The shadow of a company often hides some truly terrible things. It is on a company’s deathbed, however, that much of what lurks in the shadows is revealed.

The ordeals that Nokia and BlackBerry have gone through over the last few months, culminating in both being acquired, have brought out into the public domain several company filings that hint at a more sordid picture of recent events. In a move that indicates the old boys network is still alive and kicking, former Nokia CEO Stephen Elop is all set to receive a $25 million golden handshake as part of Microsoft’s takeover of the company’s mobile handset unit.

Nokia, which recently disclosed the details of Elop’s contract , had initially claimed that the former CEO’s contract was no different from the company’s previous CEOs.

This has now proven to be false, with changes that were inserted in Elop’s contract in 2010 indicating that he was entitled to an immediate share price performance bonus in case of a ‘change of control’ situation such as selling of Nokia’s handset division. The altered contract clearly indicated that Elop would receive a windfall should Nokia’s share price drop, and in case the company was sold off. Further west, in Canada, BlackBerry CEO Thorsten Heins is similarly set to receive a golden parachute worth as much as $55 million after his contract was altered to increase the size of the equity awards he would receive if he loses his job in the event of a takeover.

This decision was taken by three company directors, including Hyderabad-born Prem Watsa. Interestingly, Watsa, who is also the boss of Fairfax, is now set to script either a revival of BlackBerry or sell of its assets to the highest bidder.

The decisions to award the two men with obscene bonuses, after they presided over the two of the most highly publicized turnaround failures in recent times, has sparked considerable outrage .

Finnish Prime Minister Jyrki Katainen has slammed Elop’s pay-off amount as "crazy" and "incomprehensible to common sense". The country’s finance minister Jutta Urpilainen too has called on the Nordic nation's companies to "moderate" executive pay.

However, more than anything, it highlights how the concept of a golden handshake results in perverse disincentives even while proving to be a smack in the face of good corporate governance.

It’s raining gold!

Take the case of Nokia and Canada-born Stephen Elop. The argument circulating now that speaks in favour of a golden parachute in Nokia’s case is two-fold. According to corporate analysts, there was no other way to attract a good CEO without providing him with a buffer in case he failed to script a turnaround. Also, for them, Nokia was a foregone conclusion in 2010 when it hired Elop. They are convinced that he did the job he was supposed to do, namely that of a hatchet man.

There are other sides to these arguments, however. Nokia was indeed struggling in 2010, but was no slam-dunk case. While the company’s operating system software, Symbian, was due for a refresh, Elop killed it when it was highly profitable and had increasing sales, if not market share. Nokia also had a home-grown solution, called MeeGo, which was almost ready, and had a spectacular new product line-up. After Elop took over, the company took a sharp U-turn away from MeeGo. It spent the next three years redeveloping its processes, revamping its developers and wasting countless resources just so that it could put Windows Phone on its hardware. This is a bet the company that took which ultimately failed.

In retrospect, its strategy post-2010 appears the least sensible thing the company could have done. Why was there no hedging on the Android front? Chinese giant Xiaomi and domestic player Micromax were little more than start-ups when Elop assumed the position of CEO at Nokia. Yet, they proved that one could still win in an Android-saturated market.

One may be tempted to quote Hanlon's Razor, who said, "Never attribute to malice that which is adequately explained by stupidity."

This, however, does not account for the kind of manoeuvring and counter-intuitive decisions that Elop undertook, resulting in Microsoft’s acquisition of Nokia. What is more applicable is: "If it looks like a duck, walks like a duck and quacks like a duck...”

Indeed, how are shareholders supposed to place their faith on a company, when a CEO is rewarded handsomely for failure?

anuj.s@thehindu.co.in

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