Jeffrey MacIntosh is a law professor at the University of Toronto.
The internecine strife in full swing at one of the country’s largest corporate megalodons has spilled out into the streets. This reality show pits Edward Rogers against his mother and two sisters (all of whom are directors of Rogers Communications) and the five “independent” directors on the Rogers board. There’s much more at stake, however, than tabloid-style prurient interest. Important issues of corporate governance loom large.
A key issue is whether Edward Rogers (who controls 97.5 per cent of the votes) had the power to unilaterally remove the five independent directors and replace them with his own nominees – both ostensibly effected by a written resolution signed only by him.
If Rogers was incorporated in any province other than British Columbia, the answer would be an unambiguous no. Under the federal template (the Canada Business Corporations Act), which has been adopted by most of the provinces and territories, removal of directors can only occur by a majority shareholder resolution passed at a shareholders meeting, or by a resolution in writing signed by all shareholders entitled to vote.
Under the B.C. Business Corporations Act, however, it is possible to specify in the company’s constitutional documents virtually any mechanism for removal of directors. At first blush, Rogers’s constitution seems to do exactly that, in allowing for the removal of directors by an “ordinary resolution,” which, in the case of a written instrument, must be signed by shareholders holding two-thirds of the voting shares.
But there’s a fly in the ointment. The provision in question states, “the shareholders may by ordinary resolution remove any director from office and the vacancy created by such removal may be filled at the same meeting, failing which it may be filled by the directors” (emphasis added). This clearly requires a shareholder meeting to remove directors. Since none was held, no directors were removed. And since no directors were removed, there were no vacancies to fill.
The BCBCA falls woefully short of the governance protections offered to shareholders in Canadian jurisdictions that have adopted the federal template.
It is simply inappropriate in a public company to allow for either appointment or removal of directors without a shareholders meeting. It is true that Edward, through his chairmanship of the Rogers Control Trust, controls 97.5 per cent of the voting shares. Thus, the result of any shareholders meeting is a foregone conclusion.
However, this doesn’t mean it’s pointless to hold a shareholders meeting. For one thing, advance notice must be given, allowing time for shareholders (and the public at large) to reflect on the matter. For another, where there is a meeting, management must put together an information circular not only indicating what business is to be transacted, but defending its proposed course of action. Added to this, shareholders have a right of discussion. This can be enlisted to ask management difficult questions, express doubts and more generally hold management’s feet to the fire.
Moreover, both corporate and securities law now put great weight on the role of independent director in protecting shareholder interests against the lapses or predations of controlling shareholders or directors. While a majority of independent directors is not strictly required, the Canadian securities regulators have stated, in their view, this is “best practice.”
For regulated entities such as stock exchanges, a majority of independent directors is now de rigueur, not only at the board level, but at the committee level as well, and many of Canada’s public companies adhere to this principle even though not compelled to do so. In the Rogers case, however, Edward purported to remove and replace directors without even consulting the nomination committee or the board at large. This is a model of poor corporate governance. For a corporation the size and importance of Rogers, it is simply unacceptable.
Even if Edward fails in his current court application, under the BCBCA he can simply “requisition” a shareholders meeting at which he can appoint whomever he likes as directors. But it is important to note that compliance with the BCBCA is not a complete get-out-of-jail-free card. All public companies are subject to the overarching “public interest” powers of securities regulators – in this case, not only in B.C., but in Ontario (and possibly other provinces).
Should they take umbrage at the goings-on at Rogers, they can effectively enjoin Edward from exercising his voting power to remove and replace directors. Those who object to Edward’s actions might also try to convince a court that Edward’s course of action constitutes a breach of his fiduciary duty to Rogers or “oppressive” conduct. In either case, a variety of remedial options is available.
It seems clear that owning shares in a public corporation incorporated in B.C. can be hazardous to your health, and Rogers should consider reincorporating from B.C. to another province with more robust governance protections. As for the current machinations, who knows where the dust will settle. But Canadian newswires are likely to continue throwing off sparks for some time to come.
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