image
Business Law And Litigation Boutique In Toronto And Hamilton

Rogers Communications a lesson in the need for safeguards within family businesses

A family business is the result of a founding member’s struggles not only to get a business started, but to build a business that thrives. This successful enterprise is then a family asset, one that the founder can pass along to future generations.

But how can a founder do so wisely? Is it possible to share the fruits of the founder’s labours without causing turmoil within the family? A recent case provides an example of what not to do and fuels a discussion of safeguards that can help better ensure a smooth transition.

Wireless carrier falters while founder’s son is at the helm

The case involves Canadian wireless carrier giant Rogers Communications. Late founder Ted Rogers’ son, Edward Rogers, was at the helm of the business when a massive family dispute came out into the public. The dispute involved his changes to the board of directors and attempts to remove Joe Natale as the company’s CEO.

Edward Rogers is chair of a family-owned trust that has 97.5% of Rogers Communications’ voting shares. As such, he argued he had the power to make the changes and that his attempt to do so with written consent was a legitimate use of power. Legal counsel for Rogers Communications countered that late founder Ted Rogers was aware of the likelihood of this type of a dispute and requested a public meeting to resolve the issue. As such, the counsel argued that the change was not valid because Edward Rogers did not honour this wish and attempted to make the changes on his own without the meeting.

The case was further complicated by the fact that Edward Rogers’ mother and two sisters, who also serve as directors within the organization, came out in opposition of the attempt to change the board of directors and CEO of the family business. The case made it up to the Supreme Court of British Columbia, who ruled in favour of Edward Rogers, stating that the “Articles and the Act” support his actions, likely referring to the business’ incorporation documents.

At some point during the dispute Edward Rogers changed his mind and decided Mr. Natale was the best candidate for the CEO position within the company. After his legal win, he announced Mr. Natale would remain in his role and had the Board’s support. Edward Rogers’ mother and sister voiced concern that this dispute would lead to “upheaval and a prolonged period of uncertainty, at perhaps the worst possible time,” as the corporation continues to navigate a major merger and acquisition deal. It appears the mother’s words were right. Ultimately, Joe Natale chose to leave the company. Rogers recently announced in a press release that Tony Staffieri will serve as Interim President and CEO in his absence.

Lessons for Canadian family businesses

The case provides important lessons about the need for a strong succession plan. As discussed in more detail in a previous article, available here, a clear exit strategy can help to ease the transition of power from one family member to the next.

One of the concerns with the transition above was a lack of clarity. The former founder said one thing when he voiced concern about a dispute and called for a meeting before his successor took action that impacted the leadership of the company but had language within the incorporation documents that allowed for his son to move forward without honoring this wish.

This highlights the need to have professionals review a succession plan. They can discuss the impact and how situations like this would play out with the proposed plan, allowing for the ability to draft a plan that better ensures the founder’s wishes are met.