‘A huge concentration of power’: Duelling boards seen as symptom of unusual Rogers power structure

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A family power struggle has left Rogers Communications Inc. with two boards of directors claiming legitimacy and jockeying for power in the public eye, a governance quagmire that may not be immediately resolved.

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Shares in the telecom giant fell by nearly six per cent in Toronto Monday, closing at $56.55, as the market digested weekend developments that saw a purported board including five new members appointed by Edward Rogers declare that he had been re-elected as board chairman, after being ousted by the original board last week.

The company, however, has deemed the new board invalid and says the original board, now helmed by John A. MacDonald, still controls the company.

Richard Leblanc, a professor of governance, law and ethics at York University, says the dual-class share structure often instituted for family business dynasties is partly to blame for infighting between Rogers family members that has played out over the last few weeks.

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While it is less common in the United States, it is not uncommon for family businesses in Canada to institute dual-class shares to give family members enhanced voting rights that allow them to maintain control over the company even after selling down their majority stakes.

The Rogers situation, Leblanc said, is complicated by the fact that company founder Ted Rogers added another layer of control for his offspring: a trust that holds the majority of the voting shares.

“It’s the first time I’ve seen a voting trust in combination with dual-class shares,” Leblanc said. “It’s a huge concentration of power in one person and that’s never good for corporate governance.”

With the company in the midst of a crisis following Edward’s move to unseat chief executive Joe Natale and replace him with chief financial officer Tony Staffieri at the end of September, directors of the board stripped Edward of his title as chair. However, he continues to serve as the chair of the Rogers Control Trust, a post he has held since his father’s death, and thus holds sway over more than 97 per cent of the company’s voting shares even though the family as a whole owns just 30 per cent equity in the company.

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On Friday, by way of a written resolution, he declared a reconstituted board packed with loyalists, including Jack Cockwell, Ivan Fecan, Jake Kerr, Michael Cooper and Jan Innes.

The drama has caused concern for shareholders and analysts as the company is in the midst of a $26-billion takeover (including debt) of Shaw Communications Inc. that requires regulatory approval from three different government agencies.

“With everything in the public domain, we would prefer a faster resolution to the conflict for the sake of all shareholders and for the company,” Jeff Fan, an analyst at Bank of Nova Scotia, wrote in a note to clients on Monday.

Fan, however, said the outcome seems “inevitable” — that Edward will get his way — and it’s only a matter of timing and procedure. In the face of the Rogers board insisting his board is illegitimate, Edward pledged he would take the issue to the B.C. Supreme Court. Edward could gain legitimacy through a court resolution, Fan said. That process could begin in as soon as four months, National Bank of Canada analyst Adam Shine wrote to investors in a Monday note.

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If that doesn’t work out, then Edward could make board changes at a shareholder meeting, Fan said.

However, Leblanc posits that the company and the rest of the Rogers family could claim that proper procedure needs to occur, which would be an election of new directors at the company’s annual meeting with proper notice to shareholders. For the institutional and retail investors who hold 70 per cent of the equity of the company, that means waiting and watching how the drama unfolds, he added.

“Joe Natale and his team are paid to drive the company forward and navigate regulatory waters to get the Shaw deal done, but the dynamic evolving with the Trust and Board is sure to add to stress levels, and we’ll see how it impacts performance,” Shine wrote. “Investors of Rogers as well as Shaw may want to see the status quo prevail in terms of management getting the Shaw deal over the touch line.”

Financial Post

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