There's a battle brewing in British Columbia's Supreme Court, and it's connected directly to the governance of one of Canada's largest telecommunications providers. It's also an intensely small conflict - at the heart of the Rogers family that controls Rogers Communications.

I wouldn't normally be incredibly interested in a dispute between millionaires on corporate boards, though this dispute has three elements that interest me, because: (1) I, like many Canadians, have my cell phone service through Rogers, (2) I'm a shareholder of Rogers and Shaw Communications, another company Rogers is in the process of buying, and (3), the dispute is all centered on corporate governance.

There's a fourth element that interested me: the case is currently being heard before Justice Shelly Fitzpatrick, the same BC Supreme Court justice who authorized the sale of Mountain Equipment Co-op's assets through creditor protection proceedings last year.

The dispute, in short

From what I can tell, the dispute is a family dispute that has erupted into the mainstream.

About 97.5% of the control of Rogers Communications is vested in the Rogers Family Trust - a trust established by Ted Rogers after he created the company, and a trust that is currently headed by Edward Rogers, the (ex? current?) chair of the board of directors of Rogers Communications.

After an almost comedy of errors led to a cellphone butt-dial that revealed Edward's plans to fire the current CEO[1], the family behind the Rogers Family Trust claimed to remove Edward Rogers from the board of directors of the company to prevent him from following through on his plans.

Edward Rogers, on the other hand, has claimed to use a written 'consent resolution' to replace five of the board of directors with people who agree with him and keep him in control of the company.

The rest of the family claims that Edwards' moves are illegal, under BC law[2], and have filed suit in the BC Supreme Court to prevent the change in management from happening.

Why corporate governance matters

This whole dispute is possible for two reasons: one, Rogers has a dual-share class structure, where Class A shares carry votes and Class B shares do not. There's differences between dividends between the two of them, and the vote is seemingly 'priced into' the share prices as well. The Rogers Family Trust owns 97.5% of the Class A shares. Hilariously, I own 3.

Dual-class share structures are not uncommon. Many people would be aware of the difference between "common" shares (voting shares) and "preferred shares" (non-voting, but often dividend-bearing) in companies. Preferred shares are 'preferred' because they have dividends, and investors are assumed to not really care too much about voting in company decisions.

Except, maybe in this case.

The dispute at Rogers has done some interesting things to the company: over the past couple of weeks, the share price has dropped significantly because ongoing governance disputes signal uncertainty and risk to investors. Additionally, the pending transaction for Rogers to buy Shaw Communications (from whom I have intenret) is seemingly at risk.

Here, a company's governance directly impacts the interests of shareholders - shareholders who are assumed to not want a say in the governance of the company.

Did we need to have a meeting?

The Rogers family - not including Edward - are disputing the method that Edward used to replace board directors.

Essentially, Edward used a written resolution - a "consent resolution", in the terms of BC corporate law, to restructure the directorship of the company.

The Business Corporations Act in British Columbia allows "consent resolutions" to take place outside of a shareholders' meeting if a few key conditions are met:

  1. The issue to be decided must be an issue that is allowed to be decided by an "ordinary resolution" under the Act and the company's articles of incorporation;
  2. That sufficient shareholders to pass the resolution at a meeting have agreed to it.

If a consent resolution meets these criteria, s.180 of the Business Corporations Act says that a consent resolution is deemed to have been taken at a duly constituted meeting of the shareholders.

So what's an "ordinary resolution"? An ordinary resolution is something that you only need a simple majority of votes to resolve - so 50% + 1. A special resolution, on the other hand, requires a supermajority (typically 2/3 votes) to approve.

Further, according to the Act, most anything is an ordinary resolution unless clearly defined to be a special resolution. The Act says that you need to look at the corporate articles to understand whether an issue in particular is ordinary or special if the Act itself doesn't say.

Looking through the Rogers Communications Incorporated corporate articles,[3] the answer to at least one of these questions is pretty quickly clear: Article 3.4 says that directors may be removed by ordinary resolution and replacements can be appointed at the same meeting where directors were removed, or failing that, by the directors.

This also answers requirement 2 of what a consent resolution is: with the Rogers Family Trust, as controlled by Edward Rogers, owning 97.5% of the Class A voting shares of Rogers Communications Incorporated, a written resolution by Edward is by default a "sufficient number of shareholders" because no one could outvote him.

There's an odd wrinkle I need to note and an important element I need to bring up.

First, the company's articles clearly contemplate an ordinary resolution at a meeting as a way to remove directors, as the article in question states that replacement directors may be appointed at that same meeting. Meeting is used. That being said, s.180 of the Business Corporations Act deems consent resolutions as being held at meetings - by legal definition.

So, it looks like Edward has the upper hand here.

But the important element: as a publicly traded corporation active in more than one province, there could be a multitude of other legislation or regulation that applies to the governance of Rogers Communications. For example, the Ontario Securities Commission regulations could apply, and that could allow the Commission to step in and assert control. I don't know enough about the interplay between securities legislation and the BC Business Corporations Act to say which would prevail in a dispute.

There's another weird thing

There is another weird thing about this case - the case is being heard before Justice Shelley Fitzpatrick. Justice Fitzpatrick is a well-regarded bankruptcies and insolvencies judge, though as a justice of the BC Supreme Court, she has inherent jurisdiction over a large number of issues.

She's also the judge who oversaw the Canada Company Creditors Arrangements Act proceedings that saw Mountain Equipment Co-op's assets sold to an American private equity firm. She also oversaw a case where she blocked a young girl from accessing gender-affirming surgery after her mother objected,[4] ordered a mall to stop the eviction process after the Hudsons Bay Company failed to pay rent,[5] has intervened to order protesters away from pipeline projects[6], and other cases. In the MEC case, she also declined to intervene when the co-op's lawyers failed to abide by clear legislative requirements to allow member-owners to organize - something that the Province has recently started to address through a legislative amendmment (that I hope to write about soon).

In all fairness to Madame Justice, justices of the Supreme Court of BC will hear many cases, many of them controversial, and must always arrive at a decision.

What interests me is Justice Fitzpatrick's approach to corporate disputes. With MEC, she saw her role as the overseer of a creditor protection process to privilege the transaction of the sale over corporate governance. With the Hudsons Bay case, she held the ongoing operations of the Hudsons Bay store as more important than their contractual obligations to pay rent.

I'm interested in how she'll rule on this case, where a family dispute seems to be rather clearly addressed by provincial law.

She has said she will have a decision on Friday at 2pm; I look forward to seeing how she resolves this issue.

Back to governance

More than anything, this case illustrates to me that governance is critical - whether your organization is for-profit, non-profit, or something entirely else. When we design and build organizations, they're often imbued with assumptions we make about the character of the people behind them, whether they be the owners or the managers or the workers.

Provincial law is created to provide a bare-basics guideline to what needs to happen. BC's laws - whether it be the Society Act, the Cooperative Associations Act or the Business Corporations Act is some of the most permissive, "lightest touch" corporate governance legislation I've ever seen.

What's happening here is another exmaple of the poor outcomes of this vague, light-touch legislation. MEC was the first case where I personally saw the effects, and strangely, Justice Fitzpatrick is now overseeing a second one that may have long-lasting effects on corporate governance.

  1. See, for example ↩︎

  2. Rogers is incorporated in British Columbia, and therefore subject to the BC Business Corporations Act ↩︎

  3. You can find them here: ↩︎

  4. See here: ↩︎

  5. See here: ↩︎

  6. See here: ↩︎