How Ted Rogers's preoccupation with family control planted seeds for the turmoil in his empire

Ted Rogers was determined to keep the Rogers Communicationsempire in his family, so he set up a complex plan for his wife and children to take his place as the controlling shareholder when he died.

But now it's tearing the familyand potentially the $30-billion companyapart.

Today, a B.C. Supreme Court judge is expected to decide how much control Ted left his son, Edward Rogers, as the chair of the family trust.

The bitter family drama eruptedlast month when it emerged that Edward Rogerstried to oust CEO Joe Natale and replace him with the company's then-CFO. After Natale alerted the board, other family members, including Edward's sisters and mother, voted to block the move and to remove him as chair.

Edward instead unilaterally fired five members of the board, replacing them with successors of his choosing and reinstating himself as chair.

The drama and ensuing court battlehas drawn attention to the company's ownership structure.

• In ugly Rogers fight, B.C. court to decide this week who's really in charge?

In 2007, more than a year before hisdeath, Ted Rogers carefully walked through his succession plans with writer Robert Brehl,whoco-wrote the businessman'sautobiography,Relentless: The True Story Of The Man Behind Rogers Communications.

"He was obsessed with the family keeping the company," Brehl said in an interview with CBC News.

WATCH|What Ted Rogers wanted for his company:

The complex plan to keep the Rogers family in control

55 years ago

Duration 1:19

According to Brehl,that obsession was a result of the sudden death of Rogers'sfather, Edward Samuel Rogers, who foundedthe Toronto radio station CFRB. Hedied at38.

"His mother lost the company, and she told Ted over and over as he was growing up,'Your job is to get the company back for us,'" said Brehl. "That's why keeping family control was so important to him."

The success of Ted Rogers'splan depended on two things: the creation of a family trustand the existing Rogers Communicationsshare structure.

WhileRogers Communications Inc. is a publicly traded company, it has two types of shares: Class B shares that are freely tradable but have no voting rights, and Class A shares that hold all the voting rights.

Ted Rogers was the controlling shareholder of allClass A shares. He then created the Rogers Control Trustmade up of his family and close friends as advisersto take over when he died.

WATCH | What are dual-class shares?

Did Ted Rogerss succession plan play a role in battle for company control?

3 years ago

Duration 3:53

Buthe also made it clear that he wanted one person in charge.

In a "memorandum of wishes"recently submitted to the B.C. court by his widow, Loretta Rogers,Tedwrote:"My lifetime experience has been that committee and shared decision-making often leads to slow, if any, decision-making."

Ted appointed his son, Edward Rogers, to be the first chair of the Rogers Control Trust.

Edward's lawyers arguethatas chair of the trust, he is the controlling shareholder and should be able to fire and hire directors of the company's board at his discretion.

The judge is expected to decide on the validity of the Edward Rogers-appointed boardtoday at 2 p.m. PT.

• Rogers declares ex-chair's attempt to name new directors 'invalid' in telecom drama's latest twist
• Edward Rogers declares victory in battle for telco but family and company vow to fight on

In arguments last week, Edward's lawyer has also said the case wasn't about Rogers' dual-class share structure.

Nonetheless, the drama has drawn attention to the fact that 97.5 per cent of the voting shares of Canada's largest telecom company are potentially controlled by just one person.

Reining in control over dual-class shares

The Canadian Coalition for Good Governance (CCGG) calls Rogers a "poster child" for the negative governance impactthat can result when dual-class share structures are allowed to exist indefinitely.

According toCCGGexecutive directorCatherine McCall, the biggest risk of dual-class shares is that a company's leadership situation can changesuch as when a founder leaves the company or diesand their replacement doesn't share the same vision.

"The business passes on from generation to generation,and the next generation doesn't share the same talent, or brilliance, or vision of the first generation," said McCall.

Critics also argue theshare structure comes with outsized risk for those investors who takeon more of the financial ownership of the company, but lessif notzeropower.

"[Rogers'] subordinate voting shares not only have disproportionately fewer voting rights than the multiple shares held by the controlling family, but [they] have no votes at all," said McCall.

WATCH |Why all Canadians should care about dual-class shares:

Rogers drama brings focus to governance issues

55 years ago

Duration 0:57

Catherine McCall with the Canadian Coalition for Good Governance on why Canadians should care about who gets voting rights.

This isn't an issueCanadians can afford to ignore, McCall said, as most have some interest in the stock marketthrough their retirement investments or the Canada Pension Plan.

The popularity of dual-class shares also makes them inescapable, according to McCall, especially if a person wants to invest in a fund that tracks all companies listed on an index, such as those on the TSX.

According to the TMX Group, approximately 90 of the more than 1,700 companies listed on the TSX have dual-class share structures. However, it says only some of those companies have non-voting shares and it's not the majority of them.

Companies with dual-class shares don't always have family involved either. The share structure ispopular with tech companies, such as Facebook, Alphabet (Google) and Shopify, because it limits the pool of investors with a big say in the company's direction, while still allowing a wider group of shareholders tobenefit from owning the stock and receiving any potential dividends.

The CCGG wants conditions to be attached to all dual-class shares, such as a sunset clause.

"It's essentially the idea that you're going to be able to bring a halt to the dual-class share structureat some point," said McCall.

That could be triggered by an event, such as the founder's death, or after a predetermined length of time.

McCall suggests that every five years, subordinate (non-voting class) shareholders should get to vote on whether they want the dual-class structure to continue.

In defence of dual-class shares

Others say the benefits of dual-class shares outweigh the potential for abuse.

"It's really sad to see it on the front pages, that the [Rogers] family is having this internal tussle.But as an investor, I wouldn't lose heart in dual-class shares," said David Beatty, the academic director of the David and Sharon Johnston Centre for Corporate Governance Innovation at the University of Toronto.

The costs of sharing voting rights widely are often too high, he said, including pressure on executives to make short-term decisions to pump up the share price to satisfy investors.

"Families with dual-class shares and tech companies with dual classes don't have those pressuresand that means they can focus on the longer term success of their corporation," said Beatty.

Supporters of the structure also argueit protects companies from takeovers and activist investors who want to force the company to make changes.

"This activism and short-termism are not transient little things that will go away. They're embedded forever," said Beatty,noting he's felt that pressure firsthand in his dozens of roles on corporate boards.

The source of control and criticism

For Rogers, the share structure secures the control that Ted Rogers wanted for his family.But the position of power has also made the family's infighting of high public interestand it could end up costing them.

"They need to get their house in order and figure this out," said Camden Hutchison, an assistant professor of law at the University of British Columbia.

Whatever the court decides, Hutchison saidit's important for the Rogers family to figure out how it's going to move the company forward with consensus.

"Otherwisethis could potentially be very damaging to the business of Rogers itself," he said.