Jim Balsillie has quit as chairman of BlackBerry maker Research In Motion Ltd after the company said it would write $250m off the income it earned over the last three years because of stock option irregularities.
Balsillie will remain co-CEO with Michael Laziridis but CFO Dennis Kavelman is to be switched to a new role as COO.
In what has become a common verdict of special committees investigating errors in the granting of stock options, it found plenty of irregularities but concluded: We have the utmost confidence in Jim Balsillie and the senior management team.
Billionaires Balsillie and Laziridis have agreed voluntarily to each contribute CAD 5m ($4.2m) to the costs an the inquiry.
In a 7,000 word report, the special committee said that last September it estimated that the non-cash charge associated with past option grants would be $25m to $45m, though a month later it said it had discovered additional errors.
After investigating 3,231 grants made between December 1996 and August 2006 to 2,034 employees and directors, it found that 321 grants in respect of options to acquire 4,581,000 common shares that used incorrect measurement dates. This represented 63% of the grants made after February.
It said that until it began its inquiries, all stock option grants, except grants to the co-CEOs, were made by or under the authority of co-CEO Jim Balsillie or his delegate.
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, it said.
Mr Balsillie advised the Special Committee that option grants were made to attract and retain skilled personnel to a rapidly growing technology company in an intensely competitive environment, and the informality of the option granting process was, in part, a reflection of the stage of development of the company and the rapid growth occurring within the organization at the time.
The inquiry found that in many instances, including in connection with some option grants to the co-CEOs, COOs and the CFO, hindsight was used to select grant dates with favorable pricing on grants, resulting in grantees receiving an in-the-money benefit that was not recorded in the financial statements as stock-based compensation.
The special committee found that RIM failed to maintain adequate internal and accounting controls with respect to the issuance of options in compliance with the stock option plan, both in terms of how options were granted and documented, and the measurement date used. 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.
But it did not find intentional misconduct on the part of any director, officer or employee responsible for the administration of the company’s stock option grant program.
Higher level RIM executives will now have to dig into their pockets at atone for past errors. All directors, vie-presidents and C-level officers have agreed to return any benefit on previously exercised options that were incorrectly priced and to re-price unexercised options that were incorrectly priced.
RIM directors have now agreed to appoint a new oversight committee of the board, comprised exclusively of independent directors, who will be responsible for executive compensation, the use of stock options and trading by insiders and hiring practices.
It said Balsillie had voluntarily stepped down from the role of chairman to allow future consideration of a non-executive chairman.
However RIM is not out of the woods yet. The issue is under investigation by the Ottawa stock exchange and the SEC and it faces a class action suit from a shareholder.