Hunter Harrison, former president and CEO of CN, poses in his Montreal offices - 20 Oct 2009 Christinne Muschi.

30 December 2011

For CP Investors a Blunt Leader May be the Solution

Toronto Ontario - The train industry veteran being courted to run Canadian Pacific Railway Ltd., a company under investor pressure to make drastic changes, is known for being blunt and uncompromising when pushing for fast improvements.
 
Hunter Harrison, who served as rival Canadian National Railway Co.'s chief executive officer from 2003 to 2009, guided CN to become the envy of the rail sector, making him a good fit to instill greater discipline on CP's North American network, industry experts say.
 
Bill Ackman, head of New York-based activist hedge fund Pershing Square Capital Management LP, has recommended to CP's directors that Mr. Harrison replace Fred Green as CEO of Calgary-based CP.
 
"Hunter Harrison loves challenges and loves running railways," Greg Gormick, a transportation policy consultant, said on Friday. "If he were a small boy, CP would be a big train set dropped onto his lap. He would run CP as efficiently as he could, and he certainly has the track record to prove that he can do it."
 
Mr. Ackman's recommendation for a new CP leader comes more than three months after Pershing began buying CP shares. The U.S. hedge fund, which is now the railway's largest shareholder with a 14.2 percent stake, is pressing CP amid the company's rocky 2011, which was marked by delivery delays.
 
In the first nine months of this year, CP's profit dropped 25 percent to $348.5-million while CN's rose 16 percent to $1.86-billion. And CP's operating ratio, a key indicator of productivity that measures operating costs as a percentage of revenue, ranks as the worst among North America's Big Six railways. A lower operating ratio is better, CP had a ratio of 82.4 percent in the first nine months of this year, compared with CN's industry-leading 63.1 percent.
 
If hired, Mr. Harrison can be expected to push for a faster pace of improvements than under CP's current four-year strategy to gradually become more efficient by operating longer and faster trains with new locomotives, and upgrading tracks. "He can be quite personable, but he can be blunt and he wants fast change," Mr. Gormick said.
 
Sources say the 67-year-old Mr. Harrison, who retired from Montreal-based CN at the end of 2009, has expressed interest in returning to work, after holding preliminary discussions with Mr. Ackman.
 
Under CN's "precision railroad" strategy, the company is more aggressive about pushing customers to adhere to a fixed schedule for freight cars than CP, slapping on penalties for being late in many cases, Mr. Gormick said.
 
Two new directors joined CP's board in mid-December, Ed Harris, CN's former executive vice-president of operations, and Tony Ingram, former chief operating officer at CSX Transportation Inc. Both railway veterans complement Mr. Harrison's leadership skills, and CP is in line to have "three men with strong operating experience in North America, potentially under one roof," said Mr. Gormick, who did consulting work for CP's communications department from 1988 to 2009.
 
Mr. Harrison will be able to talk with CP after an agreement that restricts him from competing against CN expires on Saturday (31 Dec 2011).
 
CN enjoys the advantage of having a more extensive North American network than CP, which doesn't have tracks at the Port of Halifax or service from the Port of Prince Rupert. As well, CP must climb and descend far more difficult terrain than CN between Vancouver and Alberta.
 
William Brehl, president of the Teamsters Canada Rail Conference's Maintenance of Way Employees Division, said Mr. Green has had more than five years as CP CEO to try to make the company more efficient, but 2011 turned out to be a disappointment.
 
In a series of internal memos to staff this year, Mr. Green blamed much of the railway's problems on winter storms and spring flooding that disrupted deliveries, but Mr. Brehl said management got caught off guard and didn't have adequate backup systems.
 
"CP blames it on the weather, but don't use excuses. Winter hit CN, too, but did CN run its operations indoors? Of course not," said the leader of the 3,500-member union.
 
CP and Mr. Ackman declined comment, while Mr. Harrison couldn't be reached Friday.
 
Brent Jang and Jacqie McNish.