The judge overseeing the legal battle for control of Rogers Communications Inc. (RCI) has announced the next court date of Friday at 2 p.m. - where she will likely announce her decision on the high-profile matter.
B.C. Supreme Court Justice Shelley Fitzpatrick said that she may announce the decision in the case of Edward Rogers v. RCI at that time – after both sides made arguments supported by “shareholder rights” in court today.
Edward Rogers is petitioning the B.C. Supreme Court to enforce his decision to make changes to the board of directors at RCI based on his role as the chair of the Control Trust – a family trust that holds 97% of RCI’s voting shares – and despite being voted out at RCI’s company board chair just weeks ago.
Kenneth McEwan, attorney representing Edward Rogers, told Fitzpatrick during the court appearance Monday that Rogers’ ability to make changes unilaterally without holding a shareholders’ meeting – an “uncontroversial” ability – is a matter of shareholders’ rights.
“This is a simple and narrow question of interpretation,” McEwan said, noting B.C.’s Business Corporations Act clearly empowers the majority of voting shareholders – more than 67% - to make consent resolutions without a shareholders’ meeting.
“Here, 97% of the voting shareholders have been delivered where 67% was required,” McEwan added, noting Edward Rogers represents the Trust that holds an overwhelming majority of voting shares. “The respondents [RCI] is trying to clear themselves of their responsibility to the statute.”
McEwan further said that RCI’s attempt to resist Edward Rogers’ move to change RCI’s board is an attempt by entrenched management and old executives to stay their eviction by Rogers – which is a right that board directors and executives of the company do not have.
The RCI defence is also expected to argue that Edward Rogers’ move deprive the rights of RCI shareholders who do not have a vote. RCI is a dual-class publicly traded company, where the general public can easily acquire Class-B shares (those without voting rights) while holders of Class-A shares (the Trust) maintain control.
The defence is arguing that all shareholders deserve to have their rights protected, to which McEwan flatly described as a non-issue.
“This is not an examination of the merits of a dual-class share structure,” he said. “The respondent is seeking to distract... with the fact that minority shareholders’ rights have been violated. But that would have to arise... to the [67%] threshold under the Business Corporations Act article. There is no right if the threshold has been met.”
The conflict between Edward Rogers and the RCI board – including his mother, Loretta Rogers, and sisters Melinda Rogers-Hixon and Martha Rogers – arose from Edward Rogers’ desire to remove RCI CEO Joe Natale due to supposed under-performance of the company.
McEwan, however, argued today’s case is not about Natale’s fate – nor is is about RCI board members’ decision to remove Edward Rogers as company board chair due to his support for Natale’s removal.
Rather, it is about RCI’s board having “lost confidence of the 97% of voting shareholders” – the Control Trust – and shareholders’ having the rights to a mechanism to make changes to management.
“If there is ambiguity, [the decision] should be skewed in favour of the shareholders’ voting rights,” McEwan said.
Later in the morning, RCI lawyer Stephen R. Schachter fired back against McEwan’s position that the B.C. Business Corporations Act specifically gives Edward Rogers the ability to unilaterally name new directors to RCI’s board.
Schachter said the Act noted that its regulations and rules are subject to “the articles and memorandums of RCI” itself, and that the company’s own rules take precedent over provincial legislation.
“There is nothing mandatory or necessary that flows from the Act,” Schachter said. “It was to allow companies to adapt articles to their particular circumstances.”\
Schachter further noted that while Edward Rogers presented his move as normal for a holder of a company’s majority voting shares to exercise, no such move has ever been undertaken by someone in Rogers’ position in RCI’s company history. As such, McEwan’s stance that this is a routine and narrow reading of the Business Corporations Act doesn’t fit the circumstances – given its unique nature.
“Although it is not obvious for the court to determine leadership of a company, it is for the court the lawful process by which fundamental changes like these occur,” Schachter said. “This is not a sundry matter... That’s why we say it requires a meeting and is not something that can be done, like this, with a consent resolution.”
The RCI lawyer added that it is crucial for the court to protect what has made RCI work as a dual-class public entity - the emphasis on corporate governance such as “the importance of independent directors and the fact directors are either elected by shareholders or appointed by the board.”
“The petition before you is not about the power of the control share,” Schachter said. “We are dealing with whether the articles require a meeting of shareholders before that power can be exercised to remove independent directors and create a new board.”
In the afternoon, RCI lawyers continued to attack McEwan’s position of a narrow interpretation of B.C.’s Business Corporations Act, saying the fundamentals of a soundly run corporation – under a more dispersed and transparent leadership board structure – are the very foundations being undermined by Edward Rogers’ petition if it succeeds.
“Independence is promoted by this company because it signals to investors that they can rely on this board’s structure - this commitment to governance – to ensure that decision making will not just be in the interest on a single individual,” RCI lawyers argued this afternoon. “That context explains to you why the interpretation Mr. Schachter went through with you this morning is what makes sense. It’s the only interpretation that makes sense.”
RCI attorneys also noted that the current structure supported by RCI’s board allows someone like Edward Rogers to present a plan such as the one aiming to replace Natale. That process would then allow shareholders “to hear from the company on why such a resolution is not in company’s best interest.”
That means that – when a shareholders’ meeting then takes place – there would have been time for “public discourse about the significance of the efforts being made to change the board.”
“That’s the process – committed to uphold [the company’s] commitment to the best of corporate governance strengths,” RCI’s lawyers said.
McEwan, however, wrapped up the day by maintaining his position – that nothing raised by RCI lawyers took away from the fact that – under current B.C. Business Corporations Act’s rules – Edward Rogers has the right to make changes to RCI’s board as the chair of the Trust that owns the vast majority of the company’s voting shares.
“All this... is irrelevant and besides the point,” McEwan said. “It offers nothing of substance... Yes, [RCI] is highly regulated. But not a single requirement RCI can point to has been breached in terms of regulatory [rules]. Mr. Rogers is here as a shareholder, exercising shareholder rights.
“What all of this all comes down to, like it or not, is that they [RCI’s board members] are subject to the will of the shareholders. That is what this is about. Mr. Rogers controls 97% of the shares... and he has lost trust in the board.”
