Recent Corporate Battle Carries a Legal Lesson for Business
Up Here Business Magazine
February 2022 - 3 min read
The recent family feud at Rogers Communications made for great drama. But don’t overlook the issue at the heart of the dispute. It’s a reminder that business law—not corporate practices—carry the day in court.
The closing months of 2021 featured dramatic corporate shenanigans at Rogers Communications Inc. a Toronto-headquartered telecommunications company that serves millions of Canadians. But there was more to come. In the first weeks of 2022, someone reached out to Brian Cox—the star of HBO’s “Succession,” a series about the intrigues of a family’s battle for control of its corporate empire—to make a joke video congratulating Edward Rogers, chairman of Rogers Communications, on his success in a real-life boardroom battle.
The theatrics followed a very public display of family wrangling and corporate proceedings at one of Canada’s largest public companies. The mix of family dynamics and office intrigue made for splashy headlines—and a fundamental matter of corporate law was decided.
First, some background. Last year, Edward Rogers (Mr. Rogers) decided to terminate the company’s CEO and install a new chief executive of his own choosing, He also wanted to replace five directors on the Rogers Communications board. Mr. Rogers accomplished this goal using what’s known as a “consent resolution.” That is, a resolution passed by the board or shareholders of a company without holding an actual meeting. Instead, a resolution document is circulated to directors or shareholders, who acknowledge their approval by signing the document and sending it back.
Here’s where the family battle comes into play. Rogers Communications is controlled by a trust that holds almost all the voting shares on behalf of the Rogers family. Mr. Rogers is chairman of the family trust and is allowed to direct the voting shares as long as the trust’s advisory committee does not try to stop him.
After Mr. Rogers circulated the consent resolution, his mother and sister challenged its validity, arguing its was never subject to a vote by Rogers Communications’ voting shareholders—that is, the family members represented by the trust. A showdown ensued, and Mr. Rogers brought the issue to the Supreme Court of British Columbia, as Rogers Communications is registered in B.C.
Rogers v. Rogers Communications Inc. was argued on a narrow legal issue, but it deserves attention: It is an important reminder of the determinative—or authoritative—role corporate law plays in respect to the actions of a board of directors of a corporation.
Mr. Rogers asked the court to determine whether the consent resolution, dated Oct. 22, 2021, was valid and effective. Rogers Communications disputed Mr. Rogers’ contention. The issue for the court? Whether the governing legislation and Rogers Communications’ articles of incorporation—the “constating” documents that must be filed with government to bring a corporation into existence—required a shareholder meeting and vote to replace corporate directors or whether the consent resolution was sufficient.
The Rogers case was decided on a very particular provision of the British Columbia Business Corporations Act. The provision allows for a resolution to be passed on consent rather than a vote at a physical meeting.
This particular provision does not exist in the Northwest Territories, Nunavut, or the Yukon. But it is critical for corporations across the territories to understand the legal principles used to guide the B.C. court’s decision. They are applicable to corporations, shareholders, and directors—regardless of province or territory.
In making its case contesting Mr. Roger’s consent resolution, Rogers Communications brought forward evidence of corporate policies and plans setting out the expectations of good governance. The court, however, decided that Mr. Rogers’ consent resolution was sufficient and valid based on the following legal principles.
First, a corporation and its shareholders are contractually bound by the corporation’s articles of incorporation, its constating documents. Good governance statements, policies, and practices, while useful, are not determinative when interpreting the constating documents. Second, the articles of incorporation are to be interpreted subject to legislation, unless otherwise stated. Third, when considering governing legislation and the articles of incorporation in a matter of corporate law, a “practical, common sense and nontechnical approach” should be applied to interpretation. In making these determinations, the court held that Rogers Communications’ good governance practices were not particularly useful in arguing against Mr. Rogers’ consent resolution. It rested its decision on the requirements of the constating documents and the legislation. Without the flair of a Hollywood ending, the court decided that the process by which Mr. Rogers “obtained the Consent Resolution was available to him under the Articles and the Act” and was therefore valid and enforceable.
The Rogers case underscores that board decisions must be properly guided by its articles of incorporation and the law. While good governance practices, policies, and procedures help improve process and board decision making, the law and the company constating documents prevail.
This article was originally published in Up Here Business - Issue 1 2022.