The Rogers family drama has been captivating. The whole country watched it play out in the fall of 2021, when Edward Rogers tried to fire Rogers CEO Joe Natale. This move wasn’t a popular one with the board or Edward’s own family, as his mother, two sisters and other board members blocked the firing and ousted him as chairman.
Not to be outdone, Edward used his position as chair of the Rogers family trust to fire five members of the telecom giant’s board and replace them with members of his own choosing, who then re-elected him as corporate chair.
While Edward’s mother and two sisters, also board members, spoke out against the move, calling it illegitimate, a Supreme Court judge ruled in Edward’s favour.
Not only has this caused a rift in the family, it also endangered Rogers’ share prices and put added pressure on the company’s takeover bid for Shaw, which Natale had been negotiating.
Though Ted Rogers had been meticulously planning his company’s succession for years – even decades – before his death, there are many lessons we can learn from the Rogers family drama. Here are some tips to ensure a smooth transition when succession planning.
Tip 1: Be wary of a dual-share system with limited voting power
When Ted Rogers was five years old, his father died unexpectedly. Without a proper succession plan, his mother lost their family business. As a result, she instilled in Ted the importance of rebuilding their company and keeping it in the family at all costs.
As Ted began to build his telecommunications empire, one of his main concerns remained succession. He was determined to ensure that his wife and children would be protected after his death or retirement. To accomplish this, he formed a family trust and used a dual share structure. This means that the company has two types of shares – Class A and Class B. Class A shares come with voting rights while Class B are tradable with no voting rights.
While still the controlling shareholder of all of Rogers’ Class A shares, Ted created the Rogers Control Trust for his family and close friends to manage after his death. He also believed that only one person should be in charge of this trust. As he told his biographer, this was “so they don’t all have a meeting over my grave and scream and yell at each other.”
Before his death, he appointed Edward as the first chair of the Rogers Control Trust, giving him 97.5% of the voting rights.
This complex system has its benefits, but also could have been a factor in the family battle that unfolded later.
When succession planning, make sure you understand the pros and cons of a dual-share trust system and the dangers of limiting voting power.
Dual-class share structures are popular with tech companies like Facebook, Google and Shopify. This structure allows a large group of investors to own shares without giving every individual a say in the company’s growth, which could be chaotic.
Still, non-voting shares are relatively rare, as this type of share structure can be unfair to investors who take large risks but then have no control over board decisions.
That said, if you’re trying to keep your business family owned, this share structure is beneficial, as it protects your company from takeovers and allows your successors to focus on long-term growth instead of making short-term decisions to please investors.
Ted’s decision to give his son all the voting power this way was a risky one. Instead, it may be preferable to allow your core group of successors (whether that’s made up of family or trusted employees) to make decisions as a team, or decide together on who will run the trust. This way, you’ll avoid unnecessary bids for power.
Tip 2: If using a dual-share system, consider a sunset clause
Critics of the dual-class share structure argue that it gives insiders too much power, which often leads to inefficient corporate decision-making and poor long-term performance.
If you decide to move forward with a dual-share system, it’s recommended that your company consider including a sunset clause or condition that will end this structure at some future point.
Some companies opt to end this structure based on an important event, like the founder’s death, while others put a set time limit on it. Another option is to allow non-voters to vote if they would like to continue the dual-share system after a certain time period (ie: the five-year mark).
Tip 3: Communicate effectively for a smooth transition
Choosing a successor is a sensitive process that needs to balance discretion with communication. While it’s unclear whether the decision to make Edward head of the family trust was discussed openly, decisions like this have been known to cause problems, both when dealing with family and other employees.
The Harvard Business Review looked at over 30 years of research on succession planning in family businesses. They found that there are some negative connotations associated with keeping companies in the family. For example, perceptions of nepotism may affect employee morale. While it’s natural to suggest an outside employee should be considered to lead the organization, the research also found that, when handover is done correctly, employees often prefer when a business is kept in the family in order to maintain existing culture.
The difference between a successful handover and a disaster often boils down to communication. The Harvard Review emphasized the importance of bringing in non-family employees to help facilitate the transition. This opens communication amongst all employees, fostering loyalty and strong relational bonds, which will make it easier for the successor to make important decisions in the long-run.
Tip 4: Ensure all interests are considered equally
It’s no secret that passing a family business to the next generation requires careful planning, but it’s also important to consider the consequences of your plans for every party involved to ensure the business survives.
According to the Family Business Institute, only 30% of family businesses survive to the second generation, and only 12% survive into the third. Usually, this is due to lack of planning and a founder who refuses to allow others to help run the business while they’re still at their prime.
While this doesn’t exactly apply to the Rogers story, as Ted Rogers spent almost four decades succession planning, it demonstrates why founders should consider the big picture instead of fixating on a specific part of the plan, like Ted’s insistence on giving complete voting power to one family member.
Successful succession planning means ensuring that the interests of all family members involved are equally considered and protected. When planning for your own transition, ensure your plans work for all involved parties to avoid hurt feelings and any ensuing issues.
A Cautionary Tale
There are a lot of lessons to learn from the Rogers family saga. Firstly, think carefully before consolidating too much power to one successor. And secondly, ensure careful communication and take all involved parties into consideration.
At Zeifmans, we understand the importance of succession planning because we’re a family business as well. As a second-generation family-run company with over 60 years of experience, we’re uniquely qualified to help others through the succession planning process. Contact us to get started.