Hedge Fund Pressing Effort to Oust Top CN Management

An activist hedge fund that controls more than 5 percent of stock in Canadian National said it will press other investors to support a call to replace the railroad’s top management.

A partner in TCI Fund Management told a Toronto newspaper that his firm has been speaking with other large investors who are likewise disenchanted with CN management.

TCI began demanding the resignation of CN CEO J.J. Ruest and Chairman Robert Pace after the U.S. Surface Transportation Board rejected a plan by CN to place Kansas City Southern into a voting trust as a first step toward acquiring KCS.

Walker told the Globe and Mail that the next steps toward replacing Ruest and Pace will hinge on what other shareholders do.

TCI is the second-largest CN stockholder and also holds a large share of stock in Canadian Pacific.

Hedge Fund Sells CSX Shares

A CSX manifest freight heads west through Fontanet, Indiana, on the St. Louis Line on Oct. 12, 2019. Longer and fewer trains have been the rule since the carrier adopted the precision scheduled railroading operating model under the late E. Hunter Harrison.

The hedge fund that brought E. Hunter Harrison to CSX in early 2017 has sold most of its stake in the Class 1 carrier.

The Wall Street Journal reported this week that Mantle Ridge LP has sold nearly $1 billion of its stock in CSX.

The newspaper said it learned of the sale through filings with the U.S. Securities and Exchange Commission.

CSX bought back 4.7 million share of its stock that Mantle Ridge had held.

However, Mantle Ridge principal Paul Hilal has retained ownership of 3.4 million shares of CSX stock and continues to serve on the company’s board of directors.

Hilal had recruited Harrison to be the CSX chief executive officer even as he was still CEO at Canadian Pacific.

Harrison came to CSX after a failed bid by CP to merge with Norfolk Southern that drew opposition from NS management and various U.S. public officials.

At CSX Harrison implemented the precision scheduled railroading operating model. He died on Dec. 17, 2017, less than a year after taking the helm at CSX.

Numbers, Numbers. How Much is Hunter Worth?

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.

The 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.