On January 29, 2009, former Motorola CFO Paul Liska gave a presentation to the audit committee of its board of directors, in which he addressed the poor performance of the Mobile Division and express concerns about the accuracy of predictions of its future performance.
Liska’s position is that his criticism of the Mobile Division and its CEO, Sanjay Jha (who is also Motorola’s co-CEO) was intended to warn the board
that the Mobile Devices presentation still lacked the normal and customary specificity expected in business plans, making it impossible to fully verify its reasonableness and accuracy. If approved and presented to the rating agencies (and public), Liska believed that the Mobile Devices’ "plan" was likely to lead to the continued deterioration of Motorola’s credit and, when shown to be unsupportable and/or misleading, to the possible ruin of the entire company.
I think it’s safe to say that Liska did not expect Motorola’s reaction to his presentation, which was to discharge him without cause as CFO on January 30. Liska claims that Motorola’s co-CEO Greg Brown told him that he "had fired a shot heard around the world."
In an earnings call on February 3, Brown was complimentary of Liska’s service to Motorola and attributed his departure to "environmental changes." But that benign reason isn’t what Motorola reported to the SEC in this March 3 proxy filing, in which it advised at page 86 that "[o]n February 2, 2009, Mr. Liska was replaced as Chief Financial Officer. On February 19, 2009, Mr. Liska was involuntarily terminated for cause."
The Wall Street Journal‘s Sara Silver wrote this article on March 4 about the discrepancy in Motorola’s reasons for terminating Liska.
The difference in the basis for Liska’s termination is critical because his employment agreement provides that if he is terminated other than for "cause" (as defined in the agreement) within two years of his hiring, he would receive a severance payment equal to his annual base salary of $750,000 for one year and his annual incentive bonus calculated as 95% of his annual base salary for one year, or nearly $1.5 million.
If Liska was terminated for cause, he would not receive that severance payment. And perhaps more importantly, as "cause" is defined in his employment agreement, he would have a lot of explaining to do to potential employers. The agreement provides that cause shall mean:
(i) your willful and continued failure to substantially perform your duties, other than any such failure resulting from incapacity due to physical or mental illness, which failure has continued for a period of at least 30 days; or (ii) your willful engagement in (A) in any malfeasance, dishonesty or fraud that is intended to or does result in your substantial personal enrichment or a material detrimental effect on the Company’s reputation or business or (B) gross misconduct; (iii) your indictment for, or plea of guilty or nolo contendre to (A) a felony in the United States or (B) a felony outside the United States, which regardless of where such felony occurs, the independent directors of the Board reasonably believe has had or will have a detrimental effect on the Company’s reputation or business or your reputation; or (iv) your breach of one or more restrictive covenants in any written agreement between you and Motorola.
Liska filed suit against Motorola in the Circuit Court of Cook County, Illinois, and alleged in his complaint claims for retaliatory discharge and breach of contract. Liska claims that by terminating him, Motorola "violated a clearly mandated public policy – i.e., the policy that favors full disclosure, truthfulness and accuracy in the financial reports and statements made by businesses to the government and to the public."
That Motorola is not going to let Liska take the high ground is clear from its answer and affirmative defenses, which first defines a "whistleblower" and an "extortionist," then proceeds to explain the difference between the two:
The difference between a whistleblower and someone whose actions are akin to an extortionist is simple — a whistleblower reports improper conduct because he believes it is the right action to take, while an extortionist threatens to disclose alleged improper conduct unless he is paid a sum of money to remain quiet. This Answer demonstrates that Plaintiff Paul Liska’s conduct since at least December 2008 is not that of a "whistleblower" who was fired in retaliation. Rather, his conduct is more akin to an (attempted) extortionist.
But wait, there’s more:
Paul Liska joined Motorola as its Chief Financial Officer in March of 2008. During his brief tenure, he proved himself to be erratic, unprepared, abrasive, divisive — and often simply absent and "unavailable." By mid-December Motorola management had made the decision to remove him as Chief Financial Officer and a search had begun to locate his replacement. After Mr. Liska learned of this decision in December, he devoted himself to an extortion-like scheme designed to portray himself as a whistleblower and demand millions in return for his silence.
And those paragraphs come in the first two pages of the answer.
At this point in the case, which is admittedly very early, I think Motorola has more questions to answer than does Liska. He has a plausible explanation for his termination, including Motorola’s decision to terminate him for "cause," especially after Greg Brown, Motorola’s co-CEO, praised Liska in the earnings call on February 3.
On the other hand, I’m not sure why, if Motorola had decided in December 2008 to remove Liska as CFO — after he had been on the job for only eight months — it didn’t do so, rather than risk the sort of situation that it’s dealing with now. And Motorola’s motivation in changing the reason for Liska’s termination is questionable, to say the least.
For some additional information on the termination and the lawsuit, here are an article by Associated Press writer Peter Svensson, and some discussion by Mark P. Loftus on his Illinois Lawyer Blog.