opinionBeyond the Rogers-Shaw deal: How, in public companies, the few maintain energy over the manyAllan C. HutchinsonFebruary 14, 2023

Allan C. Hutchinson is a distinguished analysis professor at Osgoode Corridor Regulation Faculty and the writer of The Corporations We Preserve: Company Governance for a Democratic Society.

Because the Rogers-Shaw-Quebecor blockbuster deal stumbles to cross the completion line, many individuals are nonetheless involved about its impact on competitors within the communications market. However there’s one other maybe bigger subject lurking behind the competitors headlines.

It is likely one of the nice myths of the Canadian company and investing scene that shareholding is turning into extra diffuse and, subsequently, extra Canadians now personal extra company shares than ever earlier than. In different phrases, regardless of the competitors challenges among the many largest companies, there’s a regular transfer to opening up company energy to on a regular basis folks and, as such, extra competitors for management. Democracy appears to be on the march.

Nevertheless, regardless of the primary company possession figures disclose on the floor, there’s a reverse and contradictory course of happening beneath that floor. Company energy is as concentrated, or much more so, than ever earlier than. In keeping with Statistics Canada knowledge that I’ve parsed, as soon as the complicated schemes of intercorporate holdings are factored in, round 80 per cent of all publicly traded companies in Canada are managed by a handful of individuals; this compares with about 20 per cent in the US.

That is nowhere higher revealed than within the Rogers-Shaw-Quebecor megadeal. These media behemoths seem like broadly held; many Canadians, both personally or via mutual funds and pensions, personal massive chunks of the three firms’ shares.

The issue is that, opposite to widespread assumptions, there is no such thing as a connection between the shares owned and the management exercised. Individuals stay on the surface trying in.

The households who management the businesses, typically the offspring of firm founders, have managed to retain a stranglehold by counting on a dual-class shareholding construction. That is completely lawful in Canada. Whereas the overwhelming majority of the businesses’ non-voting shares are broadly held, a a lot smaller class of voting shares are monopolized by these billionaire households.

The Rogers household owns lower than 30 per cent of Rogers Communications Inc.’s RCI-B-T fairness, however controls 97.5 per cent of the voting inventory. The Shaw household owns a lot much less of Shaw Communications Inc.’s SJR-B-T inventory, however has round 80 per cent of the voting management. And the Péladeau household (primarily via Pierre Karl Péladeau), with 29 per cent of non-voting fairness in Quebecor Inc. QBR-B-T, has nearly 75 per cent of the voting management.

So, these three households dominate and management the communications infrastructure of Canada. Their firms’ shares is perhaps owned by many Canadians (who would possibly effectively thereby get a distributed piece of the accessible financial pie), however abnormal shareholders have little or no or no management over the operating of these firms.

The upshot of that is {that a} very a rich elite management and train company energy in their very own pursuits or, at finest, in their very own judgment of what’s within the public curiosity.

And the communications sector is not any outlier. My analysis reveals that solely about 30 per cent of Canadian companies are broadly held; the remaining 70 per cent are managed by one or plenty of associated shareholders. Over time, a lot of Canada’s main households have consolidated and prolonged their maintain over some the nation’s megacorporations.

Aside from the debilitating democratic impression of this company focus on the Canadian polity typically, there are numerous drawbacks for the specifics of company governance. There are two main issues.

One is that controlling shareholders will appoint their cronies to the board and that such indebted appointees will defer to their needs. The opposite is that the within group will profit themselves in some ways (e.g. beneficial loans, inflated salaries, dividend funds reasonably than the corporate investing retained earnings, and so forth).

Though typically considered as a technical subject of company group, using dual-class shares permits a handful of households (and sometimes one member of that household) to exert huge political and social affect via their company fiefdoms. And, most cannily, whereas perpetuating the idea that company energy is being redistributed.

Whereas such dual-class preparations is perhaps defensible in straight monetary phrases, they make a mockery of any declare that there’s a vigorous and wholesome “shareholder democracy” at work.