What scares Research In Motion Ltd. shareholders more: allegations of stock-option shenanigans at the Waterloo, Ont.-based company, or Apple Inc. CEO Steve Jobs? Judging from RIM's stock price (TSX: RIM), Jobs is the biggest bogeyman. Shares of the Canadian maker of ubiquitous BlackBerry portable e-mail devices went up 75% between September and January–despite RIM's announcement that it had uncovered historical irregularities with its stock option plan that would require a substantial earnings restatement.
Compare that to the nearly 8% drop in RIM shares on the day Jobs unveiled Apple's new iPhone, a combination cellphone and iPod that lets customers not only make calls, but listen to music, take photos, surf the web and access their e-mail. (RIM's share price started to bounce back once investors realized the iPhone is going after a different market than the BlackBerry.)
The burgeoning options scandal is much more likely to impact RIM–at least in the short term. The company should complete its internal investigation by March, and has already said that new information uncovered in the probe would substantially increase the US$25 million to US$45 million in restatements initially forecast. But RIM has handled the options controversy much better than some other technology companies that have seen their chief executives sacked–or even charged with fraud–as a result of options backdating, says Nick Agostino, an analyst with Toronto-based Research Capital Corp. “RIM has been proactive and really gotten out front of this thing.”
Unlike the backdating scandal that has engulfed more than 100 companies in the United States, RIM's option difficulties appear to have more to do with technical accounting issues than executives cherry-picking opportunistic dates to issue themselves options, says Agostino. And rather than wait for regulators to start asking questions, RIM launched its own investigation to uncover questionable practices in its stock option plan. Of course, that didn't satisfy everybody. The Ontario Ironworkers Pension Fund complained that RIM's directors weren't independent enough to conduct the probe, which prompted the withdrawal from the investigation of two directors who are members of RIM's compensation committee.
Apple has had to manage its own options backdating scandal. In late December, the company filed the results of an internal investigation chaired by former U.S. vice-president Al Gore. While Apple was forced to restate its financial results going back to 1997, adding an additional US$84 million in unrealized stock-based compensation, investors were relieved that the review vindicated highly touted CEO Steve Jobs. If Apple does end up encroaching on RIM's territory, maybe RIM executives should try the same thing and hire Gore to run their options investigation.