Posts Tagged ‘CSX management’

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.

Advertisements

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.

Harrison’s Compensation at CSX Outlined

March 9, 2017

Hunter Harrison and CSX agreed to a base salary of $2.2 million, the railroad said this week in a regulatory filing.

The compensation package also includes an annual target bonus opportunity of up to $2.8 million, with that amount as a guaranteed bonus this year.

Harrison will receive options on 9 million shares of CSX stock, which is valued at $448 million at its current price of $49.79 per share.

Half of those options will hinge on his continued employment and the other half are tied to his meeting a series of performance targets.

The agreement to hire Harrison as its CEO also came with a number of changes in the CSX board of directors.

Clarence Gooden is no longer vice chairman and board member Timothy O’Toole has resigned immediately.

CSX’ has amended its corporate bylaws to separate the roles of CEO and chairman of the board as well as to change the mandatory retirement age of 75. Harrison is 72.

Although it remains to be seen how Harrison’s management philosophy will play out at CSX, analysts expect that he will further thin the number of managers and employees at the company, close yards and shops, and sell off some rail routes.

These measures will be aimed at improving operations, reducing expenses and boosting profitability.

Some have noted that CSX is far different than were Canadian National and Canadian Pacific when he took over as CEO at those railroads.

The Canadian roads were linear systems whereas CSX has a more complex route network.

That will challenge Harrison to impose his precision scheduled railroading philosophy, which he developed as CEO of the Illinois Central Railroad in the 1990s.

One decision Harrison will need to make will be whether to continue the CSX of Tomorrow strategy, which emphasized intermodal and merchandise traffic while focusing on its major routes operating in a triangle operating from Chicago to New Jersey to Florida and then back to Chicago.

CSX, Harrison Reach Agreement on CEO Post

March 6, 2017

CSX said Monday afternoon it has reached an agreement to hire E. Hunter Harrison as its CEO effective immediately.

Current CEO Michael Ward, who had announced on Feb. 21 that he would retire on May 31, will become a consultant to CSX.

The railroad also said it has reached a pact with hedge fund Mantle Ridge to reorganize the CSX board of directors.

In a news release, CSX said it would appoint five new directors agreed upon by Mantle Ridge and current CSX management.

They are Paul Hilal, who founded Mantle Ridge, Harrison, Dennis Reilley, Linda Riefler and John Zillmer.

Three incumbent directors will complete their terms at or before the conclusion of the CSX 2017 annual meeting. The CSX board will then have 13 members.

Edward J. Kelly, III, the current presiding director, will become chairman of the board and Hilal will become vice chairman.

Harrison will receive an award of incentive options to purchase nine million shares of CSX stock at its current trading price, eight million of which will be granted as an inducement award under the Nasdaq listing rules, CSX said in its news release.

The options will vest over four years with half of the options vesting based on service and half vesting based on the achievement of designated performance goals over the four-year period.

However, the CSX board will still seek shareholder direction with regard to an $84 million payment to cover compensation and benefits that Harrison forfeited by retiring early from Canadian Pacific.

CSX said that Harrison, 72, has said that his acceptance of the CEO position is subject to CSX ultimately providing this replacement protection initially offered by Mantle Ridge upon his departure from CP.

If he does not receive the reimbursement and tax indemnity that he is seeking, Harrison will resign after the 2017 CSX annual meeting.

CSX said it will ask CSX shareholders to conduct an advisory vote during the annual meeting.

A previously announced special stockholders meeting will not be conducted.

The news that CSX, Harrison and Mantle Ridge has reached an agreement was reported in various news outlets, including the Wall Street Journal, before it was formally announced by CSX.

CSX, Harrison Reported Close to a Deal

March 4, 2017

News reports on Friday indicated the CSX and E. Hunter Harrison are closed to reaching a deal for the former Canadian Pacific head to become CEO of CSX.

CSX logo 1Bloomberg News reported that an announcement could be made as early as next week although the talks between CSX and hedge fund Mantle Ridge over the composition of the CSX board of directors could still collapse.

The reports indicated the two sides were close to reaching an agreement whereby Harrison would begin work immediately for CSX and receive a four-year contract.

CSX shareholders would vote on whether to reimburse Mantle Ridge the $84 million that it paid Harrison to walk away early from CP.

Back in January, several news reports indicated that Harrison agreed to forego tens of millions of dollars to get CP to grant him a limited waiver of a non-compete clause.

CSX and Mantle Ridge have refused to comment on the report.

CSX Layoffs Affect 20% of Employees

March 1, 2017

The plans by CSX to lop off up to 1,000 management employees is expected to affect more than 20 percent of its workforce and save at least $175 million annually.

CSX logo 1In a regulatory filing this week, the railroad said it will take a pre-tax charge of at least $160 million related to employee termination benefits, including severance, pension, and stock compensation costs.

Those losing their jobs are expected to receive severance pay equal to two times their base salary.

They also will receive a target bonus and a prorated bonus payment and be credited with three additional years of age and two additional years of service under the company pension plan.

The layoffs are expected to be completed by the middle of this month.

CSX CEO Michael Ward, who will be retiring at the end of May, has described the layoffs as “essential to CSX’s ability to remain competitive in a challenging and changing market.”

The management restructuring is part of an on-going cost cutting campaign over the past year that has seen CSX reduce expenses by $430 million. The railroad also has said that it expects to reap another $150 million this year through efficiency and productivity gains.

Much of the cost cutting has been triggered by the loss of coal revenue, which has been $2 billion over the past five years and $470 million last year alone.

At the same time that it is cutting its management ranks, CSX is implementing a program of long-term incentives for managers who remain that is tied to performance units, restricted stock units, and stock options that will account for 50 percent, 25 percent, and 25 percent of the payouts, respectively.

New CSX President Fredrik Eliasson will see his base salary increase to $700,000. His short-term incentive opportunity has increased to 100 percent of annual base salary and the value of his target long-term equity incentive award rose to $2.5 million.

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.

Numbers, Numbers. How Much is Hunter Worth?

February 20, 2017

When E. Hunter Harrison retired early from Canadian Pacific, news accounts noted that he left millions of dollars on the table in exchange for a limited waiver of a non-compete clause so he could pursue the CSX CEO job.

As it turned out, Harrison did no such thing.

On TransportationThe hedge fund Mantle Ridge agreed to pay Harrison the money he gave up at CP.

Mantle Ridge in turn wants CSX to reimburse it for the cash it guaranteed Harrison for walking away early from CP.

CSX claims that Harrison is seeking a four-year contract worth $300 million. That $75 million a year would make him not just the highest paid North American Class 1 railroad executive but also place him among the highest-paid CEOs in America.

By comparison, the man Harrison wants to replace, Michael Ward, earned $2.9 million in 2015. Another retired Class 1 CEO, Charles “Wick” Moorman, who agreed to take Amtrak’s top job for $1 a year, although he is also eligible for performance-based bonuses of up to $500,000 a year.

But Mantle Ridge counters that Harrison’s compensation package would actually be worth $200 million of which $120 million are stock options.

Such is life in the rare air of the corporate suite where eye-popping salaries are justified by saying a CEO brings a “unique skill set” to the job.

Executive compensation experts interviewed by Trains magazine said Harrison’s pay demands are at the high end of the scale, but not unreasonable by CEO pay standards.

Once the news broke that Harrison was seeking the top CSX job, the value of CSX stock jumped $10.4 billion, an increase of 30 percent.

Ben Branch, a finance professor at the Isenberg School of Management at the University of Massachusetts, told Trains that CSX stockholders might think Harrison has a “dramatic plan” for improving the company.

“It’s rare,” Branch said. “You don’t have many situations where a CEO almost single-handedly is expected to deliver dramatic improvement.”

Jason Shiel, a managing director of finance firm Cowen and Company, told Railway Age the pay demanded by Harrison is a negotiating point and he is likely to receive less, although not necessarily much less.

Harrison is known for his scheduled precision railroading operating philosophy, which some railroad industry analysts say is similar to what CSX practices now.

Ultimately, some think Harrison’s long game is to engineer a merger that creates North America’s first transcontinental railroad. It is an idea he been peddling for years and failed to pull off last year when he proposed a merger between CP and Norfolk Southern.

For us mere mortals whose primary connection with CSX is watching its trains pass by, all of this talk about eight- and nine-figure executive compensation is nothing more than a parlor game.

The numbers baffle ordinary people who have no chance in their lifetime of ever earning a salary exceeding five figures a year. Most of us can’t fathom how you become a CEO of a Fortune 500 company.

For most CSX employees, having Harrison rather than Ward at the top will make little difference.

They will continue doing what they have been doing even if there may be some changes in how they do it.

Yet it is likely that some may find themselves victims of Harrison’s expected cost cutting.

In the eyes of Harrison and other high-ranking and well-paid railroad executives, labor costs are just another number to be reduced in order to please Wall Street.

How those reductions affect individual CSX employees financially and emotionally won’t be a subject of discussion at the special CSX board meeting. It never is.

All they talk about are numbers and for most of us that is all Harrison’s pay demands are.

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.”