Can a controlling shareholder remake a company’s board with the stroke of a pen?
That will be the central question before a judge on Monday as lawyers for Edward Rogers seek a court’s blessing for his recent decision to remove five directors from the board of Rogers Communications Inc. and replace them with nominees of his own.
Experts say that he may have the law on his side, but it won’t be a “slam dunk.”
Edward is chair of a family trust that controls 97.5 per cent of the voting shares in the telecom company and has said that gives him authority to replace the directors using a written resolution.
Opposing Edward are the company itself and his own family members, including his mother, Loretta Rogers, who filed an explosive affidavit in the matter on Friday.
Among other things, she stated that her son has “disregarded” the checks and balances her late husband — company founder Ted Rogers — established in his estate and “breached his undertaking to be bound by Ted’s wishes.”
“I very much disagree with Edward’s personal view that he is entitled to exploit his entrusted position as Control Trust chair to circumvent Ted’s wishes, the interests of other Rogers family members and the governance structure that has allowed Rogers to become a successful public company despite family control,” Loretta said.
The case will be heard by Justice Shelley Fitzpatrick of the Supreme Court of British Columbia, which is where the company is incorporated.
“It’s not a slam dunk for Mr. Rogers,” said Richard Leblanc, professor of governance, law and ethics at York University.
He said two weaknesses in Edward’s case could be not paying adequate heed to shareholder democracy and “the wishes of Mr. (Ted) Rogers according to Mrs. Rogers.”
The legal dispute hinges on the interplay between the corporate law in British Columbia and the articles that govern the company.
The articles state that shareholders can remove board directors using an “ordinary resolution” and that the “vacancy created by such removal may be filled at the same meeting.”
The term “ordinary resolution” is not defined in the company’s articles. But in the B.C. Business Corporations Act, one part of the definition states it can be done in writing with the consent of enough shareholders with the right to vote.
The Most Powerful Sale & Affiliate Platform Available!
There's no credit card required! No fees ever.Create Your Free Account Now!
Edward’s team argues that this is the crux of the argument. On Oct. 22, he sent a written resolution to the company saying he had removed and replaced the five board directors with his own nominees.
(David Peterson, who is one of the directors Edward has sought to replace, is also vice-chair of Torstar Corp., the company that owns the Toronto Star.)
His lawyers say this move was effective as soon as he sent that written resolution.
“On the face of it, I do think Edward Rogers has the stronger argument as a strictly corporate law matter,” said Camden Hutchison, assistant professor at the Peter A. Allard School of Law at the University of British Columbia.
“Assuming they followed the procedures the way they were supposed to, they are allowed to replace the board with a written resolution.”
He said that B.C. law is clear that companies can set a process of their choosing for removing directors and the Rogers corporate articles do set out that this can be done by written resolution.
Hutchison said the fact that the articles make reference to filling vacancies “at the same meeting,” suggesting an actual meeting might be required, is a “source of ambiguity that might come up at the hearing.”
As of Friday evening, Rogers Communications had not filed responding materials with the court. Over the past week, the company — and eight directors from its board — have said Edward’s action was “invalid” and that the board changes can’t be made “without convening a meeting of shareholders.”
In her affidavit Friday, Loretta Rogers said, “A critical protection provided to shareholders is the right of all shareholders, including holders of Class B non-voting shares, to receive notice of, and to participate at, shareholder meetings.”
She noted that following this process gives stakeholders a chance to express their views in advance of a decision. Non-voting shareholders could also vote with their money, by buying or selling the company’s stock depending on what they think of the plans.
Hutchison said he thinks the court will rule quickly on the matter. He noted the judge doesn’t have to follow the “schedule of the company” but will be aware that “if this doesn’t get resolved soon, it will risk damage to the business.”
“Judges do not like to be rushed,” said Leblanc. “But under the circumstances, I would expect some type of a ruling early or in the middle part of next week, perhaps with written support to follow.”
“Time is of the essence given the claim to two valid boards of a public company,” he said. “There can only be one valid board.”
Christine Dobby is a Toronto-based business reporter for the Star. Follow her on Twitter: @christinedobby
Subscribe to the newsletter news
We hate SPAM and promise to keep your email address safe