My House, My Rules: the Rogers Family Drama
December 5, 2021
How could one of Canada’s largest publicly-traded telecommunications companies have two competing boards of directors?
On October 24, 2021, a press release was issued on RCI letterhead stating that “the Board of Directors of Rogers Communications Inc. is pleased to announce that it has held its initial meeting as reconstituted following the consent resolution of shareholders passed on Friday, October 22, 2021”.
Shortly thereafter on the same day, another press release was also issued on RCI letterhead by individuals who claimed they still represented the majority of the board of RCI and that “No other group of individuals has any authority to purport to act as the Board of Directors of Rogers Communications Inc.”
- RCI: Ted Rogers bought a local Toronto radio station in 1960 and turned it into one of Canada’s largest and best-known companies. RCI has become a telecommunications and media conglomerate (RCI owns the Toronto Blue Jays, who play in the Rogers Centre, and is a significant stakeholder of the Toronto Raptors and Toronto Maple Leafs). RCI, which is headquartered in Toronto, Ontario but incorporated in British Columbia and governed by the British Columbia Business Corporations Act (BCBCA), has approximately 24,000 employees and a market capitalization of over $24 billion.
- The Trust: Ted Rogers established the Rogers Control Trust (the Trust) in 2007 as the means by which control of RCI would be exercised. The Trust holds 97.5% of the voting shares of RCI.
- Edward Rogers: Since Ted’s passing in 2008, his son Edward Rogers has acted as Chair of the Trust. In that role, Edward is able to exercise voting power over RCI at his discretion, unless the Trust’s Advisory Committee acts to constrain him. Since Ted’s death, Edward has also acted as chairman of RCI’s Board of Directors.
- Joe Natale: initially, Chief Executive Officer of RCI.
- Tony Staffieri: initially, Chief Financial Officer of RCI.
By the middle of 2021, Edward Rogers had reportedly developed concerns about Mr. Natale’s performance as CEO, and discussed with his family the idea of replacing Mr. Natale with Mr. Staffieri.
In September 2021, Mr. Natale learned of these discussions, and indicated to Edward Rogers that either he (Mr. Natale) or Mr. Staffieri would have to leave RCI.
At that point, Edward proposed to the RCI board of directors that Mr. Natale be replaced with Mr. Staffieri. While the RCI board of directors reportedly seemed initially supportive, a few days later, the board approved resolutions to retain Mr. Natale and terminate Mr. Staffieri instead. On September 29, 2021, RCI issued a press release announcing the departure of Mr. Staffieri.
A few weeks later, RCI issued MD&A for the third quarter of 2021 noting that the board had formed a committee to, among other things, “establish clear protocols for interactions” between the RCI board chair (being Edward Rogers) and members of management, suggesting that tensions between those factions were ongoing. On October 21, 2021, the RCI board resolved to remove Edward Rogers as chair.
Shortly thereafter, the Trust issued a press release of its own, announcing that Edward Rogers, in his capacity as the Control Trust Chair, intended to make changes to the RCI board, and that he had submitted a written shareholder resolution to the holders of the Class A Voting shares of RCI to effect such changes. The resolution provided for a reconstituted board of directors of RCI with five prior directors having been replaced. The resolution was delivered to RCI the following day.
RCI disputed the validity of the consent resolution, and a series of public statements followed, each side claiming to represent the true board of directors of RCI. To resolve the uncertainty, Edward Rogers brought an application before the Supreme Court of British Columbia to determine whether the consent resolution was valid and effective.
How Did It Get Resolved?
On November 5, 2021 the Supreme Court of British Columbia released its decision in Rogers v. Rogers Communications Inc.
Madam Justice Fitzpatrick described the family squabbles as both “Shakespearean drama” and a “distraction”. She focused instead on the narrow question of whether the shareholders of RCI could remove and replace directors by way of a written consent resolution signed by shareholders holding the requisite special majority of shares (in the case of RCI, 2/3 of the votes cast), without the need for an actual meeting of shareholders.
As the holder of 97.5% of the voting shares, it was not disputed that the Trust could remove and appoint the directors of RCI at its discretion. The only issue the court was asked to address was the process the Trust had to follow to do this.
The Trust passed and delivered the consent resolution to RCI within one day of publicly disclosing its intention to do so. If the Trust instead was required to have RCI call and hold a meeting of shareholders, this would have taken more time and could potentially have allowed other parties to become more involved in the process.
Justice Fitzpatrick found that the process by which Edward obtained the consent resolution was available to him under the BCBCA and the articles of RCI, and that the consent resolution was accordingly valid and enforceable.
Why Is It Important?
The Rogers case highlights a few key differences and also provides potential guidance on some similarities between the BCBCA and other Canadian corporate statutes, such as Ontario’s Business Corporations Act (OBCA).
Key differences and similarities between the BCBCA and the OBCA
- Removal of directors by written resolution: Under the BCBCA, directors of a corporation may be removed by a special resolution (at least 2/3 of the votes cast), or if the corporation’s memorandum or articles provide another method, by that other method. Unless the corporation’s memorandum or articles provide otherwise, the vacancy among directors caused by the removal of a director may then be filled by the shareholders at the shareholders’ meeting, if any, at which the director was removed, or otherwise by the shareholders or the remaining directors.
- RCI’s articles provide that, subject to the provisions of the BCBCA, 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. In doing so RCI had prescribed in its articles the method by which directors were to be replaced. However, as this method was subject to the provisions of the BCBCA, the court held that the articles and the BCBCA must be read and applied in harmonious fashion, save for conflicts (resolved in favour of the BCBCA). As the term “ordinary resolution” is not defined in RCI’s articles, the definition in the BCBCA which includes a written consent resolution applied. The court rejected RCI’s argument that the reference in the articles to “the same meeting” required that the ordinary resolution to remove directors could not be by way of a written consent resolution.
- Unlike the BCBCA, similar provisions in the OBCA dealing with the removal of directors and filling of vacancies among directors do not allow a corporation to set out a different method in its articles or by-laws. These provisions similarly refer to meetings of shareholders. If interpreted in the same way as the above provisions in the BCBCA and RCI’s articles, the OBCA provisions also would not require a meeting of shareholders, at least in certain circumstances as discussed below.
- A written resolution is valid as if passed at a meeting – but note who needs to sign it: Section 180 of the BCBCA provides that a written consent resolution of shareholders is deemed to be a proceeding at a meeting of shareholders and to be as valid and effective as if it had been passed at a meeting. The court in the Rogers case held that the clear import of section 180 is that a consent resolution obviates the need for a meeting of shareholders. The OBCA contains similar provisions permitting corporations to pass written resolutions in lieu of a meeting of shareholders and the clear import of these provisions also appears to be to obviate the need for a meeting. However, unlike the BCBCA, the OBCA provisions generally require that all the shareholders entitled to vote sign the resolution. While these provisions were amended in 2021 to allow written resolutions signed by a simple majority, the new provisions apply only to private companies.
- A resolution can be submitted by a shareholder to other shareholders: The definition of “ordinary resolution” in the BCBCA requires that the resolution be submitted to all the shareholders holding shares that carry the right to vote at general meetings. In the Rogers case, the Trust delivered an unsigned copy of the consent resolution to the other holders of voting shares one day before delivering the signed consent resolution to RCI. RCI argued that only the corporation could submit a resolution to shareholders and therefore the consent resolution did not satisfy the definition of “ordinary resolution”. However, the court held that there is nothing in the BCBCA to suggest that a shareholder must first send the resolution to the corporation and rely on the corporation to “submit” it to shareholders. The OBCA definitions of “ordinary resolution” and “special resolution” also require that the resolution be submitted to a meeting of shareholders. If interpreted in the same way as the BCBCA, the OBCA should allow a shareholder to submit a resolution to other shareholders without needing to involve the corporation.
General principles for both BCBCA and OBCA corporations
The court in the Rogers case also confirmed and clarified the following general principles which generally also apply to Ontario corporations:
- A corporation’s articles or by-laws are a contract between the corporation and its shareholders. They are to be interpreted in accordance with ordinary principles of contractual interpretation, taking in account all the surrounding circumstances at the time the articles were adopted.
- In interpreting a corporation’s articles or by-laws, surrounding circumstances do not include the intentions of a founder expressed in an earlier document. Surrounding circumstances also do not include how the corporation governs itself over time, as this would suggest that what the articles mean changes over time (although presumably evidence of how the corporation governs itself over time may be considered in determining how the corporation interprets the original meaning of the articles).
- A corporation’s articles or by-laws and its governing corporate statute are to be read together. A reference in a particular provisions in the articles to the provision being “subject to the provisions of the Act” means that the articles do not provide a complete code in respect of the subject matter of that provision.
- Corporations and their shareholders must carefully review their governing statute together with the corporation’s articles or by-laws to determine their respective rights and obligations. Where articles or by-laws are stated to be “subject to the provisions of” the corporate statute, this must be given meaning by reading the articles or by-laws and the corporate statute together.
- It is common practice, although not always wise, for a corporation’s articles or by-laws to repeat requirements from the corporate statute. When this is done for ease of reference, and not to specifically set out different requirements where permitted by the corporate statute, this can often lead to confusion as to which requirements apply. If the corporate statute is amended, this may also result in repetitious provisions in the articles or by-laws being out of date or even inconsistent with the requirements in the corporate statute.
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