A sort of company fairness construction utilized by a number of of Canada’s most outstanding firms is as soon as once more underneath fireplace from critics in gentle of the present chaos at Rogers Communications Inc.
Twin-class share constructions — the place firms concern completely different lessons of widespread shares, every with their very own degree of voting and management rights — are utilized by firms like Shaw Communications Inc., Fairfax Monetary Holdings Ltd., Bombardier Inc., Canadian Tire Corp. Ltd. and others. Sometimes, they provide disproportionate voting rights to 1 group of shareholders corresponding to the corporate’s founders, members of the family and executives.
Rogers Communications — which is embroiled in a bitter battle for management of the corporate this week — can also be a dual-class share construction. At Rogers, the household belief owns 97 per cent of the category A voting shares and 9.89 per cent of sophistication B shares, which pay dividends however should not have voting rights. Relations additionally take up a disproportionate share of board seats.
This type of construction could be problematic, stated Glenn Rowe, a professor on the College of Western Ontario’s Ivey Faculty of Enterprise, in that it creates an “inferior class of shareholders” and lack of accountability across the board desk.
“You may get entrenched boards, as a result of the board is elected by the controlling shareholder, and there may very well be fewer checks and balances,” Rowe stated. “There are disadvantages, and we’re seeing a few of these disadvantages play out within the Rogers saga.”
Enterprise trade observers and analysts predict issue forward for the communications big, as two events battle for management of Rogers. Ousted board chair Edward Rogers claimed he was re-elected chair on Sunday, and is backed by a brand new hand-picked board.
Rogers household feud: Battle to manage telecom big will get messy
His mom, sisters and a number of other different board members dispute that declare, saying his re-election assembly was illegitimate and that the 5 members who have been changed by Edward Rogers stay on the board.
It’s high-stakes company drama, however Rowe stated whereas the corporate’s dual-class share construction is partly in charge, it’s nonetheless uncommon for an organization to descend to this degree of turmoil.
“Within the time I’ve studied twin class share constructions, there’ve solely actually been two main dust-ups (at dual-class share structured firms,” he stated. “Magna Worldwide, which was 10 or 11 years in the past, and now Rogers. You may have a look at lots of dual-class share structured firms that don’t result in one of these state of affairs.”
Kevin Thomas, chief govt of SHARE (Shareholder Affiliation for Analysis and Schooling), stated his group doesn’t favour dual-class share constructions as a common rule. He stated the state of affairs at Rogers is an instance of what occurs when boards change into “entrenched” with a scarcity of accountability.
“Twin-class share constructions don’t work and we needs to be discouraging them as a lot as potential,” Thomas stated.
However Francois Dauphin, president and chief govt of the Institute for Governance of Personal and Public Organizations, says his group is in favour of dual-class share constructions as a result of they will defend startup or visionary firms from being pressured by massive, institutional shareholders, who sometimes solely maintain shares in an organization for a brief time frame and are solely excited by short-term returns.
“It’s additionally a option to defend firms from hostile takeovers. We’re actually topic to that in Canada, so we have to defend our firms and household companies,” he stated.
However Dauphin added that dual-class share constructions must have limitations set upon them. He stated he’s an advocate of placing in a sundown clause, the place the dual-class shares disappear when the founding father of the corporate dies or exits the scene.
He additionally stated that almost all dual-class share structured firms in Canada permit subordinate voters to have at the least some voting rights, and that’s the place Rogers has gone mistaken.
“What we normally see extra usually is that subordinate shareholders could have the proper to elect as much as a 3rd of the board members,” Dauphin stated. “At Rogers, they’ve 50 votes to zero for the subordinate shareholders, so this can be a very distinctive case. This isn’t one thing we’d ever advocate for.”
© 2021 The Canadian Press
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