Professor: Horng- Tzu Hao
COMMERCE 4AF3, C03
Research In Motion (RIM) is a telecommunications company based in Waterloo, Ontario which has shown a decline in share price and growth since 2008. As a result, RIM’s shareholders have questioned the governance structure of the company, whether those in charge of governance are adequate enough to guide the company into the foreseeable future. Specifically, shareholders are questioning why many directors and Co-CEO’s hold ‘significant’ board level titles. As the committee of independent directors, we have been tasked with the mandate to study the company’s structure, the merits of a lead director versus a chair and what changes, if any, should be made to the company’s board structure and governance as a result of this.
As a committee of independent directors, after studying the company’s organization and roles of its Board of Directors, we have identified three issues relating to RIM’s governance practices. Specifically, there are concerns regarding the board’s independence, its member selection process, the need for segregation of duties from management, as well as the leniency of the responsibilities of the Board of Directors.
The main concern arises as to the lack of segregation of duties as well as to the lack of independence among the board of directors. Management is accountable to the Board of Directors who is in turn accountable to its shareholders. A conflict of interest arises and the chain of accountability is broken with Co-CEOs such as Jim Balsillie (Director, Chair and Co-CEO) and Micheal Lazaridis (Director, President and Co-CEO) present on the Board. At this point, the integrity of management is questionable as both members hold ‘significant’ board level titles. There exists potential for information asymmetry among management (the agents, in this case the Co-CEO’s) who may have superior information over the shareholders (the principal) to maximize the agent’s self interest at the expense of the principal. Thus, a moral hazard problem exists in that management (the agent) can limit voluntary disclosure of information to the owners (shareholders) and may be able to disguise shirking and resulting low profitability. As a result of this, a reorganization of the current structure and implementing a segregation of duties is of utmost importance in this situation to reduce the risk of conflict of interest. Since the Board oversees the integrity of management and serves to keep management in check, the Co-CEO’s Jim Balsillie and Mike Lazardis and other members of management should be asked to resign from the Board. The committee proposes to have a Lead Director for the current time period and slowly transition towards an independent chair as a resolution.
Another point of concern is the way in which members are placed on the board of directors. Many members are simply appointed rather than being elected on as members. For example, the Co-CEO Jim Balsillie was re-appointed onto the Board of Directors. This makes it possible for biases to occur against the interests of RIM’s shareholders since members might have their own interests put before the interest of their shareholders. In order to increase the fairness to shareholders, a proper system must be in place in which board members are chosen. The only way individuals should be brought onto the Board of Directors is through the election process at annual general meetings. This will eliminate any conflicts of interests members may have between themselves and the firm.
Furthermore, it seems that there is a lot of leniency in which the responsibilities of the individual directors are communicated. Although it is a requirement for Board members to attend meetings to the best of their abilities, there are still concerns as to the attendance of members. This