Use of dual-class shares on the rise in Canada

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Dual-class shares and reduced voting rights for shareholders persist in Canada, and those provisions are becoming more popular.

For 20 years, The Globe and Mail’s Board Games evaluation of corporate governance has measured shareholder voting rights, examining companies with dual-class share structures or other provisions that result in owners of common shares not having an equal say in corporate matters. With 10 marks out of 100 total points available for companies with equal voting rights for all shareholders, it’s the single most heavily weighted question in Board Games.

Of the 220 companies in this year’s Board Games, all members of the S&P/TSX Composite Index, 37, or 17 per cent, failed to get the full 10-point credit for equal voting rights. In 2020, 32 of 211, or 15 per cent, failed to get full credit – about the same level as a decade ago.

Canada has a long history of dual-class shares and family-controlled companies trading on its stock exchanges. A number of analysts and academics have argued that the supervoting rights of founders can give those companies a long-term focus that delivers superior returns over time.

However, the drama at Rogers Communications Inc. this fall, where common shareholders have no vote on most matters and chair Edward Rogers replaced all the independent members of the board of directors using special board-appointment powers, has brought renewed attention to the structure.

Two decades ago, about 22 per cent of companies in Board Games had unequal voting rights. But the proportion fell amid investor pressure to reduce their use.

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Any company that asks to list its shares on the Toronto Stock Exchange must now include some sort of “coattail” provision that protects the lesser-voting shareholders in the event of a sale of supervoting shares. But a company can still have unequal voting rights for routine, annual matters.

And there is, in fact, a new generation of companies, not necessarily family-owned, that have joined the TSX after having given special voting powers to the shares held by their founders. Shopify Inc. and GFL Environmental Inc. have seen their share prices rise after debuting on the public markets despite limited voting rights for common shareholders.

In 2021, 24, or 11 per cent, got partial credit in Board Games for voting rights, and 13 companies, or 6 per cent, received zero points.

In dual-class share companies, points are lost based on the size of the imbalance between the economic weight of supervoting shares and their voting rights.

At Rogers Communications, a dual-class structure and the voting power of the Rogers Control Trust, put in place by founder Ted Rogers, played a key role in the family’s struggle over control of the company this year.

Rogers’ supervoting Class A shares represent 100 per cent of the voting rights, but just 22 per cent of the economic ownership of the company, a ratio almost five to one. That’s good for just two points out of 10 in Board Games. Companies in which the ratio of votes to economic ownership is greater than five to one receive zero points.

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But companies with a single class of shares can also lose points if they have provisions that allow certain shareholders to appoint directors, or those shareholders have other special rights.

The companies receiving zero points in 2021 for shareholder voting rights were Atco Ltd., Canadian Tire Corp. Ltd., CCL Industries Inc., Celestica Inc., Colliers International Group Inc., Corus Entertainment Inc., Fairfax Financial Holdings Ltd., GFL, Onex Corp., Power Corp. of Canada, Shaw Communications Inc., Shopify and Teck Resources Ltd.

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