The appearance of RIM co-CEO Mike Lazaridis on the company’s first quarter earnings conference call Thursday was a rare event. Typically, such duties are left to the company’s other co-CEO, Jim Balsillie. But Lazaridis’ presence was a show of solidarity during troubled times for the BlackBerry maker. As the company loses market share and its stock plummets, (more than 40% this year, and more than 20% since Thursday’s earnings announcement) some analysts and investors are calling for management changes.
That would have seemed ludicrous a year ago, but the question has intensified ever since RIM issued a profit warning in April. Northern Securities analyst Sameet Kanade wrote an “open letter” stating the company should ditch its dual CEO structure, which complicates decision-making and is largely responsible for the company’s recent missteps. “We contend that a change in management structure is required, and believe the vote is clearly in favor of Mr. Mihalis ‘Mike’ Lazaridis, who is the technical brains behind the company,” he wrote.
The disappointing results announced Thursday and the grim outlook for the next quarter appear to strengthen Kanade’s case. “The problem is the strategy being implemented,” wrote National Bank Financial analyst Kris Thompson in an email. “The strategy needs to change, which is unlikely under the current regime.” So if a regime change is necessary to turn the company around, who could replace either Balsillie or Lazaridis? And what would a new management structure look like?
One analyst on the conference call raised the possibility of appointing either Balsillie or Lazaridis as the sole CEO while the other individual moved into the role of chief technology officer—the implication being that Balsillie, with the business and sales background, would stay in place, allowing Lazaridis to focus exclusively on technology, where his strengths lie. But both CEOs dismissed the possibility and insisted no changes are forthcoming. “Jim and I have that perfect balance to make the really hard decisions,” Lazaridis said.
Such a shift in titles would be largely symbolic in any event, with no real change in decision-making or, more importantly, in RIM’s long-term strategy. A more drastic change involving an entirely new CEO may be necessary, according to one analyst who asked to remain anonymous, as his firm is not permitted to speak with media. “They need someone with a good understanding of what’s going on with the smartphone industry,” says the analyst. “Someone out of Apple or Google.” Balsillie and Lazaridis are failing to acknowledge the scope of the challenges ahead of them, and to grasp the way the market has shifted toward consumers who care more about user experience, and away from corporations concerned with security. “They were a bit trite [in their responses] about the issues yesterday,” says the analyst.
Not everyone agrees management changes are necessary, of course, especially when RIM is undergoing a massive transition in terms of its underlying software, and while building a new product line with tablets. “We do not believe now is the best time to change the management structure given all the challenges RIM is currently facing,” wrote Canaccord Genuity analyst Michael Walkley in a note. “We believe change at this critical moment for RIM would only add unnecessary distractions.” RIM’s underwhelming financial results have nothing to do with corporate structure, he argues, but rather with the decision to release the PlayBook tablet ahead of upgrading its line of BlackBerry devices. (Of course, Balsillie and Lazaridis would have made that decision.)
The problem of management may not lie specifically with the two co-CEOs, says Barry Richards, managing director of research at Paradigm Capital. “I kind of think of [RIM] as having two levels: Mike and Jim, and everybody else,” he says. The two CEOs may lack the necessary support and expertise from the executives below. RIM prefers to promote from within as opposed to hiring outsiders, and that can lead to insular thinking and a lack of fresh ideas.
It doesn’t help matters that both executives are incredibly busy. Lazaridis is involved with the Perimeter Institute for Theoretical Physics, and Balsillie with the Centre for International Governance Innovation. Balsillie’s intense focus on buying an NHL franchise in recent years likely diverted his attention, too. “Those guys are phenomenal, but they try to do too much, and there’s not enough depth in the senior management around them,” says Richards, who supports the company with a Buy rating on the stock.
Hiring from outside could give RIM the creative shake-up it needs, since the majority of its engineers and senior managers have been with the company for most of their careers. But RIM has not had great success with that recently. Keith Pardy joined RIM as its chief marketing officer in 2009 after stints at Nokia Corp. and Coca-Cola Co., and left abruptly in March just weeks ahead of the launch of the PlayBook. “Jim and Mike are very upfront, very hyper sort of people,” Richards says. “I would think they’re a bit challenging to deal with as a new employee.”
But seeing how RIM announced yesterday that it will have to make layoffs, hiring outsiders is probably not its immediate concern—not at the senior manger level, nor at the very top.