Ted Rogers was determined to keep the Rogers Communications empire in his family, so he set up a complex plan for his wife and children to take his place as the controlling shareholder when he died.
But now it’s tearing the family — and potentially the $30-billion company — apart.
Today, a B.C. Supreme Court judge is expected to decide how much control Ted left his son, Edward Rogers, as the chair of the family trust.
The bitter family drama erupted last month when it emerged that Edward Rogers tried to oust CEO Joe Natale and replace him with the company’s then-CFO. After Natale alerted the board, other family members, including Edward’s sisters and mother, voted to block the move and to remove him as chair.
Edward instead unilaterally fired five members of the board, replacing them with successors of his choosing and reinstating himself as chair.
The drama and ensuing court battle has drawn attention to the company’s ownership structure.
In 2007, more than a year before his death, Ted Rogers carefully walked through his succession plans with writer Robert Brehl, who co-wrote the businessman’s autobiography, Relentless: The True Story Of The Man Behind Rogers Communications.
“He was obsessed with the family keeping the company,” Brehl said in an interview with CBC News.
WATCH | What Ted Rogers wanted for his company:
According to Brehl, that obsession was a result of the sudden death of Rogers’s father, Edward Samuel Rogers, who founded the Toronto radio station CFRB. He died at 38.
“His mother lost the company, and she told Ted over and over as he was growing up, ‘Your job is to get the company back for us,'” said Brehl. “That’s why keeping family control was so important to him.”
The success of Ted Rogers’s plan depended on two things: the creation of a family trust and the existing Rogers Communications share structure.
While Rogers Communications Inc. is a publicly traded company, it has two types of shares: Class B shares that are freely tradable but have no voting rights, and Class A shares that hold all the voting rights.
Ted Rogers was the controlling shareholder of all Class A shares. He then created the Rogers Control Trust — made up of his family and close friends as advisers — to take over when he died.
WATCH | What are dual-class shares?
But he also made it clear that he wanted one person in charge.
In a “memorandum of wishes” recently submitted to the B.C. court by his widow, Loretta Rogers, Ted wrote: “My lifetime experience has been that committee and shared decision-making often leads to slow, if any, decision-making.”
Ted appointed his son, Edward Rogers, to be the first chair of the Rogers Control Trust.
Edward’s lawyers argue that as chair of the trust, he is the controlling shareholder — and should be able to fire and hire directors of the company’s board at his discretion.
The judge is expected to decide on the validity of the Edward Rogers-appointed board today at 2 p.m. PT.
In arguments last week, Edward’s lawyer has also said the case wasn’t about Rogers’ dual-class share structure.
Nonetheless, the drama has drawn attention to the fact that 97.5 per cent of the voting shares of Canada’s largest telecom company are potentially controlled by just one person.
Reining in control over dual-class shares
The Canadian Coalition for Good Governance (CCGG) calls Rogers a “poster child” for the negative governance impact that can result when dual-class share structures are allowed to exist indefinitely.
According to CCGG executive director Catherine McCall, the biggest risk of dual-class shares is that a company’s leadership situation can change — such as when a founder leaves the company or dies — and their replacement doesn’t share the same vision.
“The business passes on from generation to generation, and the next generation doesn’t share the same talent, or brilliance, or vision of the first generation,” said McCall.
Critics also argue the share structure comes with outsized risk for those investors who take on more of the financial ownership of the company, but less — if not zero — power.
“[Rogers’] subordinate voting shares not only have disproportionately fewer voting rights than the multiple shares held by the controlling family, but [they] have no votes at all,” said McCall.
WATCH | Why all Canadians should care about dual-class shares:
This isn’t an issue Canadians can afford to ignore, McCall said, as most have some interest in the stock market through their retirement investments or the Canada Pension Plan.
The popularity of dual-class shares also makes them inescapable, according to McCall, especially if a person wants to invest in a fund that tracks all companies listed on an index, such as those on the TSX.
According to the TMX Group, approximately 90 of the more than 1,700 companies listed on the TSX have dual-class share structures. However, it says only some of those companies have non-voting shares — and it’s not the majority of them.
Companies with dual-class shares don’t always have family involved either. The share structure is popular with tech companies, such as Facebook, Alphabet (Google) and Shopify, because it limits the pool of investors with a big say in the company’s direction, while still allowing a wider group of shareholders to benefit from owning the stock and receiving any potential dividends.
The CCGG wants conditions to be attached to all dual-class shares, such as a sunset clause.
“It’s essentially the idea that you’re going to be able to bring a halt to the dual-class share structure at some point,” said McCall.
That could be triggered by an event, such as the founder’s death, or after a predetermined length of time.
McCall suggests that every five years, subordinate (non-voting class) shareholders should get to vote on whether they want the dual-class structure to continue.
In defence of dual-class shares
Others say the benefits of dual-class shares outweigh the potential for abuse.
“It’s really sad to see it on the front pages, that the [Rogers] family is having this internal tussle. But as an investor, I wouldn’t lose heart … in dual-class shares,” said David Beatty, the academic director of the David and Sharon Johnston Centre for Corporate Governance Innovation at the University of Toronto.
The costs of sharing voting rights widely are often too high, he said, including pressure on executives to make short-term decisions to pump up the share price to satisfy investors.
“Families with dual-class shares and tech companies with dual classes don’t have those pressures — and that means they can focus on the longer term success of their corporation,” said Beatty.
Supporters of the structure also argue it protects companies from takeovers and activist investors who want to force the company to make changes.
“This activism and short-termism are not transient little things that will go away. They’re embedded forever,” said Beatty, noting he’s felt that pressure firsthand in his dozens of roles on corporate boards.
The source of control and criticism
For Rogers, the share structure secures the control that Ted Rogers wanted for his family. But the position of power has also made the family’s infighting of high public interest — and it could end up costing them.
“They need to get their house in order and figure this out,” said Camden Hutchison, an assistant professor of law at the University of British Columbia.
Whatever the court decides, Hutchison said it’s important for the Rogers family to figure out how it’s going to move the company forward with consensus.
“Otherwise this could potentially be very damaging to the business of Rogers itself,” he said.