Research In Motion Ltd. (RIM), maker of the BlackBerry smartphone, faces growing pressure to overhaul its leadership after an investor called for changes to give the board more independent oversight of management.
Northwest & Ethical Investments LP called for RIM to separate the roles of chairman and chief executive officer and to name an independent board member to the chairman’s post, according to a securities filing yesterday. Jim Balsillie and Mike Lazaridis are co-CEOs and co-chairmen at the Waterloo, Ontario-based company.
“Separating the positions does put the board in a better position to ask the CEO and other managers the kind of hard questions they have to ask from time to time,” Robert Walker, vice president, ethical funds at Northwest & Ethical, said in an interview. “The chairman and CEO are two separate roles and should be filled by separate people.”
RIM is coming under increasing scrutiny from investors and analysts as it loses smartphone market share to Apple Inc. (AAPL) and handset makers that use the Android software from Google Inc. (GOOG) RIM cut its sales and profit guidance in April and its stock has dropped 37 percent so far this year.
Sameet Kanade, an analyst at Northern Securities Inc. in Toronto, suggested in April that the company should scrap its dual-CEO structure and put Lazaridis in charge. UBS AG analysts said last week that RIM has too much concentration of responsibility with Balsillie and Lazaridis.
Northwest & Ethical’s proposal was included in RIM’s proxy statement and will be voted on by investors at the company’s annual meeting July 12. In the filing, RIM advised shareholders to vote against the proposal, arguing that the board’s outside lead director already ensures the directors’ independent oversight and operation.
Northwest & Ethical called and wrote to RIM about its concerns in January and after getting no response by February, decided to file a resolution, said Walker. The Toronto-based company, which manages about $5 billion in assets including RIM shares, met with RIM twice in March and April, he said.
Balsillie stepped down as chairman of RIM in March 2007 following an Ontario Securities Commission investigation into backdating of stock options because that was “consistent with current best practices in corporate governance,” RIM said in a statement at the time. He returned as co-chairman in December.
“We were quite surprised when RIM decided to combine the co-chairs and co-CEOs,” said Walker.
Lazaridis, who invented the BlackBerry to handle mobile e- mail, has shared the role of CEO with Balsillie since 1992.
RIM’s share of U.S. smartphone subscribers dropped 4.7 percentage points to 25.7 percent in April from three months earlier, according to ComScore Inc. Revenue growth in markets such as Latin America may also be threatened as Android devices catch on outside the U.S., the UBS analysts said last week as they lowered their price target on RIM to $45 from $60.
RIM fell $1.05, or 2.8 percent, to $36.56 on the Nasdaq Stock Market yesterday.
“I don’t think separating the chairman and CEO role is really addressing the problems,” said Matt Thornton, an analyst at Avian Securities LLC in Boston. “Investors are frustrated and there’s a brewing sentiment that there needs to be a change of leadership.”
However, any change at the top would be difficult to trigger and could create a headache for shareholders given the two men’s involvement and investment in the company from its inception, said Thornton. He has a “neutral” rating on the stock. Balsillie owns 31.1 million shares or 5.9 percent of outstanding RIM stock, while Lazaridis owns 28.1 million shares, equivalent to 5.4 percent, according to Bloomberg data.
“The problem is these two people own 10 percent of the company, and have a heavy involvement in sales and engineering,” Thornton said. “If you were to remove the CEOs, there’d be chaos in the organization.”
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