UPDATED: Board can’t change “at the stroke of a pen”: RCI
News | 11/01/2021 5:25 pm EDT
Lawyers for Edward Rogers are arguing that the recently ousted chairman of the Board of Directors exercised his shareholder rights when he chose to replace five of the company’s board members, through a written resolution, in order to reappoint himself as chair.
The battle for control of Rogers Communications Inc. (RCI) resumed Monday in the Supreme Court of British Columbia, where the company is incorporated — although Edward Rogers’ lawyer Ken McEwan couldn’t answer why that was when asked by Justice Shelley Colleen Fitzpatrick.
The chaos at Rogers came into public view in September with the ousting of chief financial officer Tony Staffieri, after which the board of directors demoted Edward Rogers as chair. Edward Rogers — son of the company’s founder, the late Ted Rogers — then initiated proceedings to remake the board of directors and reinstall himself as chair, using his position as chair of the Rogers Control Trust, resulting in two separate boards claiming authority over the company.
Much of the controversy surrounds Article 3.4 of the company’s incorporation rules, which stipulates that “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.”
An ordinary resolution is one that is passed with majority vote at a convened meeting or by circulating a resolution for signature.
When laying out his arguments, McEwan told the judge that there are several points which should be non-controversial. He argued that first, the company’s incorporation articles are a contract, or a set of laws, between the company and its shareholders and therefore are subject to provincial statute. He added that RCI’s own articles allow for directors to be removed by an ordinary resolution of the shareholders, and that B.C.’s Business Corporations Act — as a matter of legislative policy — gives shareholders the power to pass an ordinary resolution through a consent resolution. For an ordinary resolution to qualify as a consent resolution, only 66.7 per cent of all the eligible votes are required, McEwan added.
A consent resolution is a one passed by a board of directors or shareholders without holding an in-person meeting. The B.C. law reads that “a consent resolution of shareholders is deemed to be a proceeding at a meeting of those shareholders, and to be as valid and effective as if it had been passed at a meeting of shareholders.”
McEwan argued that Edward Rogers surpassed the two-thirds threshold required for the consent resolution because he represents 97.5 per cent of voting shareholders as chair of the control trust and that therefore, he was simply exercising his rights as a shareholder. He said the matter before the court is a “simple and narrow question of interpretation” about whether Edward Rogers could use the mechanism he did to replace the board members.
McEwan argued the proceeding is not an examination of the share structure or a debate about good governance. He noted to the court that RCI submitted evidence “of what it asserts are the best practices of Canadian corporate governance in an attempt to influence the statutory rights of shareholders,” and said that “in doing so it ignores that shareholders are by definition the beneficiaries of corporate governance good or bad.”
RCI lawyer Stephen Schachter argued that the article should be interpreted to mean that the removal and replacement must take place at the same meeting. He also argued before the court that the Class B shareholders, who do not have voting power in the dual-class share structure, have a right to be at any meeting.
“The right to participate in shareholder meetings — particularly in relation to the election of directors — is so fundamental that removing their right to do so, including through written resolution, must be stated explicitly and clearly,” Schachter argued before the court.
“If you’re going to say ‘no, we’re going to allow the control person to do this’ essentially at the stroke of a pen, we have to be clear in this article about it.”
Schachter called Edward Rogers’ move unprecedented and said that it has “never been done” in the company’s history.
“There is background information before the court about why [Edward] Rogers did what he did… but the why he did it is not why we are here. We care about the how he did it,” he said.
Schachter noted that Lorretta Rogers, as a minority shareholder, is opposing her son’s effort at a takeover of the company and pointed to a signed affidavit submitted last Friday in which she outlined what her late-husband Ted Rogers’ wishes were when RCI’s articles were amended in 2004.
“[Edward] Rogers left out a part about his father’s intention that this kind of unfortunate impasse — something he rued the day — between the board and the control chair that if it ever came to pass it would be resolved transparently at a meeting of the shareholders,” Schachter said when summarizing Lorretta’s affidavit.
Fitzpatrick then noted that the company’s founders provide the court with “relevant contextual evidence” but that the wishes of a deceased person are “inadmissible at worst.”
Later in the day, RCI lawyer David Conklin argued in closing remarks that the late Ted Rogers’ memorandum of wishes is relevant in this context because it is “another objective piece” of evidence surrounding circumstances. He argued that the Supreme Court also noted that surrounding circumstances can be considered when it comes to cases dealing with contractual interpretation — when a court determines the meaning of the terms of a contract.
“What is significant is that [Ted] Rogers, with his wife Mrs. Rogers actually foresaw these events. What he understood is that shareholders would be given an opportunity to respond at a special meeting of the shareholders. The control chair and the family would have to explain that position. That public thought was not a meaningless thought, it’s a meaningful thought,” he said.
Conkin also argued this was a larger issue of corporate governance that could affect all Rogers’ stakeholders in the future, something which the judge should take into account in her decision.
Edward Rogers “could change his mind in six months and replace any director,” he said.
“When you’re changing five independent directors, actively changing control at the board level, it is what we would submit as a fundamental change to the company and of those who are responsible for the strategic decision making of the company and oversight of management. Stakeholders have a direct interest and a right to be fully informed. This is not a private company.”
Fitzpatrick said she “recognized the urgency of the situation” and adjourned the court until Friday afternoon where she will issue a decision if she is “able to,” noting that there were many written submissions in the case.