Posts Tagged ‘CSX management’

CSX Shareholders to Mull Executive Pay

May 10, 2018

When CSX holds its annual meeting on May 18 executive compensation will be on the agenda.

However, the issue is not the pay of current CEO James M. Foote or his management team but rather that of the late E. Hunter Harrison.

Harrison, who died late last year, was awarded a compensation package that a shareholder advisory firm wants CSX shareholders to renounce during the annual meeting.

Institutional Shareholder Services said CSX should have imposed a clawback on the $84 million reimbursement agreement with Harrison and hedge fund Mantle Ridge, which was instrumental in luring Harrison away from Canadian Pacific and overseeing his selection in spring 2017 to replace then CEO Michael Ward.

ISS contends that a clawback provision would have enabled CSX to recover a portion of the payment it made to Mantle Ridge after Harrison died.

Those payments were designed to compensate Mantle Ridge for money it paid Harrison for giving up some of his CP compensation by resigning as CEO before his term ended in order to join CSX.

The shareholder advisory firm also said Harrison’s pay should have been completely based on performance and that the operating operating income target for the management incentive plan should have been higher.

It was instead set below the operating income level CSX reported in 2016.

CSX shareholders approved by a wide margin Harrison’s compensation package last June.

Management of CSX is opposed to the ISS proposals and has urged shareholders to consider that CSX stock value has increased 53 percent over the past year.

It also noted that Harrison’s stock options of $115 million were forfeited upon his death and had been evenly divided between performance vesting and time vesting over four years, which CSX said “was not atypical for equity incentives.”

CSX also said it operating income incentive target had been based on the railroad’s outlook in January 2017 and also hinged on hitting certain strategic goals.

Once Harrison arrived at CSX, its board of directors replaced those goals with what it termed an “aggressive” 66.2-percent operating ratio target.

This includes incentives for 2018 and long-term incentives for executives through 2020 that CSX said are “challenging targets to support our pursuit of exceptional returns for our shareholders.”

The ISS resolution on Harrison’s compensation package is non-binding and CSX management has pointed out that a year ago ISS favored the compensation package.

During his short time with CSX before his death, Harrison earned a base salary of $1.8 million last year, plus non-equity incentive plan compensation of $3.4 million, and $600,339 in non-qualified deferred compensation. He also received the one-time reimbursement payment of $29 million.


CSX Sets Long Awaited Investor’s Conference

January 12, 2018

The long-awaited CSX investor’s conference has been set for March 1 in New York City.

CSX said in a news release that the conference will be held at the InterContinental New York Barclay hotel.

In a news release, CSX said that President and CEO James M. Foote and members of his senior management team will describe how the railroad is using the precision scheduled railroading business model to transform CSX operations and customer service.

Those presentations will be webcast for those unable to attend the event in person.

Following the conference, an Internet replay of the presentations will be archived on the CSX website.

The conference had originally been set to be held last fall in Florida, but was postponed in the wake of a high-level management shakeup.

Foote Named Permanent CSX CEO

December 23, 2017

James M. Foote had the word “acting” removed from his title on Friday after the CSX board of directors unanimously voted to name him the company’s permanent president and chief executive officer.

James Foote

Foote had been named acting CEO on Dec. 14 after E. Hunter Harrison was placed on medical leave. Harrison died two days later.

In a news release, CSX said that Foote will also join the board of directors.

“Jim has decades of railroading experience and the board is confident of his ability to lead the company,” says CSX Chairman Edward J. Kelly III in a statement. “He has already had a markedly positive impact. The board looks forward to working with him.”

Foote said in the same statement that his intends to continue to implement Harrison’s model of precision scheduled railroading, saying that its implementation is well underway, with the most critical components of the implementation completed and beginning to generate measurable operating improvement.

“We look forward to providing an update on our strategic progress and to showcase our deeply talented management team at our upcoming investor day in March,” Foote said.

Before joining CSX last October, Foote was president and CEO of Bright Rail Energy, a technology company formed in 2012 to design, develop, and sell products that allow railroads to switch locomotives to natural gas power.

He previously served as executive vice president of sales and marketing at Canadian National, which he had joined in 1995 as vice president of investor relations to assist the company’s privatization.

Foote began his railroad career in 1972 as a laborer in the mechanical department with the Soo Line Railroad in Superior, Wisconsin.

For nine years, he worked in operating positions with the Soo Line and the Chicago & North Western fulltime while earning his undergraduate and law degrees.

What Now for CSX? Foote Seen by Analysts as Staying as CEO, at Least in the Short Term

December 19, 2017

It remains an open question whether James. M. Foote will lead CSX long term, but many analysts believe the CSX board of directors will keep him in the short term as acting CEO in order to provide stability.

Foote became the acting CEO last Thursday after CEO E. Hunter Harrison took a medical leave of absence for a still undisclosed illness. Harrison died at his Florida home on Saturday.

“I do expect Jim to be named CEO, although I also think the board will proactively study (and look to fill) any gaps in the team,” said Taylor Glasebrook, associate portfolio manager at Neuberger Berman, the No. 8 shareholder in CSX with 10.5 million shares.

“We believe that Mr. Foote’s presence in the senior leadership team provides an important source of continuity,” Cherilyn Radbourne, a TD Securities analyst, wrote in a note to clients.

But Radbourne also noted, as have others, that Foote lacks experience in operations, having spent most of his four decade railroad career in marketing and sales.

“Our biggest concern is that Mr. Foote’s primary area of expertise is sales and marketing versus operations, and the senior management team now lacks a member with an operating background,” Radbourne wrote.

“He is a competent, experienced railroader who is familiar with precision railroading,” said John Larkin, an analyst with Stifel Equity Research. “He has been in place for a couple of months and has a head start on any others. The company has underdone enough uncertainty over the past couple of years and needs some stability.”

What Harrison’s death means for CSX in the long term is being debated by railroad industry observers.

“Harrison’s legendary ability to redesign a rail network with his Precision Scheduled Railroading model created the two most efficient operations in North America and we believe his legacy will continue at CSX,” J.P. Morgan analyst Brian Ossenbeck wrote on Sunday.

But Renny Ponvert, CEO of Management CV Inc., which analyzes top hires for money managers, told The Wall Street Journal, that hiring Harrison “was a classic triumph of short-term thinking over long-term sustainability.”

Povert said the CSX board “took a high-beta risk that appeared to pay off for the first six months. Now, they’re stuck with a consequence that could expose long-term shareholders.”

Bloomberg columnist Brooke Sutherland summed up what happened in the lead to her story this way: “CSX Corp. shareholders paid $84 million for Hunter Harrison. They’re now getting James Foote.”

In January when word got out that Harrison and the Mantle Ridge hedge fund were targeting CSX, the company’s stock value jumped 23 percent in one day.

One news report said CSX stock value has risen 48 percent this year and about 6 percent since March when Harrison took over.

The stock value fell on Friday about 10 percent, but then stabilized. On Monday CSX stock value rose 1.25 percent to $53.42.

Investors will be looking to a January CSX announcement of its fourth quarter 2017 performance for clues as to what the company plans to do going forward.

CSX also plans to hold an investors conference next March. By then the board may have already named Foote the permanent CEO and hired a chief operating officer.

Before his death, Harrison had purged the top executive ranks of most CSX holdovers.

Most of that shakeup came in late October and also brought Foote to the company to oversee operations and marketing.

Harrison had also been bringing in former Canadian National managers who understand his precision scheduled railroading model.

During a series of “Hunter camps,” which were intensive seminars led by Harrison himself that explained the concepts of precision scheduled railroading, he had identified what he termed “rock stars” who showed promise of understanding the model and being able to implement it.

CSX has signaled that it intends to continue to operate on the PSR model but some analysts have been debating whether it has the management team it needs to continue to oversee it.

Foote contended last Friday before Harrison death that most of the work in implementing PSR has been done and CSX had the people in place to fine tune things.

Some believe Foote and the current CSX management team might be better suited than was Harrison to soothe relations with shippers and employees who were upset at the rapid pace of change that Harrison brought to CSX and which resulted in service issues during the summer and early fall.

Yet some continue to doubt that Foote is the long-term answer for CSX.

“Even though Jim Foote is a capable leader we do not see him as the long-term solution as the CEO given his strength is marketing and the company is embarking on an operations-focused turnaround,” Cowen and Co. analyst Jason Seidl said in a note.

There has also been speculation in the wake of Harrison’s death that some CSX shareholders might launch litigation against the CSX board for breach of duty for having hired a CEO they knew had health issues.

The board had initially demanded that Harrison submit his medical records for review by an independent physician.

Harrison refused and the board backed down after Harrison submitted a letter from his doctor saying he was fit for the job.

One news account quoted two unnamed corporate attorneys as saying it might be difficult to win such a lawsuit because of Harrison’s known medical condition.

Hunter Harrison Dies at Age 73

December 16, 2017

CSX CEO Ewing Hunter Harrison died on Saturday at age 73, just over a day after the railroad announced that he had taken a medical leave of absence.


In a news release, CSX said that Mr. Harrison died at his home in Wellington, Florida, of unexpected severe complications from a recent illness.

“With the passing of Hunter Harrison, CSX has suffered a major loss,” said CSX Chairman Edward J. Kelly III in a statement.

“Notwithstanding that loss, the Board is confident that Jim Foote, as acting chief executive officer, and the rest of the CSX team will capitalize on the changes that Hunter has made. The Board will continue to consider in a deliberative way how best to maximize CSX’s performance over the long term.”

Mr. Harrison’s death came a day after the news of his medical leave resulted in CSX stock losing $4 billion in market value. Last Wednesday the stock had reached a record price of nearly $60 a share.

James M. Foote, who came to CSX in late October to oversee marketing and operations, had been named acting CEO after Mr. Harrison went on medical leave.

Harrison on Medical Leave From CSX

December 15, 2017

CSX announced Thursday night that CEO E. Hunter Harrison has taken a medical leave of absence and Chief Operating Officer James Foote is serving as acting CEO.

E. Hunter Harrison

The announcement said Harrison is dealing with complications from a recent illness.

A conference call was to be held on Friday morning to discuss the situation.

Harrison has been thought to have health issues for some time. It was reported earlier this year that he sometimes uses supplemental oxygen and that due to an undisclosed illness he has curtailed his traveling.

Concerns about Harrison’s health had been an issue early this year after hedge fund Mantle Ridge acquired a block of CSX stock and pushed for the company to make him CEO.

The CSX board of directors had demanded that Harrison’s medical records be examined by independent physicians, but he declined and the demand was later dropped.

Foote worked with Harrison years ago at Canadian National and was brought to CSX this past October with the idea of eventually succeeding Harrison as CEO of CSX.

“Hunter is a good friend and has been a colleague of mine for many years. He is an icon in the industry and we pray for his speedy recovery,” Foote said in a statement. “I have been following the CSX story very closely since January, but did not realize just how much progress Hunter and CSX’s able team have made replicating the transformation we effected at Canadian National some years ago.”

Harrison agreed to a four-year contract when he agreed to become CEO of CSX.

In his statement, Foote said that the precision scheduled railroading operating model is well in place at CSX and “the company has amassed the critical talent – through education of the internal team and supplementation with a complement of strong PSR operating veterans and a strongly supportive Board – sufficient to follow through and execute on the PSR operating plan.”

Harrison Says CSX is Doing Just Fine

November 30, 2017

CSX CEO E. Hunter Harrison told an investor’s conference on Wednesday that concerns about his railroad’s service are overblown and they are in part an attempt by shipping lobby groups to seek regulatory changes that would hurt the railroad industry.

E. Hunter Harrison

Harrison expressed pride in the job that CSX is doing. “The network is good,” Harrison said at the Credit Suisse Industrials Conference,

He cited improvements in terminal dwell time and average train speed figures that exceed what CSX posted last year.

Touching on a management shakeup that saw three high-level CSX executives leave earlier this month, Harrison said the CSX’s management team did not have the right chemistry.

Harrison has brought in James Foote, who worked with him at Canadian National about a decade ago, to oversee operations, and sales and marketing.

“Jim knows a helluva lot more about operating and precision scheduled railroading than some have given him credit for,” Harrison said. “At the same time, he’s got a unique talent on the marketing-sales side and happens to be a team builder. And that’s one of the things we really need.”

Foote is likely to become the CEO of CSX after Harrison retires. Harrison said he’s stepping back a bit to let Foote and his operating and marketing teams develop.

Speaking to the same conference, Foote said the challenge facing CSX is to get operations and sales to see the world in the same way.

He said both need to understand that precision scheduled railroading is about efficiency and improving customer service.

“This is not a plan to shrink the railroad into profitability, but to grow the business,” Foote said.

One area in which CSX has been making major changes is in its intermodal business.

It earlier closed its Northwest Ohio Intermodal Terminal and has eliminated numerous intermodal service lanes.

Noting that intermodal traffic has razor-thin profit margins, Harrison said he’s never been enthusiastic about the business and was critical of the hub-and-spoke intermodal strategy that sought to build density in low-volume lanes.

The railroad also has folded some intermodal traffic into manifest freights.

“We were doing some things that if you know anything about intermodal you don’t do,” Harrison said in reference to the Northwest Ohio terminal.

“You don’t switch intermodal stuff. That’s why intermodal stuff came about,” he said.

In some instances, Harrison said trains ran as much as 140 miles out of route to get to the Northwest Ohio terminal near North Baltimore. “That’s not smart to me,” Harrison said, adding that some traffic could be handled more directly on merchandise trains.

Harrison hinted that major changes are coming to the North Baltimore terminal, saying it might involve a western railroad looking to extend its reach into the East.

For now, CSX is using the Northwest Ohio terminal for block-swapping and is still handling some local intermodal containers there.

CSX also recently pulled out of a public-private partnership to increase clearances in the Howard Street Tunnel in Baltimore so that double-stacked container trains could use it to serve the Port of Baltimore.

In Harrison’s view, the East has too many ports seeking traffic. He also expressed a philosophical opposition to receiving government money.

Foote contended that CSX remains committed to intermodal traffic and will seek creative ways to profitably grow that business.

CSX has some underused routes that Harrison said will be sold or spun off. This includes all CSX trackage in Canada and related lines in the U.S.

Harrison said the CSX routes in Canada are not successful. In particular, a $100 million terminal near Montreal that CSX opened in December 2014 has underperformed, handling just a dozen containers per day.

“Everything we’ve got out there is going to go through some scrutiny,” Harrison said. “If it creates shareholder value to sell it, we’re going to sell it. If it creates shareholder value to keep it, we’re going to keep it.”

Harrison said he isn’t concerned if CSX competitors buy routes that it wants to sell.

“We’re not going to keep railroads for defensive purposes. I don’t believe in that,” Harrison said. “You’ve got a real weakness if you do that.”

CSX Management Shakeup Spooks Some Investors

October 27, 2017

The fallout over a CSX executive leadership shakeup has spooked some investors and sent the railroad’s stock price tumbling.

At close of business on Thursday, the CSX price per share had dropped 2.60 percent to $52.92. In after-hours trading, the decline increased to 3.82 percent, to $50.92.

Cowen and Company Managing Director Jason Seidl told Railway Age magazine that his firm has received numerous calls from investors about the changes, which have Chief Marketing Officer Frederick Eliasson, Chief Operating Office Cindy Sanborn, and General Counsel Ellen Fitzsimmons leaving CSX in mid November.

CSX also canceled an Oct. 30 investors meeting that was to have been held in Florida and used as a forum to discuss the railroad’s future operating plans.

“There was no specific reason given for the Investor Day cancellation, but one would have to imagine the sudden departure of CSX’s CMO, COO and general counsel are primary factors,” Seidl said.

At the same time that CSX announced the departures of three top executives, it said it was bringing on board a former Canadian National manager who worked there with CSX CEO E. Hunter Harrison.

James Foote will assume the post of CSX chief operating officer and replace both Sanborn and Eliasson.

Akron Railroad Club member H. Roger Grant told Trains magazine that a management shakeup of the scale of that which occurred at CSX this week is unprecedented in the industry.

“I can’t think of another example of such a sweep of top executives,” said Grant, a professor of history at Clemson University and author of several books about railroads.

The changes will leave only Chief Financial Officer Frank Lonegro from the management team of former CSX CEO Michael Ward.

Siedl said some investors believe there is more going on at CSX than has been disclosed thus far.

“We do not think the departure of these three people, long-tenured executives at the firm, came on completely amicable terms,” he said. “We think their departure could further disenfranchise additional employees, many of which may blame current management for their departures. This would be something the railroad does not need as it attempts to improve its well-publicized service issues. We expect CSX shares to underperform those of its peers in the near-term or until an explanation is given that can assuage investors’ anxieties.”

In a news release announcing the management changes, CSX said that Sanborn and Eliasson were leaving to pursue other opportunities.

That wording is often used by companies to mask a firing or an employee otherwise leaving involuntarily. Fitzsimmons was said to be retiring.

Trains reported that some industry observers were surprised that the management changes were disclosed less than a week before the investor day event and while the railroad remains under scrutiny of the U.S. Surface Transportation Board in the wake of a summer of service disruptions.

Yet others said they were surprised that Harrison, who became CEO in March, waited this long to make major management changes.

The management shakeup mirrors what Harrison did when he became CEO at Canadian Pacific in bringing in executives from Canadian National, where Harrison had also served as the top executive, to oversee the transition to the precision scheduled railroading operating model.

However, Trains reported that at CP changes in top executives occurred over a five-month period and not in a single day.

The magazine said that concerns about Harrison’s health — he has an undisclosed medical condition that limits his travel and forces him to rely on supplemental oxygen — may have had something to do with the timing of the changes.

Harrison had said during a conference call to discuss CSX’s third quarter earnings that the issue of who would succeed him might be addressed during the investor conference in late October.

At CN, Foote was the carrier’s chief sales and marketing officer between 2000 and 2009. He left CN after Claude Mongeau was named to succeed Harrison as CEO.

Foote, who is now president and CEO of Bright Rail Energy, which oversees converting locomotives to be powered by natural gas, does not have railroad operating experience even though Harrison wrote in a memo to CSX employees that Foot “has a proven track record with implementing precision scheduled railroading and  . . . more than 40 years of railroad industry experience.”

One Wall Street analyst told Trains that Foote knows Harrison’s operating philosophy and what’s expected at a Harrison-led railroad.

“Foote could be the trusted, proven railroader that could be a solid backup for Hunter,” said John Larkin, an analyst with Stifel Equity Research. “Just being part of the senior team at CN was kin to accumulating operating experience.”

Yet Trains quoted another source as saying lack of direct operating experience could be a liability.

“Credibility with ops people comes from working day and night in the field,” said the source, who was not named. “If, for example, you haven’t changed a knuckle 50 cars from the head-end in blinding rain at 2 a.m., you won’t have much credibility among the ranks of T&E personnel, superintendents, and trainmasters. These are the people who get trains over the road and want to be led by people who know their daily grind.”

Larkin said Foote might be a short-term successor while CSX grooms Lonegro to be its next CEO if Harrison has to step down or he does not continue after his four-year contract ends.

Foote is not the first former CN manager hired by Harrison at CSX. Approximately 15 people who worked at CN have been hired in operations at CSX.

In return for being released early from his contract at CP, Harrison had to agree not to poach any of that carrier’s top managers.

However, he was able to bring from CP Mark Wallace, who is now CSX’s executive vice president and chief of staff.

3 High-Level CSX Executives Leaving Company

October 26, 2017

Three high-ranking CSX executives will leave the company on Nov. 15. Departing are Executive Vice President and Chief Operating Officer Cindy M. Sanborn; Executive Vice President and Chief Sales and Marketing Officer Fredrik J. Eliasson; and Executive Vice President Law and Public Affairs, General Counsel and Corporate Secretary Ellen M. Fitzsimmons.

A CSX news release used the proverbial “to pursue other interests” boilerplate to describe the reason why Sanborn and Eliasson are leaving while Fitzsimmons was described as retiring.

The release also said all three executive  “will remain engaged in supporting the transition until early 2018.”

Replacing Sanborn will be James M. Foote, a former executive at Chicago & North Western, and Canadian National.

Foote most recently was the president and CEO of Bright Rail Energy. During his time at CN, he worked under current CSX CEO E. Hunter Harrison as CN’s executive vice president sales and marketing.

In a statement, Harrison cited Foote’s experience with precision scheduled railroading.

CSX Vice President Risk Compliance and General Counsel Nathan D. Goldman will be promoted to executive vice president, chief legal officer and corporate secretary, replacing Fitzsimmons.

The management shakeup follows a period of several months in which CSX experienced severe service issues that raised the ire of shippers and led the U.S. Surface Transportation Board to hold a public hearing on the railroad’s service.

The STB began monitoring CSX’s performance in July, requiring the company to submit weekly progress reports.

Harrison said at the STB hearing that CSX will continue to implement the precision scheduled railroading model and has been making progress in overcoming its service issues.

CSX Delays Investors Conference

October 26, 2017

In the wake of high-level management changes, CSX is delaying an investors conference to an unspecified later date.

The company had been set to announce during the Oct. 30 event its vision for the future and some details about its operating plans.

In a statement, CSX CEO E. Hunter Harrison said, “I am more confident than ever in CSX’s ability to achieve industry leading operating and financial performance and look forward to showcasing our leadership team at a future date.”

CSX also announced that its board of directors has authorized $1.5 billion in share repurchases, which builds on the $1.5 billion program recently completed.

“The board’s action to expand the repurchase program demonstrates our confidence in CSX’s long term future and ability to generate substantial free cash flow,” Harrison said.