Governance Canada

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Deficient Governance Model @ Research In Motion

Jim Balsillie was the Chairman of the Board and Co-CEO when Research in Motion Limited (“RIM”) went public in 1997. Balsillie resigned as Chair in March 2007 with the release of the report on the improper option granting and backdating practices that RIM had been engaged in for 10 years from 1996 to 2006. On May 17, 2007, RIM announced that: “Consistent with current best practices in corporate governance, the roles of Chairman and CEO have been separated.” An independent director was appointed as Lead Director, but a new and independent Chair of the Board was not appointed and the position remained vacant, notwithstanding the election of four new independent directors in 2007. As part of the penalties and sanctions approved by the OSC in settling the improper option practices, which the OSC called a “fundamental failure of governance”, Balsillie was forced to resign as a director of RIM in February 2009. A report on RIM’s corporate governance by an independent consultant that was mandated by the OSC recommended the separation of the Chair and the CEO. The office of the Chairman of the Board of RIM, however, remained vacant as the RIM board responded in April 2010 that the absence of an independent Board Chair did not adversely affect RIM’s “highly independent board structure”. Balsillie was reappointed to the board in May 2010. Notwithstanding RIM’s earlier public representations that the roles of Chairman and CEO were separated, the independent directors agreed, “as an appropriate and effective leadership structure”, to the appointment of Balsillie and Mike Lazaridis as Co-Chairs of the Board and Co-CEOs of the company on December 16, 2010. Investors and shareholders strongly objected to this unusual governance structure of dual and joint appointments as Co-Chairs and Co-CEOs and actively pressured for the separation of the roles of Chair and CEO and the appointment of a non-management and independent Chair. On January 22, 2012, RIM announced that Balsillie and Lazaridis had resigned these combined offices and a new independent, non-management Chair of the Board and a new President and CEO of RIM were appointed.

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RESEARCH IN MOTION – THE 10 YEAR OPTION GRANTING SCANDAL

From December 1996 to July 2006, Jim Balsillie, Dennis Kavelman (then CFO), Mike Lazaridis and certain other RIM officers and directors engaged in improper stock option granting practices, including backdating and repricing of executive, director and employee stock option awards.  Following an internal investigation, in May 2007, RIM restated its historical financial statements with a cumulative, non-cash, stock-based compensation expense of U.S. $248.2 million.  In the February 2009 settlement of the Ontario Securities Commission’s enforcement action, Balsillie, Lazaridis and Kavelman agreed that they engaged in option backdating and repricing and that the total “in-the-money” undisclosed benefit from the incorrect option dating practices was approximately $66 million.  They confirmed that they returned the improper financial benefits they received from the incorrectly priced options and undertook to contribute, in aggregate, $83.1 million to RIM and to pay administrative penalties and OSC costs totalling $9 million.

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