Losing the Signal: The Spectacular Rise and Fall of BlackBerry (32 page)

Inside RIM, the catastrophe continued. PlayBook had been such a dismal failure the company was forced to announce on December 2 that it was taking a $485 million write-down on unsold inventory. Worse news was on the way. The company’s third quarter results, to be announced in mid-December,
would show its profits had plunged more than 70 percent from a year earlier. Help wasn’t coming anytime soon because the launch of the game-changing BlackBerry 10 was delayed until late 2012. Once the news hit the street it was a safe bet that investors would be calling for a palace coup. “There was this piling on of woes,” remembers Larry Conlee. Bad news, he says, “kept loading the wagon, making it harder and harder to pull RIM up the mountain.”

Lazaridis and Balsillie knew their support was evaporating. Negative attacks from media, investors, and financial analysts were unrelenting. RIM’s many complex problems were condensed to one simple narrative: the dual CEO leadership structure was the source of the company’s woes. A single, more effective leader was needed. The intense scrutiny meant the two chiefs had to tread cautiously with rattled directors. Instead, on the afternoon of November 11, at a meeting few would forget, Balsillie alienated directors when he most needed their support.

The showdown took place on Cherry Blossom Road on the outskirts of Cambridge, Ontario, where RIM owned an office building. RIM’s directors had gathered for a board meeting that included a discussion with the Monitor consultants. Six weeks into an assignment, code-named Project Switchblade, three Monitor consultants had called in via conference call to update the board on their marketing strategy for rescuing RIM’s eroding U.S. base. Balsillie was an initial fan of Monitor’s plans to step up advertising and product promotions. It would buy RIM more time for Lazaridis to develop its next generation of phones and for him to put the SMS 2.0 plan into play. The consultants, however, would surprise him with a very different message for the board. Time was running out, the advisers warned, because RIM’s U.S. customer base was shrinking much faster than expected. In the coming months they calculated as many as 30 percent of the company’s remaining customers would likely walk. Monitor recommended the company immediately focus on new product promotions, high-end customer marketing, and improved support of carrier salespeople to stem the losses. The future of the company, they said, depended on a successful launch of new-generation BlackBerry 10 phones. As for the SMS 2.0 messaging plan, the lifeline strategy Balsillie had frantically chased all year, it would only marginally improve the company’s fortunes, the consultants concluded.

Balsillie couldn’t believe what he was hearing. Instead of discussing marketing plans, the consultants had veered into strategy. The wrong strategy! Didn’t they understand how urgently RIM had to seize on his BBM plan if it was to survive? Months of pent-up frustration and anger came tumbling out as Balsillie furiously lectured the advisers. They were amateurs, he said. They didn’t understand the shifting smartphone market. The future was software and licenses, not hardware. As Balsillie raised his voice, yelling at times at the consultants, RIM’s directors watched in shocked silence. One person who attended the meeting shook his head grimly when recalling the outburst: “He was very emotional.” Balsillie would later explain his outburst as the kind of “irritable” reaction that occurs when companies are grappling with “a lot of tension.” He became aggressive, he says, to warn directors away from a path he was convinced would lead to ruin. “Did I respond with aggression?” he says. “Yes. But you know what? It is better than folding.”

Balsillie had dominated RIM’s board of directors for most of the past two decades, winning a receptive audience for his sharp views and strategic acumen. The board seldom questioned him, and Lazaridis had little appetite for the governance and regulatory matters that consumed most meetings. When Lazaridis spoke at board meetings it was usually to give directors samples or prototypes of the newest devices coming down the pipeline. Directors loved the show-and-tell sessions, and, after Balsillie’s tirade, a consensus began to take hold at the board that Lazaridis’s handset innovations offered the brightest future for the struggling company. Lazaridis offered tangible innovation; Balsillie brought volatility and potentially risky software and service strategies. After Balsillie’s tirade, the board had more questions about his leadership than Monitor’s proposed course of action. One director described the confrontation as “irrational antagonism.” Monitor had been hired at the board’s recommendation to help mollify shareholders pushing for new captains. “You co-opt the board,” he says. “You work with the board. You don’t antagonize the board.” Former Monitor executive and RIM director Martin was outraged. Days later he unleashed his own fury, this time on Balsillie, accusing him in an e-mail of “completely unfair (among many other adjectives I could use) assassination of my friends at Monitor in front of the board.” Rather than winning directors over, Balsillie had pushed them further away. “I was losing the board. I knew it,” Balsillie says.

RIM’s board could no longer avoid addressing the spreading rift between the two CEOs. They were driving down such different paths that tensions
and disagreements were creating a toxic environment, even at board meetings. It was time to end a damaged partnership. How the divorce proceedings began is a subject of debate. Some RIM directors believe the seeds of a management change were planted when they dispatched two directors, John Wetmore and John Richardson, to visit Lazaridis and Balsillie separately in their offices on December 9. The two directors prepared a nuanced script for each CEO in the hopes they would arrive at the right conclusion. The board, Wetmore and Richardson explained to the CEOs, was under enormous pressure from shareholders to appoint an independent chair and bolster the company’s leadership. They favored replacing Lazaridis and Balsillie as chairmen and they encouraged the men to focus on a CEO succession plan. Wetmore and Richardson got little pushback that day and left Waterloo with the hope the duo were ready to groom a new leader.

What they didn’t know was that Lazaridis and Balsillie had been having exit discussions for weeks. About the only thing the two men can agree about when it comes to their late fall meetings is that they happened. It is instructive and telling that partners who have different recollections of how they came together in 1992 are also at odds over how they fell apart nineteen years later. The conflicting versions could be a reflection of the opposing personalities of independent, strong-willed CEOs. Just as the professorial Lazaridis and hard-charging Balsillie pursued different tactics to conquer the smartphone market, it is inevitable perhaps that they have constructed clashing narratives about their roles in RIM’s rise and fall. It’s also possible that by December 2011 their relationship had become so dysfunctional they were no longer listening to each other. It is entirely possible that they are both right.

As Lazaridis tells it, he paid a visit in mid-December to Balsillie at his office in the new RIM B building, a ten-minute drive from the engineering facilities. After the Monitor boardroom showdown and Balsillie’s insistent push for a new software and licensing future, Lazaridis, according to associates, was concerned the company was being torn apart by opposing software and hardware visions. The strategies were so starkly different that the CEOs briefly considered breaking the company in two, with Balsillie rolling services such as BBM messaging into a new company and Lazaridis staying with the traditional handset and network business. The wrenching plan, they agreed, wouldn’t work because the businesses were simply too intertwined to separate.

Lazaridis remained convinced RIM’s future hinged on the pending BlackBerry 10, so much so that he was prepared to resign on the condition that
Balsillie, the vocal handset critic, would follow him. During his meeting with Balsillie, Lazaridis says, “I walked him through the negative press we were getting. I used the words ‘We were lightning rods.’ … Both of us were under huge scrutiny and negative [press] at the time. It just seemed like the right time.” The way forward, Lazaridis told his partner, was to promote Thorsten Heins, the six-foot-six-inch executive who ran RIM’s hardware division and shared Lazaridis’s passion for handsets and the conviction that RIM could reclaim its smartphone title with BlackBerry 10. At the end of his discussion with Balsillie, “I was actually very surprised,” Lazaridis says. “He agreed.”

Balsillie remembers their falling apart differently, as a less amicable process. After withstanding the blowback from the outage, product failures, market losses, and shareholder activists, he says he “became sick of it” when in December Lazaridis told him the delivery of BlackBerry 10 phones would be delayed until at least mid-2012. At that point something snapped. “As the front guy with the big personality that not everyone likes … I am like the easiest prey in the entire country and now I got to [delay BlackBerry 10] another few months?” he says. It was time to throw in the towel. “That was when I decided I was done. I’d had enough.” Days later he says he paid Lazaridis a visit in his office in RIM 10. Balsillie says he did not pull any punches when he sat down. “I said, ‘You let us all down,” with another delay of the BlackBerry 10 lifeline. “I was just mad. I’d had enough.”

Balsillie recalls it was his suggestion that the two step down as CEOs and board chairs. Lazaridis, he says, agreed on two conditions: Heins would replace them as RIM’s sole CEO and the transition would take place in seven months at the annual meeting. Balsillie says he had concerns about Heins because he had little experience with BlackBerry’s global sales, manufacturing, and finance operations. He countered that Patrick Spence, senior vice president overseeing global sales, and Jim Rowan, head of operations, should get senior executive positions to supplement Heins. Lazaridis agreed, he says. They would approach the board together with their plan. Later that night at dinner, Balsillie broke the news to Peric that he and Lazaridis had agreed to step down at the annual meeting. Peric, an experienced marketing manager who had been alarmed by a torrent of negative RIM stories, told Balsillie he could not afford to delay their resignations. Investors wanted immediate change. Agreeing, Balsillie called Lazaridis at home.

“We either do this on our terms or someone else will,” Balsillie told his partner of nearly twenty years. “I knew it was time, we had to go.”

Heins flew from his Florida vacation home to New York with his wife and two children to attend one of the few entertainment perks left to RIM executives. As a sponsor of the 2011 New Year’s Eve Times Square celebration, RIM could invite executives to a VIPs-only party at ABC’s television studio. Heins, fifty-four, was a long way from his ancestral home. Decades earlier, his father, then a sixteen-year-old high school student, had been dragooned into the German army during the final months of World War II. He was soon captured and imprisoned by Allies until after the war. Released at the age of twenty-four, his father started a new life as a civil servant in Gifhorn, a town near Hanover. Heins senior and his wife, a cleaning woman, were determined survivors who instilled in their four children a tenacious drive. Heins was an ambitious student. He earned a degree as a physicist at the University of Hanover and worked his way up the ranks in the mobile handset division of the German conglomerate Siemens AG. Upon joining RIM in 2007 he impressed Lazaridis and Larry Conlee as an effective and likable manager with chief executive potential. Earlier that year, he’d been promoted to chief operating officer of the company’s product engineering group. Tonight he would learn his ascent was not over.

Towering above ABC studio guests, Heins was quickly spied by Balsillie. Tanned and relaxed after a Christmas holiday with Peric in the Middle East, Balsillie gestured for his colleague to join him outside in a small courtyard overlooking Times Square. Staring up at his colleague, Balsillie confided that he and Lazaridis were retiring.

“Wow” is all Heins could manage.

“We’d like you to be CEO.”

“Wow.”

“There is a process under way,” Balsillie continued, “Nothing is certain and done, but this is what Mike and I are supporting. We’re definitely retiring.”

Balsillie explained that he and Lazaridis informed RIM’s board of their retirement plans before Christmas. At that time, they also proposed that Heins become CEO. Balsillie now urged Heins to move quickly to update his résumé and get it to the board. He further suggested he meet with a Toronto investor who would soon be an important RIM player.

Prem Watsa made his name as a contrarian value investor who bet heavily on corporate discards. The sixty-one-year-old Indian immigrant had built
Fairfax Financial Holdings into a C$9 billion conglomerate by successfully repairing broken insurance companies, restaurant chains, and, after the financial crisis, a near-dead Irish bank. Fairfax had acquired a small 2 percent toehold in RIM’s stock in September 2011. Watsa remained convinced the humbled company was a classic value play: the BlackBerry maker had no debt and its core corporate and government business had few rivals. Fairfax’s founder, sometimes called “Canada’s Warren Buffet,” had forged a friendship with Lazaridis years earlier when he replaced the engineer as chancellor of the University of Waterloo. He shared Lazaridis’s vision that the company could stage a comeback with a new line of BlackBerrys. The prospect of Watsa’s investment support was a lifeline for RIM’s struggling board. His thoughts on a new CEO would carry a lot of weight.

The only person more astounded than Heins by Balsillie’s New Year’s revelation was Lazaridis. He’d planned to meet with his partner after the Christmas holidays to tell his handpicked successor the news. Communications had broken down so badly between the two CEOs that they were unable to even coordinate passing the torch. “It was surprising,” says Lazaridis, remembering Heins grateful thank-you call after New Year’s. “I felt that was something that Jim and I should have told Thorsten together. It wasn’t even one hundred percent approved yet at the time. So he kind of jumped the gun a little bit. That was not the right avenue and time.” Balsillie says he broke the news so that Heins would have an updated résumé ready for the board. Another possible explanation is that Balsillie, relieved to be heading for the exit, wanted to hurry the transition along. Now that Heins knew, it would be hard for Lazaridis or the board to change course.