Stock Options Scandal Claims RIM Chairman, Company to Restate Earnings

Just over one year after Research in Motion put a patent infringement lawsuit behind it, in the interest of setting forth confidently into the future, the future came back to bite the company where it hurts.

Finding itself amid a wave of technology companies under investigation in both the US and Canada for granting backdated options without reporting their values as charges, RIM announced this morning it may have to restate prior years' earnings up to 2003 to the tune of USD$220 million, with additional restatement of perhaps $5 million per year thereafter.

Assuming fiscal responsibility for the practice today, RIM's Jim Balsillie stepped down as Chairman, though he will continue in the awkward role of co-CEO, perhaps until it's safe for him to retire.

While the practice of backdating options is often described in the press as a way for executives to invent money with which to pay themselves, a review committee made up of non-voting members of the company's Board of Directors determined today that a large amount of RIM's backdated options grants were made to managers and everyday employees - some as hiring bonuses, some as performance bonuses, and some to members of a company group or to an individual based in accordance with a set schedule.

But high-ranking officers were not immune to the practice; the precise ratio of grants to the highest ranking "C-level" versus to mid-level employees has not been stated. So based on the board's recommendations, "consistent with current best practices in corporate governance" - as a RIM statement put it today - the CEO and Chairman roles are being separated. A new nominating committee from the board will appoint a non-executive chairman to fill that role.

No personal wrongdoing was found by the review committee, though Balsillie and co-CEO Mike Lazaridis have also voluneteered to pay the committee's expenses, of up to $10 million. The Ontario Securities Commission may investigate further.

What does this mean for the company? The BlackBerry manufacturer finds itself now in the most intense competitive market landscape it has ever faced, with Motorola and Nokia providing comparable devices, Good Technology making inroads in consumers' conscience, and the rise of Windows Mobile 6 devices. Now it has to face this market having been pared down to size a bit, and with its executive team in the midst of transition.

While this isn't a "body blow" for RIM by any means, the company's ability to mount a concerted response to its competition may have been impaired a bit, and it may not be long before analysts start using language like "mounting a comeback" in reference to questioning what it is that RIM can do for the remainder of this year.