Bloomberg News

RIM’s ‘Quant-Jock’ CEO Balsillie Steps Down After 20 Years

February 01, 2012

(Updates with share price in seventh paragraph, Jaguar comment in penultimate paragraph.)

Jan. 23 (Bloomberg) -- As recently as five weeks ago, Jim Balsillie, who helped build Research In Motion Ltd. into Canada’s biggest company by market value, was showing no signs that he was about to step aside as investors pushed for management changes at the BlackBerry maker.

“We are more committed than ever to addressing the issues at hand,” Balsillie told analysts on a Dec. 15 conference call.

That all changed today, when the Harvard University business graduate announced he’s leaving the firm he joined 20 years ago, giving up his roles as co-chairman and co-chief executive officer as the smartphone maker loses market share to Apple Inc. and Google Inc. devices. Mike Lazaridis, who founded RIM in 1984, is also surrendering his CEO and chairman roles.

“There comes a time in the growth of every successful company when it’s time for the leaders to pass the baton,” Lazaridis said in an interview. “Jim and I went to the board and we told them we think the time is now.”

While Lazaridis will stay on as vice chairman and head of an innovation unit at RIM, Balsillie will have no operational role and will remain a director after heading the business, finance and strategy areas for two decades at the Waterloo, Ontario-based firm.

“I remain a significant shareholder and a director and, of course, they will have my full support,” Balsillie said in a statement.

RIM fell 7 percent to $15.99 in 9:57 a.m. trading in Toronto.

The native of Seaforth, Ontario, who grew up in the Canadian university town of Peterborough, Balsillie, 50, trained as an accountant and joined RIM in 1992. During his tenure, the company all but created a new industry that transformed business communication, only to see competitors like Apple take most of its market share when the technology spread to consumers.

NHL Team Dream

While sharing the chief executive officer post with RIM co- founder Lazaridis, Balsillie developed a reputation for combativeness. His refusal to compromise cost the company hundreds of millions of dollars in a legal fight against patent- owner NTP Inc. and derailed his dream of owning a National Hockey League team. This year, it led to a shareholder revolt as he declined to step aside while RIM’s share price plunged.

“I’m the quant-jock from Peterborough who never quits,” Balsillie told students at Waterloo’s Wilfrid Laurier University in 2009. “You create this frame, this way of seeing things, and it manifests in everything you do.”

Lazaridis and Balsillie governed RIM in a unique arrangement as co-chairmen and co-CEOs. Lazaridis, who dropped out of the University of Waterloo after starting RIM in 1984, handled technology development while Balsillie took charge of the business side.

Revenue Soars

RIM, formerly a maker of equipment such as radio modems, introduced the BlackBerry in 1999. The “two-way pager,” as the company called it at the time, proved a hit among Wall Street workers and gained widespread attention when BlackBerry service provided an alternative to jammed cellphone networks during the terrorist attacks in New York on Sept. 11, 2001. Balsillie helped persuade carriers such as Rogers Communications Inc. and Cingular Wireless to support the new technology.

RIM’s revenue increased an average of 78 percent a year from 1999 to 2009. The company’s market value soared to C$84.5 billion ($83.4 billion) in 2008 from less than C$1 billion in early 1999. For parts of 2007 and 2008, RIM was the country’s most-valuable company, topping Royal Bank of Canada. In May 2008, Balsillie’s stake in the company was worth $4.83 billion, according to a regulatory filing.

In November 2001, Arlington, Virginia-based NTP sued RIM, accusing it of infringing on patented technology invented by Thomas Campana Jr., a Chicago engineer. Donald Stout, who co- founded NTP with Campana, would later say he would have settled the case for less than $50 million.

Reaches Settlement

Instead, Balsillie denounced NTP as greedy and “avaricious” in a letter to the Wall Street Journal, lobbied Canadian and U.S. politicians to intervene in the dispute and tried to take the case, which RIM lost in a jury trial in 2002, as far as the U.S. Supreme Court. A $450 million settlement reached in 2005 fell through. RIM finally agreed to a $612.5 million deal with NTP in 2006.

Having become one of Canada’s best-known and wealthiest business people, Balsillie used his fortune to engage in his favorite outside pursuits: world affairs and sports.

In 2001, he founded the Centre for International Governance Innovation, which describes itself as a non-partisan think tank that researches global economics, security, development and environmental policy. Balsillie accepted an invitation to join the Trilateral Commission, the international consortium of leaders from business and government that meets behind closed doors, in 2006.

Options Probe

He was less successful in his other passion of hockey. He tried to buy a National Hockey League team three times, seeking the Pittsburgh Penguins, Nashville Predators and Phoenix Coyotes. The league rebuffed him as it became clear he intended to move a franchise to Canada.

In May 2007, during the Nashville negotiations, NHL Commissioner Gary Bettman told the Associated Press that Balsillie had assured him he had no intention of moving the Predators to Hamilton, Ontario. Less a month later, Ticketmaster Entertainment Inc. began accepting deposits on “Hamilton Predators” season tickets.

At the same time, he faced a probe by the Ontario Securities Commission over backdated stock options. In 2007, the company restated earnings, reducing profit by about $250 million after finding it had assigned false dates to option grants to make them more valuable to recipients. Balsillie stepped down as chairman, and the OSC banned him from public companies’ boards of directors for a year in 2009. He rejoined RIM’s board in 2010, sharing the chairmanship with Lazaridis.

Open Competition

Investors forgave Balsillie’s missteps at the time as the company continued to increase profit and sell more smartphones than any company besides Nokia Oyj. When Apple entered the industry in 2007, Balsillie dismissed suggestions it would threaten RIM.

“We have always had open competition in our space,” he told analysts on a conference call that year. “This is no different. Consumers benefit from it, and we welcome it.”

After leading the market for eight years, RIM was unable to match Apple’s innovations. RIM’s first touch-screen smartphone, released in November 2008, was nicknamed the “BlackBerry Dud” by New York Times reviewer David Pogue. RIM’s PlayBook tablet, an attempt to counter Apple’s iPad, generated criticism for lacking its own e-mail program upon its release last April. The company has since delayed its promised fix until February.

Value Shrinks

The introduction of phones based on Google Inc.’s Android operating system worsened RIM’s plight. The company’s share of the world smartphone market fell to 11 percent in the third quarter of last year from 19 percent in the second quarter of 2010, according to market-research firm Gartner Inc.

RIM reported its first year-over-year decline in revenue since 2002 for the quarter that ended in August. Its shares plunged a record 75 percent last year, reducing the value of Balsillie’s stake to less than $500 million.

Balsillie publicly maintained optimism throughout RIM’s travails. When the late Apple CEO Steve Jobs criticized RIM and Android products in October, Balsillie posted a response on RIM’s blog, saying Apple was misleading the public about the relative strength of the two companies’ sales.

“We think many customers are getting tired of being told what to think by Apple,” Balsillie wrote.

U.S. Dilemma

Shareholder resentment grew as RIM’s stock tumbled. Northwest & Ethical Investments LP, a Toronto-based money manager, called for a split in the chairman and CEO roles in June. Another Toronto-based holder, Jaguar Financial Corp., began a campaign in September to convince RIM to shake up its management and sell parts of its business.

“The dilemma is that the U.S. went down the high end smartphone market and the international market grew greatly,” Balsillie said in the interview. “So the question is where you put your resources? We couldn’t do both. We were explosive growth internationally. Do we leverage core franchise and go international, or do we move higher end for the U.S. market.”

The management changes don’t go far enough in ensuring shareholders that the company will turn around, Jaguar Financial Chairman and CEO Vic Alboini said today in a telephone interview.

Balsillie and Lazaridis had shown no inclination of stepping aside until now. The two CEOs did agree to reduce their salary to $1 a year, while still receiving other benefits. The gesture didn’t satisfy shareholders, whose tolerance for Balsillie’s obstinacy ran out with RIM’s shrinking profits.

--With assistance from Scott Moritz in New and Doug Alexander and Sean B. Pasternak in Toronto. Editors: David Scanlan, Kevin Miller

To contact the reporter on this story: Matt Walcoff in Toronto at mwalcoff1@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net


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