Posts Tagged ‘Hunter Harrison’

Harrison’s CSX Legacy Gets an Incomplete

December 17, 2017

Shortly after I learned on Saturday afternoon about the death of CSX CEO E. Hunter Harrison, I logged into Trainorders.com to get a sense of how railfans were reacting to the news.

As I expected, many, although not all, posters wrote harsh, bitter and even over the top comments along the lines of “good riddance.”

A poster who goes by the screen name Darkcloud wrote, in part, “While it might be sad for his family, he ruined a lot of lives of rail workers who didn’t have the safety net of wealth to fall back on that he and his family do. Good men with good records fired under false pretenses or minor errors. Fired to ‘send a message’ or to save a few more dollars to pay for [the] obscene salary he demanded when already a set for life multi-millionaire.”

The business press by contrast offered a more gentile and longer view of Harrison’s passing.

Typical of those accounts was one published at Bloomberg.com that described Harrison as a turnaround chief executive officer.

“By relying on a strategy of cutting costs and implementing procedures to make all parts of the operation more efficient, Harrison transformed Canadian Pacific Railway Ltd., Canadian National Railways Co. and Illinois Central Corp. into rail industry leaders. His reputation among analysts and investors was so strong that CSX shares jumped 23 percent on a single day in January 2017 when reports emerged that Harrison was in talks to take the helm,” Bloomberg reporter Frederic Tomesco wrote.

Can these disparate points of view be reconciled? Yes, if you keep in mind that how you view Ewing Hunter Harrison is shaped by the angle from which you view him.

History books are more likely to portray Harrison in the manner that Bloomberg did than with the emotionally wrought language often employed on chat lists.

And yet both speak to the same point. Harrison was a controversial but hard to ignore figure revered on Wall Street and respected by business writers and railroad trade journals, but often loathed by many who worked on his railroads.

There is no denying that Harrison will be remembered for his concept of precision scheduled railroading that he honed on the IC and then took to CN, CP and CSX.

There also is no denying that the tools that Harrison used to make his railroads more efficient included reducing payroll and demanding in no uncertain terms that workers and manager do things his way.

He lived by the credo of doing more with less; that meant fewer employees and assets, and pushing to get a little more out of both than his predecessors had done.

“Run a tight ship, and you can expect a reasonable return; manage it badly, and the sheer weight of assets will sink you,” Harrison wrote in his 2005 book How We Work and Why: Running a Precision Railroad

Harrison sought to frame himself as concerned with the welfare of his railroad’s employees and even hinted that he was pro labor. Yet at CP he ordered mid-level managers to learn how to operate trains in the event that the unions went on strike.

Likewise, Harrison sought to frame what he was doing at CSX as in the best interests of the railroad’s shippers even as many of those shippers flooded the U.S. Surface Transportation Board with complaints about shoddy service.

CSX acknowledged having service issues during the transition to the precision scheduled railroading model.

But Harrison was an old school manager who saw himself as being in the railroading business and not necessarily the transportation business, a viewpoint that was not unique to him.

He would never accept the premise of that statement, but even by his own words, Harrison acknowledged that CSX was trying to get shippers to change their behavior rather than the other way around.

A few weeks ago he dismissed shipper complaints as long-standing efforts by shipper trade groups to get the federal government to impose regulations on railroads.

This spoke to a paternalistic bent of “I know what is best for you” that no doubt irritated some CSX customers. What is best for shippers is not always what is best for CSX and vice versa.

Of late, Harrison and CSX executives had been touting the improvements that the railroad has made in such metrics as average train speed and dwell time of cars in classification yards.

Some of Harrison’s critics and even his admirers have wondered if precision scheduled railroading could work at CSX with its labyrinth route network and more complex mix of traffic than IC, CN or CP.

We’ll never fully know the answer to that question because Harrison won’t be around to see the process through. His CSX legacy is and always will be incomplete.

He led CSX for less than a year and although the surviving managers are likely to continue the precision scheduled railroading model, they won’t have Harrison around to lean on for guidance, leadership and inspiration.

Whatever successes or failures that CSX has in the coming months and years will be on those managers and not Harrison even if he established the direction that the railroad is going.

I’ve always believed that our society places too much emphasis on the efforts of individual presidents and chief executive officers.

We see them as larger than life figures and tend to attribute to them an organization’s good and bad behavior at all levels.

To be sure, the man or woman at the top sets a tone that percolates downward through the top managers that he or she hired and oversees. Some CEO’s do better at that than others.

Yet the focus on personality can overlook the context in which the top executive operates and might attribute to personality what is actually the work of culture and external forces and how an organization responds to those.

Yes, the personality, talent and skill of the CEO play a role in organizational behavior, but Class 1 railroads are complex organizations that engage in multiple juggling acts to seek to satisfy multiple masters.

Whether you thought Harrison did that well or not depends on your perspective as the commentary about his passing well illustrates. But critics and admirers both can agree that he was a towering figure in the railroad industry who stood over many of his peers and will be remembered for much longer than many of them because of his efforts to be a transformative leader.

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.

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.

CP, NS CEOs Reportedly Meet to Discuss Merger

November 14, 2015

Canadian Pacific continues to court Norfolk Southern with the CEOs of the two companies reportedly having met on Friday to discuss the idea.

The Wall Street Journal reported that in meeting with NS CEO James Squires CP head Hunter Harrison outlined a variety of scenarios ranging from a merger to some form of partnership.

The newspaper said that Squires was cool to Harrison’s ideas and that CP may take its merger proposal public in order to pressure NS.

The CP board of directors decided last year to expand the company through acquisitions. In 2014, CP approached CSX about a merger, but was spurned.

The Journal said it was unable to learn of any specific terms that Harrison proposed to Squires but that it is possible that no deal will be reached.

A merger of NS and CP would create a railroad with a combined market value of $47 billion.

Of late, NS stock has been trending downward in trading, having lost 33 percent of its value since a 52-week high of $117.64 per share.

NS stock closed on Friday at $88.96 per share.