Posts Tagged ‘management changes’

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.

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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.