The contentious battle between family members for the control of Canada’s largest telecom company appears to favour Edward Rogers at first glance, legal experts in B.C. corporate law says.
According to practitioners of business law, while the feud between Edward Rogers – who heads the family trust that owns Rogers Communications Inc. (TSX: RCI.B) – and his family can be tremendously messy in terms of personal relations, the legal portion of the case should be fairly black-and-white, depending on what the B.C. Business Corporations Act says about a trust can do to reconstitute a company’s board of directors.
“I don’t think the legal issues are that messy,” said Camden Hutchison, assistant professor at UBC’s Peter A. Allard School of Law and a former corporate lawyer. “They are complex but not irresolvable. There is a right or wrong answer. I don’t know all the facts, but... the Act says that B.C. companies, in their articles, can basically set out basically any procedure they want for removing directors.
“Once all the facts are known, the law on this – while complex – is pretty clear,” Hutchison added, although he did note he does not know the details of the case on either side.
Edward Rogers, the son of late company founder Ted Rogers, was voted out as the board chair of Rogers Communications Inc. last week for trying to ouster CEO Joe Natale. In turn, Edward Rogers announced on Sunday that – as the chair of the trust controlling the Rogers Communications company – he has removed five members of company’s board that opposed him, and the remaining board members reappointed him as the company’s board chair.
Lawyers for Edward Rogers also have indicated they will file a petition in B.C. Supreme Court today to affirm the status of Rogers Communications’ board. His lawyers, citing Edward Rogers’ role as the head of the Rogers family trust, say his role gives him the power to resolve board issues through a written resolution (and not a shareholders’ meeting) – due to the fact Rogers Communications is incorporated in B.C.
Hutchison said that even though most of Rogers Communications’ corporate offices are in Toronto, the fact that the company is incorporated in B.C. means that B.C.’s unique corporate laws apply – no matter where Edward Rogers takes his case.
“This can be litigated in Ontario, but they would still have to apply B.C. law,” he said. “It’s the B.C. Act that governs, so which court the case is litigated in doesn’t matter that much.”
Edward Rogers’ position has been openly challenged by the five directors who were supposedly removed, as well as Edward Rogers’ mother, Loretta Rogers, and his two sisters (deputy company board chair Melinda Rogers-Hixon and Martha Rogers) – all of whom are still listed as directors on the board page of Rogers Communications as of Tuesday.
The company’s board needs a super-majority (67%) of directors to vote for Edward Rogers’ removal from the controlling Rogers Control Trust’s chair position, and so far it appears the company board cannot reach that super-majority for Edward Roger’s removal as chair of the trust.
Reports have identified at least two directors listed – Alan Horn and Philip Lind – as supportive of Edward Rogers bid to reclaim the board chair position at Rogers Communications.
Martha Rogers (who is also chair of the Rogers Foundation) has been especially vocal on Twitter about the entire affair, sharply criticizing her brother’s bid for control at Rogers Communications as a “coup” and challenging Edward Rogers’ ability to remove Natale and other directors from Roger Communications’ board.
“When did stopping an attempted coup get redefined as a family feud?” Martha Rogers wrote on Twitter on Sunday. “If a non-family member pulled the coup, what would you call it then?”
Martha Rogers added that her brother’s bid to remain as Rogers Communications chair “should be taken as seriously as if he appointed himself the King of England,” adding that their father – company founder Ted Rogers – would be “so disappointed” were he alive to see the developments.
Hutchison did point out that cases like the battle between family members for Rogers Communications leadership have played out in Canadian history before, although such cases are more rare elsewhere because Canada is unique in having more cases of families controlling the voting shares of a major public corporation.
Such a structure means that while the average investor can easily buy Rogers Communications (class-B) stocks, the Rogers family trust owns 97% of voting (class A) shares and controls the company, leaving it vulnerable to family feuds – as is the case here.
“It’s a risk whenever you have a family group controlling a large, powerful corporation, because the control is really in the hands of a family,” Hutchison said. “And a family is a collection of individuals who are hopefully on the same page, but sometimes, they are not.... You don’t see this in the United States because you don’t have a large public corporation controlled by a family.”
Since trading at TSX resumed Monday morning, Rogers Communications’ B-class shares fell from $60 a share to $ 56.86 overnight and closed Tuesday at $56.31. That marks the stock’s lowest price point since February.
With more than 20,000 employees across the country and total assets reaching almost $40 billion, the company is the largest telecommunications company in Canada – and the uncertainty facing the board (and who ultimately controls the company) is sending shockwaves through the entire Canadian telecom sector.
The battle for control of Rogers Communications by top members of the Rogers family also puts the $26-billion acquisition of Shaw Communications - announced in March - into uncertain territory. Both Shaw and Rogers officials continue to support the deal, which is currently being vetted by regulators ahead of approval. But a number of financial market analysts have downgraded Rogers’ stock price target this week as turmoil in Rogers Communications’ top ranks could delay or even scuttle the deal.
Hutchison said that Shaw deal being derailed is now the biggest threat facing Rogers if its leadership question doesn’t get resolved soon.
“At the end of the day, someone will be running the company,” he said. “Long-term, you will not have a fractured management, which would be the worst scenario... But taking over Shaw is a huge strategic development in the future of Rogers, so they have to get that figured out. That’s the biggest danger here, if this boardroom dispute somehow wrecks that deal.”