlier this year. Members of its compensation committee, who, as it turned out also received backdated options, thought they could oversee the investigation but had to be replaced. RIM gave incorrect information to investors in its proxy statements over a number of years as to how its stock options were being administered, and for several months in 2006 and 2007 it failed to file accurate financial statements. Eventually, it restated its earnings and made a number of changes to its antiquated board structure –after The Centre for Corporate & Public Governance brought the shortcomings to light. RIM is still facing investigation by the SEC and the Ontario Securities Commission.
These events are hardly so common as to rate being ignored in any self-respecting survey of corporate governance practices. Even more peculiar is this: Research In Motion stands today as Canada’s most valued company in terms of market capitalization. It dislodged the Royal Bank of Canada from that position early in November. What do you suppose is the significance of such a highly prized company coming in so far down in corporate governance rankings? We don’t know what The Globe and Mail thinks because it never address this watershed development. Here’s another one: there has never been a time when Canada’s most valued company has placed anywhere but in the top ten in terms of corporate governance. Now, the winner of that prize ranks below such companies as Biovail (which faced its own regulatory investigation this year) and Nortel, the serial re-stater of corporate earnings that had to pay a $35 million penalty to settle accounting irregularities with the SEC. Nor has there ever been a case where Canada’s top shareholder valued company has been ensnared in an accounting scandal and has had to restate its earnings because of it.
Until RIM, the most coveted spot in market capitalization always went to a well-established company with a long institutional history and a vast treasury of assets. The company that led Canada’s capital market generally also led in corporate governance. RIM, on the other hand, is headed by some bright and youthful fellows who have earned a reputation for marketing and technological innovation. They have done exceedingly well for themselves and their shareholders, but they are also inexperienced in many ways, including apparently not knowing that backdating stock options was wrong and was not consistent with what investors were being told. And the company’s corporate governance credentials have been less than impressive for most of its life in the capital markets.
Still, RIM’s newly won distinction among investors suggests that the landscape of Canada’s corporate leadership is shifting in far-reaching ways. It is an event that appears to have passed The Globe and Mail by without causing a ripple.