(Toronto) Rogers Communication’s power war demonstrates flaws in the way businesses are regulated in Canada, experts say.
According to Richard Leblanc, a governance professor at York University, federal and provincial regulations are outdated and allow undemocratic practices.
Two categories of shares
“Rogers is a case from which we must learn lessons for our corporate governance that does not take into account the evolution,” he said.
He adds that the decision of the Supreme Court of British Columbia to allow Edward Rogers, the chairman of the Rogers Control Trust, to replace five members of the board of directors without holding a shareholders’ meeting, only shows that the province should update its regulations.
Mr. Leblanc argues that the two-class share structure in place at Rogers and other large Canadian companies is problematic. We should add suspension clauses or a better internal control system.
“The most fundamental element of corporate democracy is to allow shareholders to elect directors at annual meetings,” he says.
Advocacy for a federal commission
The professor says British Columbia is the only province where Mr. Rogers’ action could be authorized. According to him, this also highlights the absence of a federal securities commission to coordinate the various rules. Federal guidelines on corporate governance have not been updated since 2005, which makes them “totally inadequate,” he said.
The Canadian Coalition for Good Governance is calling for changes to the rules surrounding the two-tier corporate structure.
Its CEO, Catherine McCall, recently wrote in an editorial that this structure where the weight of one action is heavier than another violates the principles of justice and accountability on which the capital market depends. According to her, the creation of long-term sustainable value must take into account the interests of all shareholders.
According to Daniel Waeger of Wilfrid Laurier University, investors consider whether a business is run by independent directors before investing their money or not.
If a controlling shareholder has the right to replace independent directors at an annual meeting, Professor Waeger says he is surprised that the laws allow him to do so “so quickly, without ceremony”, as is the case with Edward Rogers.
“It’s a bit surprising, because the presence of independent directors promotes a fair structure,” he comments.
Randall Morck, a professor of administration at the University of Alberta, believes that this structure can be useful, especially in the high tech sector where the founder of a company may have specialized knowledge. It becomes problematic when management is handed over to the second or third generation.
“This concentration of power is becoming a problem. It’s less defensible, ”he says.
He adds that the Rogers saga highlights the issues surrounding family trusts that allow the very rich to reduce inheritance tax.
“In a world where we worry about extreme inequalities, it is reasonable to question whether a family trust should exist in a democracy that advocates a certain economic equality. ”