Rogers Family Dispute Highlights Dual Class Stock Structures | The Canadian News

One type of corporate capital structure used by several of Canada’s most prominent companies is once again under fire from critics in light of the current chaos at Rogers Communications Inc.

Dual class share structures, where companies issue different classes of common shares, each with its own level of voting and control rights, are used by companies such as Shaw Communications Inc., Fairfax Financial Holdings Ltd., Bombardier Inc. , Canadian Tire Corp. Ltd. and others. They generally grant disproportionate voting rights to a group of shareholders, such as the founders, family members, and executives of the company.

Rogers Communications, which is embroiled in a bitter battle for control of the company this week, is also a dual-class share structure. At Rogers, the family trust owns 97 percent of the class A shares with voting rights and 9.89 percent of the class B shares, which pay dividends but do not have voting rights. Family members also hold a disproportionate share of board seats.

This type of structure can be problematic, said Glenn Rowe, a professor at the Ivey School of Business at the University of Western Ontario, as it creates a “lower class of shareholders” and a lack of accountability at the board table.

“You can get consolidated boards of directors, because the board is elected by the controlling shareholder, and there could be fewer checks and balances,” Rowe said. “There are downsides, and we’re seeing some of those downsides in the Rogers saga.”

Business industry analysts and observers predict difficulties for the communications giant as two sides battle for control of Rogers. The ousted board chairman Edward Rogers claimed he was re-elected chairman Sunday and is backed by a new hand-picked board.

His mother, sisters and several other board members dispute that claim, saying that his re-election meeting was illegitimate and that the five members who were replaced by Edward Rogers remain on the board.

It’s a high-stakes corporate drama, but Rowe said that while the company’s dual-class share structure is partly to blame, it’s still rare for a company to descend to this level of confusion.

“In the time that I have studied dual class stock structures, there have only been two major controversies (in structured dual class stock companies,” he said). “Magna International, which was 10 or 11 years ago, and now Rogers. You can see a lot of companies structured by dual-class stocks that don’t lead to this kind of situation.”

Kevin Thomas, CEO of SHARE (Shareholders’ Association for Research and Education), said his organization does not favor dual-class stock structures as a general rule. He said the situation at Rogers is an example of what happens when boards of directors are “entrenched” with a lack of accountability.

“Dual class stock structures don’t work and we should discourage them as much as possible,” said Thomas.

But Francois Dauphin, president and CEO of the Institute for the Governance of Public and Private Organizations, says his organization favors dual-class equity structures because they can protect startups or visionaries from being pressured by large institutional shareholders, who they typically only hold shares in a company for a short period of time and are only interested in short-term returns.

“It is also a way to protect companies from hostile takeovers. We are really subject to that in Canada, so we must protect our companies and family businesses, ”he said.

But Dauphin added that dual-class share structures must have limitations. He said that he is in favor of putting an extinction clause, where dual class actions disappear when the founder of the company dies or leaves the scene.

He also said that most companies with a dual-class share structure in Canada allow subordinate voters to have at least some voting rights, and that’s where Rogers got it wrong.

“What we tend to see most often is that subordinate shareholders will have the right to elect up to one-third of the board members,” Dauphin said. “At Rogers, they have 50 votes to zero for subordinate shareholders, so this is a very unique case. This is not something we would ever advocate for. “