The boardroom battle at Rogers Communications Inc. has once again focused attention on the perils of dual-class share structures that have enabled a handful of families to exercise disproportionate control at some of Canada’s largest public companies.
The turmoil at Rogers has renewed calls for securities regulators to prohibit dual-class shares outright or impose strict limits on their use, such as the inclusion of a “sunset” clause that would force the eventual conversion of multiple-voting shares into single-vote stock.
At issue is whether the interests of public shareholders are adequately protected when one family – or, in the case of Rogers, one individual within that family – has an effective veto over board decisions by virtue of their lock on shares that each carry multiple votes compared to single-vote or no-vote common shares held by non-family investors.
Canadian regulators have been remarkably complacent when it comes to allowing family-controlled public companies to operate according to often opaque rules that leave investors in the dark about who really pulls the strings at some of the country’s biggest corporations.
It has taken a major public spat among members of the Rogers family to shed light on the inner workings of Canada’s biggest wireless provider, as scion Edward Rogers fights his sisters and mother in court over his move to unilaterally replace five independent directors who opposed his plan to oust chief executive officer Joe Natale.
Mr. Rogers is chairman of the Rogers Control Trust, which was set up by his late father, Ted Rogers, and which owns 97.5 per cent of the voting shares at Rogers Communications. Holders of Rogers’s class B non-voting shares have virtually no say over how the company is run. All they can hope for is that Rogers’s independent directors will stand up for them when it matters.
The current conflict has exposed just how little power independent directors really hold when they are at odds with the controlling shareholder. Indeed, were it not for the decision of Mr. Rogers’s mother and his sisters to side with the independent directors in this conflict, the public might never have got wind of the board turmoil.
As it is, the conflict at Rogers is slated to go down as the most public corporate family feud in Canada since the children of Canadian Tire Corp. cofounder A.J. Billes fought each other in court for control of the company in the 1980s.
It also raises questions about the likelihood of similar conflicts erupting at other Canadian companies that are controlled by second- or third-generation members of the founding family through dual-class share structures.
Proponents of dual-class share structures say they protect against unwanted takeovers, an argument that is particularly salient in Quebec, where concerns about the loss of corporate head offices run high. And they argue that they allow controlling shareholders to take a long-term perspective regarding the interests of the company and its stakeholders, since they are not under as much pressure as widely held companies to generate short-term returns.
But while dual-class share structures might be acceptable in certain circumstances, they can eventually become a mechanism for controlling shareholders to avoid accountability. Entrepreneurs such as Ted Rogers, Laurent Beaudoin, Paul Desmarais or Pierre Péladeau might never have been able to take the big risks that defined their careers without the protections afforded by dual-class shares. But since the next generation took over at Rogers, Bombardier Inc., Power Corp. of Canada and Quebecor Inc., their dual-class share structures have served mostly to entrench the controlling families rather than encourage risk-taking.
Shopify Inc., perhaps Canada’s most promising candidate for global status in the technology sector, might be able to justify its dual-class share structure for a while yet. But eventually, arguments about maintaining Canadian control will wear thin.
Not all family-controlled companies with dual-class shares perform poorly on The Globe and Mail’s annual ranking of corporate boards. But most do. Rogers, with a score of 59 points out of 100 in the 2020 Board Games ranking, has long lagged in implementing stricter corporate governance. That alone should have been a red flag to investors before the current boardroom battle erupted in public last month.
Given corporate Canada’s addiction to dual-class shares, it might not be the last one.
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