Posts Tagged ‘CSX board of directors’

Reading Between the Lines of How CSX Management Projects Itself to the World

March 7, 2018

CSX executives revealed last week at long last their vision for their company. They were supposed to have done it last fall, but three top-ranking vice presidents left during a management shakeup. Then CEO E. Hunter Harrison died.

But things have now stabilized. CEO James M. Foote and his management team put forth the most optimistic and rosy scenarios that they dared to spin.

Hovering over those presentations in New York City, though was Harrison.

A year ago Harrison and the hedge fund Mantle Ridge were closing in on their takeover of CSX, a feat they pulled off with a relatively small amount of money and in a short amount of time.

Harrison had great plans for the hidebound CSX. He brought the precision scheduled railroading model that he had implemented on the Illinois Central and then at Canadian National and Canadian Pacific.

Foote and his team went to great lengths to show that Harrison’s vision is their vision, too. Harrison received the reverence normally reserved for a company founder or elder statesman of much longer tenure.

Harrison had a lot of work to do. Independent railroad industry analyst Tony Hatch and Trains magazine columnist Fred Frailey have described CSX as long hindered by adherence to the practices of its  predecessor railroads, meaning it was  averse to change and rather bureaucratic.

Frailey said ormer CEO John Snow as uninspiring and his successor, Michael Ward, sought to move CSX forward but was bewildered as to how to get it out of its rut.

No wonder the CSX board of directors gave Harrison a chance even if, to quote his successor Foote, Harrison engaged in “carpet bombing” the railroad with fast-paced changes that led to widespread service failures that drew the ire of shippers and the attention of the U.S. Surface Transportation Board.

But all of that is behind CSX now, or so management wanted those attending or watching the presentations in New York to believe.

Some have bought it. Writing in Progressive Railroading, Hatch quoted an  investor as saying this was the best CSX meeting he had seen in a decade of watching the railroad.

The current management team laid out  goal of a 60 percent operating ratio by 2020, described a new intermodal business strategy, and pointed to the huge buckets of money it will fill from sales of unneeded real estate and rail lines.

Having a plan and making it work are not always, though, the same thing. Truth is every railroad company talks about growing traffic and all of them are facing challenges finding it.

Hatch said that if CSX is to increase its carload and intermodal business it will have to provide consistent and improving service.

Frailey didn’t comment directly on the New York conference, instead referring readers to articles written by the magazine’s writer covering the story, Bill Stephens.

Those articles, Frailey correctly observed, did well in showing how CSX seeks to project itself to the world.

Yet Frailey said some industry observers with whom he regularly corresponds have been debating the endgame that CSX management is seeking and it isn’t necessarily to grow traffic and become North America’s best railroad.

Those observers think CSX plans to eventually liquidate the company.

Frailey said the case for liquidation goes as follows: “The railroad borrows money to buy back an astounding $5 billion of stock, making every dollar of profit worth more to shareholders who stick around because the same amount of earnings is spread among many fewer shares . . . Freight rates are being jacked up to cover fully allocated costs, a direction I’m told only Union Pacific has gone up to now—milk the cow until it collapses, the saying goes. Its carload business has been steadily eroding since the turn of the century.”

The veteran journalist who has written about railroads since the 1960s said  he understands that CSX has reduced its marketing staff to a hard core operation.

That hardly sounds like a railroad that will be able to aggressively go to find new business. Perhaps CSX expects that by offering a superior product that shippers will come to it begging to do business.

The word “liquidate” that some of Frailey’s contacts used to describe CSX’s endgame is unfortunate because it conjures up selling assets and going away.

Perhaps a better description might have been to break up the railroad much as Illinois Central Gulf slimmed down in the 1970s and 1980s until it emerged as largely a Chicago-New Orleans core with a few arteries connecting to it.

Yes, some rail lines were abandoned, but most wound up in the hands of short line and regional railroads.

It was that railroad on which Harrison first implemented his precision scheduled railroading model.

Frailey isn’t sure what to make of what CSX is doing, but doesn’t believe Foote isn’t prepared to do the job thrust upon him following Harrison’s death.

Foote was in the right place at the right time and for now CSX and its shareholders will let him sit at the throttle and take the EHH train a little further down the line. But it is Harrison’s train orders that Foote is following and not those Foote wrote himself.

Shareholders can be a fickle lot. Just this week Canadian National, a railroad described in most circles as highly successful, pushed out CEO Luc Jobin after the company hit a rough patch.

What I see happening at CSX is that management is trying to walk a fine line between pleasing investors and shippers and keeping at bay a few interested bystanders who have the ability to make life easy or miserable for a company.

Cost cutting and asset sales will only take a company so far in that endeavor. Of course growing traffic makes everyone happy, but is CSX prepared to spend the time and money needed to make that happen. It is so much easier to sell property and lightly used rail routes.

In theory, a company exists to serve its customers because without them you don’t have a company. But theory also says that a company exists to make money for its shareholders.

The two objectives are not necessarily in opposition. Arguably, you can’t make money for shareholders unless you provide a product or service that someone is willing to buy.

But you can’t improve your product or seek to sell more of it without spending money on that, too.

Management has always existed to reconcile those sometimes opposing forces.

The history of the railroad industry is filled with tales of financiers milking companies and leaving them behind. There is reason to believe that CSX is tilting toward enabling the financiers to make a financial killing before moving on to something else.

To quote a line from the John Mellencamp song Peaceful World, “These are just words and words are OK. It’s what you do and not what you say, if you’re not part of the future then get out of the way.”

We will know in time what the future of CSX is but take with some healthy skepticism how CSX projects that to the world.

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CSX to Require CEOs to Get Annual Exam

January 24, 2018

The board of directors of CSX has decided that henceforth all of its CEOs will have an annual visit with a doctor.

The board will adopt the policy change in the wake of the death of former CEO E. Hunter Harrison last month.

The health of the 72-year-old Harrison had been an issue when he was hired as CEO last spring.

Harrison was known to have health issues and the CSX board at the time insisted that his medical records be reviewed by an independent physician. But Harrison balked, saying that his doctor had cleared him to assume the CEO position.

The CSX board dropped its demand and Harrison took over the C suite at CSX in March.

Harrison died on Dec. 16 two days after taking a medical leave for unspecified health problems.

Railway Age magazine has reported that Harrison suffered from emphysema and it had been widely reported that he used supplemental oxygen.

Federal securities laws do not require companies to disclose executive health problems, but some firms provide that information because it might affect an investor’s decisions to buy or sell stock.

It is not uncommon for companies to be cagey about why their CEOs take medical leave.

United Continental Holdings, the parent company of United Airlines, for example disclosed that its CEO Oscar Munoz had been hospitalized but did not initially reveal in October 2015 that he had suffered a heart attack.

Munoz, who once headed CSX, underwent a transplant and returned to work the following year.

Thomas Flannery, managing partner at the executive search firm Boyden, described the matter of forcing an executive to share his or her medical history with a board of directors as a slippery slope because of privacy concerns. It could have a bigger downside than upside.

He said he encourages executives and their boards to be open about health problems and whether they affect the executive’s ability to fulfill his or her duties.

The CSX board plans to change its policy next month during a meeting, thus avoiding a vote on a resolution that was set to be introduced at the company’s annual meeting.

The policy will require the CEO to get a comprehensive physical performed by a medical provider chosen by the board, according to a letter submitted to the Securities and Exchange Commission that was reviewed by The Wall Street Journal.

A CSX spokesman would not comment on the matter.

The shareholder vote had been proposed by John Fishwick, a Virginia attorney who owns 1,000 shares of CSX stock.

CSX OKs Money for Harrison, Mantle Ridge

June 21, 2017

It’s now official. CSX CEO E. Hunter Harrison will not lose any money from having retired early from Canadian Pacific in order to pursue the head job at CSX.

The CSX Board of Directors has voted to give Harrison and hedge fund Mantle Ridge the $84 in salary and benefits that Harrison gave up by leaving CP early.

CSX said in a regulatory filing that it will pay Mantle Ridge $55 million and provide Harrison with a lump-sum payment of $29 million. The CSX board also agreed to pay Harrison’s taxes related to the payment.

The reimbursement vote was expected, analysts said, because CSX stock has increased in value since the news broke that Harrison was interested in becoming the railroad’s CEO.

Analysts say the move was a vote of confidence that Harrison will be able to lower the railroad’s operating ratio and increase its profitability, which in turn will bolster the share price of CSX stock.

Harrison joined CSX last March after leaving CP in January.

CSX Shareholders Favor Giving Harrison More $$$

June 6, 2017

As expected, most CSX shareholders have voted to give CEO E. Hunter Harrison the money that he wants.

E. Hunter Harrison

In an advisory vote, 93 percent of the shareholders favored giving Harrison and hedge fund Mantle Ridge $84 million to reimburse them for salary and benefits that Harrison forfeited by leaving early as the CEO of Canadian Pacific last January.

The vote was made public on Monday at the CSX annual meeting in Richmond, Virginia.

Harrison had threatened to resign if shareholders rejected the reimbursement request.

Many analysts had expected the shareholders to agree to giving Harrison the money because CSX stock has risen by 40 percent in value since it became known that Harrison was seeking to become the railroad’s head.

Harrison took over the CEO post last March. Paying Harrison and Mantle Ridge will cost about 12 cents per share.

CSX also said that 13 candidates for its board of directors have been elected, with each member receiving the backing of at least 96 percent of shareholders.

They include Harrison, Mantle Ridge founder Paul Hilal, Donna M. Alvarado, Sen. John B. Breaux, Pamela L. Carter, Steven T. Halverson, Edward J. Kelly III, John D. McPherson, David M. Moffett, Dennis H. Reilley, Linda H. Riefler, J. Steven Whisler, and John J. Zillmer.

CSX Extends Board Nominee Deadline Again

February 24, 2017

CSX has again extended the deadline for nominations of candidates to its board of directors.

CSX logo 1The railroad has been in talks with hedge fund Mantle Ridge about installing E. Hunter Harrison as its CEO as well as the composition of the CSX board.

Mantle Ridge owns slightly less than 5 percent of CSX stock and acquired it with the goal of shaking up CSX management.

CSX earlier said it would hold a special meeting of stockholders to discuss and vote on the Mantle Ridge demands. A date for that meeting has not yet been announced.

Board candidate nominations will now be due on March 10.

Whether it chooses Harrison or someone else, the CSX board will need to find a new CEO because incumbent head Michael Ward said last week that he plans to retire on May 31.

Mantle Ridge Disputes CSX News Release

February 18, 2017

Hedge fund Mantle Ridge took issue with some facts contained in a CSX news release issued earlier this week on the subject of E. Hunter Harrison becoming the railroad’s CEO.

CSX logo 3Mantle Ridge head Paul Hilal said he wrote to the CSX Board of Directors to take issue with the news release, in particular the size of the compensation package for Harrison and Hilal’s demands for governance changes for the CSX board.

“We owe it to the shareholders to get a deal done promptly. Let’s do it,” Hilal wrote. “If you are willing, we are glad to meet in person and hammer this out this weekend, hopefully delivering good news to the shareholders early next week.”

In the meantime, Harrison told the Wall Street Journal that he was frustrated with what he described as “chest pounding” between his investment partner and CSX, which has resulted in a stalemate in the negotiations for him take over as CSX as its CEO.

The newspaper reported that CSX had offered the CEO post to Harrison, but that Hilal, a principle at Mantle Ridge, has refused to give in on compensation and governance demands. Hilal, who is representing Harrison, has conducted most of the discussions with CSX.

Mantle Ridge holds less than 5 percent of CSX stock but wants to name six directors to the railroad’s board of directors and reduce the number of directors to 12,

In the news release, CSX said it is reluctant to allow a shareholder with such a small share of its stock to dictate the composition of its board. CSX also has described the demands to give Harrison a $300 million compensation package as “extraordinary in scope.”

The Journal said that during a recent meeting with Mantle Ridge, some CSX shareholders objected to the number of seats on the board that Mantle Ridge wants.

Hilal reportedly said during the meeting he needs to control six seats so that Harrison “has control and can execute his plan.”

CSX reportedly is objecting to paying Harrison the $89 million he gave up by leaving early as Canadian Pacific’s CEO in return for receiving a limited waiver of a non-complete clause.

Hilal contends that the compensation deal that Mantle Ridge is seeking from CSX is $200 million and includes $120 million of stock options, about half of which are tied to “very real” performance measures.

Another sticking point is the 72-year-old Harrison’s refusal to agree to have a physical exam by an independent physician.

Harrison told the Journal he was willing to negotiate his pay with the CSX board,

In his letter, Hilal contended that Harrison wants $32 million per year over four years – or $128 million – of which $20 million per year is performance-based.

“His package is worth very little unless he performs spectacularly,” Hilal wrote. As for the changes on the CSX board, Hilal said he is only seeking a seat for himself.

Harrison would occupy another seat along with four other independent directors who would be agreed upon by CSX and Mantle Ridge

“Why are we asking that new directors be added? As we’ve discussed, precision scheduled railroading requires dramatic operational and cultural change,” Hilal wrote. “Change like that starts at the top, with significant new blood on the board not wed to the old ways or legacy decisions and with no ties to any previous strategy or anyone.”

CSX Sets Special Board Meeting on March 16 to Consider Mantle Ridge Proposal to Make Hunter Harrison CEO

February 15, 2017

Hunter Harrison and the Mantle Ridge hedge fund will get their day before the CSX board of directors and shareholders.

CSX logo 1The board on Tuesday agreed to call a special meeting for March 16 at a time and place to be named later to consider the hedge fund’s “extraordinary requests.”

Mantle Ridge has proposed making Harrison the CSX CEO. Harrison last month retired early as head of Canadian Pacific so that he could, presumably, seek the top job at CSX.

Harrison and CP sought unsuccessfully to merge with Norfolk Southern l;ast year but that company’s board rejected the overtures.

In a news release, CSX said Mantle Ridge has acquired less than 5 percent of its stock but is seeking compensation and control far in excess of the scope of its stock ownership.

CSX acknowledged that it has held talks with Harrison and Mantle Ridge during which the hedge fund demanded substantial representation on the CSX Board and that Harrison immediately replace current CSX CEO Michael Ward.

The railroad said it has made several offers to Harrison and Mantle Ridge that would have made Harrison the CSX CEO and given Mantle Ridge three seats on the CSX board.

Mantle Ridge has rejected those offers and countered with its own demands, many of which focus on Harrison’s compensation and the composition of the CSX board.

One noteworthy point made in the CSX news release is that Mantle Ridge has agreed to compensate Harrison for the millions of dollars he agreed to forgo when he retired early from CP. Mantle Ridge wants CSX to make up most or all of that.

Harrison has also rejected a CSX request that he take a physical exam.

CSX said in its statement that it is wary of granting control to a shareholder who holds less than 5 percent of its stock and is demanding benefits from CSX that may exceed $100 million.

CSX said the requested reimbursement and tax indemnity could exceed $300 million and are thus extraordinary in scope and structured largely as an upfront payment and as equity grants that would be payable to Mr. Harrison upon his death or disability with only a portion of the equity grant including any performance metrics.

“The CSX Board is committed to being responsive to the interests of its shareholders and has closely observed the market reaction to Mr. Harrison’s possible employment,” the railroad said in its statement.  “Accordingly, in light of the unusual circumstances surrounding Mantle Ridge’s approach the CSX Board has decided to seek guidance from shareholders on whether CSX should agree to Mr. Harrison’s and Mantle Ridge’s proposals.

CSX said it would schedule its regular board meeting, usually held in May, after the special March meeting.

CSX Extends Deadline for Board Nominees

February 11, 2017

CSX on Friday said it would extend the deadline for nominations to its board of directors.

CSX logo 1The move is being seen as a ploy to give the Mantel Ridge hedge fund more time to negotiate an agreement with the railroad to make E. Hunter Harrison its CEO.

The deadline for board nominees had been Feb. 10 but has been extended to Feb. 24.

Harrison retired early from Canadian Pacific last month and has teamed up with Paul Hilal of Mantle Ridge to seek a management change at CSX.

News reports have said CSX and Harrison have had discussions about that prospect, but the number of seats on the board supported by Mantle Ridge has been a sticking point.

In retiring early from CP, Harrison gave up tens of millions in compensation in exchange for CP giving him a limited waiver of a non-compete clause.

If Harrison is successful in becoming the CEO of CSX, he would replace Michael Ward, who has said he plans to retire by 2019.

CSX Said to be Talking With Harrison

January 31, 2017

The Wall Street Journal reported on Monday that CSX and E. Hunter Harrison are in negotiations about the railroad’s CEO position.

CSX logo 3Harrison has presented to CSX management his plans to revamp CSX. The former CEO of Canadian Pacific, Canadian National and Illinois Central, is teaming up with Paul Hilal of the Mantle Ridge hedge fund to seek a management shakeup at CSX.

Mantle Ridge was reported to be seeking three seats on the 12-seat CSX board of directors, a demand that may be a source of conflict the Journal reported.

News reports indicate that Harrison met with CSX officials last Friday in Atlanta.

If CSX, Harrison and Mantle Ridge are unable to reach an agreement, then the hedge fund has until Feb. 10 to nominate candidates to the CSX board. CSX usually holds its annual meeting in May.

It is not clear what plans that Harrison and Mantle Ridge have for revamping operations at
CSX.

In the past year, CSX management under current CEO Michael Ward has retooled rail operations. Among other steps, CSX has emphasized longer trains and focusing capital expenditures on core routes.

In 2015, Ward said he planned to remain the CSX CEO for three more years after Oscar Munoz, who was expected to replace Ward, left to head United Airlines.

While at CP last year, Harrison unsuccessfully sought a merger with Norfolk Southern.

Some analysts on Wall Street believe CSX will be receptive to having Harrison as CEO because of his experience in leading other class 1 railroads.