Ex-Canadian National CEO Hunter Harrison - Date unknown Christinne Muschi.

23 January 2012

CN to Suspend Benefits for Former CEO Hunter Harrison

Montreal Quebec - Canadian National Railway Co. Monday halted nearly $40-million in benefits to be paid to its former chief executive, Hunter Harrison, after launching a lawsuit alleging he may have breached, or intends to breach, several confidentiality agreements with the railroad dating back to his retirement in 2009.
 
In the suit launched Monday, CN's board of directors said it had grounds to believe Mr. Harrison may have violated his commitments to CN as part of a push by activist shareholder William Ackman and his New York-based hedge fund, Pershing Capital Management LLC, to see Mr. Harrison replace Fred Green as CEO of rival Canadian Pacific Railway Ltd.
 
"CN has a reasonable basis to believe, from the public statements made by Harrison and others in the press, from admissions made by Harrison himself to CN, and from other information, that Harrison was in breach of his non-disclosure and non-compete undertakings sometime in 2011," the suit launched in the U.S. District Court states. "If Harrison were to accept a position at CP, he would be in unquestionable breach of his non-compete undertakings," CN added.
 
The effort to see Mr. Harrison replace Mr. Green has come up against stiff opposition from CP's own board of directors, which has instead thrown its support behind Mr. Green and his turnaround plan for the railway. This has set the stage for a messy proxy battle at the company's annual general meeting which is now slated for 17 May 2012 in Calgary.
 
Mr. Ackman put forth his minority slate of candidates for CP's board Monday in filings.
 
They include himself, Gary F. Coulter president of CRS Inc., a corporate restructuring and strategy management consulting company, Paul Hilal business partner and friend, Rebecca MacDonald, and Dr. Anthony R. Melman Nevele Partners Inc. chief executive and former managing director at Onex Corp.
 
Mr. Harrison signed several confidentiality agreements with CN upon his retirement, including a non-compete agreement that expired at the end of 2011. But he is still bound by an agreement not to solicit CN employees until the end of 2012, and other non-compete restrictions until the end of 2014, under the risk of losing his pension and other retirement benefits.
 
CN's board elected to suspend its payment to Mr. Harrison and to seek discovery to determine whether its beliefs were factually supported and, if that discovery bears out, CN would seek a declaration entitling it to cancel all pension, restricted stock units, and other benefits otherwise due to Mr. Harrison, the company said.
 
CN said it was still prepared to pay Mr. Harrison the $17.9-million restricted stock payment and resume his pension benefits, the present value of which is approximately $20.6-million, or $1.5-million on an annual basis.
 
"All Harrison must do to get those payments is provide discovery to confirm that he has not already breached his agreements and renounce his intention to breach in the future by accepting employment at or other involvement with CP," CN said in the filings.
 
Gregory Joseph, Mr. Harrison's lawyer, called the suit "frivolous."
 
"Hunter Harrison had a two-year non-compete with CN. He honored it scrupulously. It expired. That is the end of this lawsuit," he said.
 
He noted that CN doesn't even attempt to justify a basis for not paying Mr. Harrison the $17-million it owes him restricted stock units, which he said are not subject to the agreements.
 
"It does nothing but speculate in purporting to justify non-payment of his pension benefits," he added. "This is shocking behavior for a reputable public company. This suit is only about money."
 
Mr. Harrison said in an interview last week with the Financial Post that he has yet to meet with anyone from CP about his possible employment, and if he were, that he would base any proposals he gave them from his self-styled method of precision railroading which has been the subject of two books.
 
Mr. Ackman said in an interview Monday that Mr. Harrison had not violated any of his agreements, and that Pershing had agreed to indemnify Mr. Harrison from any claims from CN, including the $40-million in retirement benefits.
 
"At no time did we ever ask Hunter, or receive from Hunter, any confidential information about Canadian National," he said.
 
Scott Deveau.