Where the real power lies

The voting trust crafted to secure and balance the Rogers family’s control over governance of Rogers Communications Inc. is shaping a power struggle between family members over who should manage Canada’s largest wireless carrier. Voting control of the company is held by the Rogers Control Trust, an entity dominated by Rogers family members and their trusted advisers. The company has a separate, elected board of directors with independent members, but the control trust decides the composition of that board, and makes other key decisions.

Weeks of tension broke open this week when the Rogers board voted to remove Edward Rogers as chair and sharply criticized him for allegedly interfering with the company’s management. But Mr. Rogers, the son of the company’s late founder, Ted Rogers, responded by tapping his power as chair of the family trust to advance a plan to replace five independent company directors who opposed him.

Dual-class share structures and family trusts are widely used to steer familycontrolled companies in Canada. But having a voting trust behind the board is a relatively uncommon structure, according to Richard Leblanc, professor of governance, law and ethics at York University. And the particular voting power, rules and family dynamics of the control trust can appear murky, clouding the company’s governance.

Ted Rogers created the trust through his will to make sure his family keeps control of the company he built, and intended it to serve as a check on the trust chair’s considerable power. Yet the current family rift is straining those restraints.

“The wrinkle here is exactly the trust, and the interplay between the trust and the board,” Prof. Leblanc said, in an interview.

The Rogers Control Trust owns 97.5 per cent of the company’s voting Class A shares, according to recent filings. As chair of the trust, Edward Rogers is responsible for liaising with other family members and voting the proxies on the election of company directors, among other duties. He is assisted by the trust’s vice-chair, his sister Melinda Rogers-Hixon, and overseen by a 10-member advisory committee.

There is also a trustee responsible for the trust’s administrative duties, a role served by Bank of Nova Scotia’s trust division, according to regulatory filings. A Scotiabank spokesperson, Maria Saros, declined to comment.

Being chair of the family trust gives Mr. Rogers uncommon sway. According to company filings, the trust’s chair acts under the arrangements of Ted Rogers’s estate “as representative of the controlling shareholder.”

Edward Rogers’s position as trust chair comes up for review annually. The advisory committee that oversees the trust can remove him, but would need the approval of two-thirds of its members – seven out of 10 votes – and the trustee’s concurrence. The way members of that committee are chosen, as well as the order of priority in which family members are considered to chair the trust, are set out in “estate arrangements” made in Ted Rogers’s will, according to company filings.

Six of 10 members of the advisory committee that oversees the trust are members of the family: Loretta Rogers, the matriarch, and her children Edward, Melinda, Martha and Lisa, as well as Loretta’s nephew, David Robinson. The remaining four advisers are Alan Horn and Philip Lind, who also sit on the Rogers Communications board of directors; Thomas Hull, a long-time friend of the late Ted Rogers; and Toronto Mayor John Tory.

“The best-case scenario of this is that we do find out, how does this trust actually work? It’s not transparent,” said Richard Powers, an associate professor at the University of Toronto’s Rotman School of Management, in an interview.

At a meeting of the family trust on Thursday, Mr. Tory, Loretta, Melinda and Martha supported a motion to restrict Edward Rogers’s ability to exercise voting control over the company, according to a source close to the company and the board. But the motion did not have enough support to pass.

That suggests Mr. Rogers may have sufficient power, as trust chair, to vote the shares needed to replace members of the company’s board. But his intention to make those changes through a written resolution, without convening a shareholder meeting, is drawing opposition. In a statement, Rogers Communications called his move “unprecedented,” and said its lawyers determined the resolution is invalid.

“We haven’t seen a tactic like this used in corporate Canada, to my knowledge. I’ve never seen it,” Mr. Powers said. “We’re all going to learn about this, one way or another.”

Good governance depends on strengthening the role of independent directors, who should be able to mediate family disputes that may arise in such companies, Prof. Leblanc said. “In the Rogers case, the independent directors are in the scope of Mr. Rogers. So they cannot under these circumstances do what independent directors normally do on family business boards, which is act as that wise counsel and second set of eyes – because they have been identified by Mr. Rogers as the source of the problem,” he said.

The dispute could eventually end up being tested in court, governance experts say. For now, it is creating uncertainty about who will govern the company as it seeks regulatory approval for its $26-billion takeover of Shaw Communications Inc.

“That’s the $26-billion question: Who is the board? What happens in the interim? I just don’t know the answer to that,” Mr. Powers said. “My feeling would be that the current board stays in place until it’s settled.”