Illustration of Canadian Pacific Railway CEO Hunter Harrison - Date unknown Anthony Jenkins.

7 December 2012

There is a New Sheriff in Town

Toronto Ontario - It has been 16 months since Hunter Harrison, the crusty, Memphis-born railway legend hauled himself to a New York museum he can't remember for a business lunch he'll never forget.
 
The locale was the Museum of Modern Art and his dining companion was Bill Ackman, master of the modern art of shareholder activism. Mr. Harrison had only just met Mr. Ackman that morning, in August, 2011. But when the 2 1/2 hour meal ended, the gruff railroader and the blunt hedge fund mogul shook on a deal that ,would culminate in a humiliating boardroom coup at Canadian Pacific Railway this May and hand Mr. Harrison the controls at the struggling carrier.
 
Earlier this week, Mr. Harrison sat down in yet another museum he has never heard of, the Art Gallery of Ontario, to revisit the "godawful" lows of the CP proxy battle along with the early triumphs of his first six months at the Calgary-based railway.
 
Before that, however, there is the tricky business of food-ordering at Frank, an austere maple-panelled restaurant named after AGO architect Frank Gehry. It's a proposition that Mr. Harrison, a hard-core red-meat man, now finds taxing because, in addition to fixing CP, Mr. Ackman is trying to make over Mr. Harrison.
 
"He's got me on to a trainer and his personal nutritionist," says Mr. Hunter, shifting his well-upholstered, 68-year-old frame into his chair.
 
"I lost 12 pounds in the first two weeks." How? "I have that Greek yogurt stuff with berries, power bars, protein shakes, and sugar-free popsicles to fight the munchies."
 
As for alcohol, the man with the bourbon-soaked southern drawl says:  "I have cut it out completely." Pausing to offer me a toothy grin, he adds, "Except when I drink."
 
And so, as he scans the menu, Mr. Ackman's newest fitness disciple looks past the beet salad, vegetarian pozole, and chestnut souffle and exclaims:  "My eyes are drawn immediately to this." A beef burrito.
 
Which is to say that, even though Mr. Harrison is backed by Mr. Ackman ("a real player"), has negotiated the richest salary of his career ("I said, I don't think you can afford me. He said:  Don't kid yourself."), and commutes on his private jet ("one of the little things I bought for myself,"), he is still essentially the same hard-nosed railroader who began his career 49 years ago squirting oil at the underbellies of trains.
 
He rose through the ranks by impressing his bosses as a driven train operator, and cemented his reputation as a brass-knuckle fixer when he transformed Illinois Central Railroad. The near-bankrupt company, later purchased by Canadian National Railway Co., emerged as one of the industry's top performers in the late 1990s after he slashed costs and prodded a moribund work force with a canny mix of fear and inspiration.
 
"My story hasn't changed," he says. To rebuild what he calls the "spoiled, bad, horrible culture" at CP that suffered from "a total lack of leadership," he is ripping up just about everything except for the railway's tracks to shake off what he calls a "permissive" work ethic, a head office "where bureaucracy was king," and a demoralized work force at one of North America's most inefficient railways.
 
"There is a new sheriff in town. He may be mean and ugly, but he knows about railroading, and he is going to make this company successful."
 
Mr. Harrison has set an ambitious agenda at CP, promising shareholders who backed Mr. Ackman's proxy contest that CP's operating ratio would come close to matching industry leader Canadian National Railway by 2016. In 2011, CP spent about $81 for every $100 it earned in revenue, an operating ratio of 81 percent that significantly lagged CN's ratio of 63.5 percent last year. While some critics have scoffed at the ambitious target, investors have become believers, pushing the stock to new highs this week of $99.92 on the Toronto Stock Exchange, nearly double last year's low of $52 a share.
 
Investors are pumped because they remember how Mr. Harrison transformed CN from a bloated railway into a low-cost leader by doing many of the same things he did at Illinois Central. His blueprint for recovery at CP won't differ very much from the plans he followed there.
 
"The success or failure of a railroad is not based on the economy. It's based on how you control the costs," he says.
 
Mr. Harrison rolled out the first stage of his strategy at CP this week with the announcement of 4,500 jobs cuts, a more than 30 percent reduction of the company's fleet, yard closings, and potential asset sales. About 80 percent of the job cuts will be eliminated through retirements and other forms of attrition, and the biggest relative hits will be felt at the company's Calgary head office, which is being shrunk and moved to a rail yard on the city's outskirts.
 
Phase two will be rolled out early in the new year, when he unveils a detailed plan for operating and scheduling the bulk carrier's fleet of trains. He will also launch a series of staff meetings, known during his tenure at CN as "Hunter Camps" to explain his plans for the company and his expectations for staff.
 
"I don't want to lose good people, there are not enough of them to go around. There are only two things I need them to do. They have to be willing to be cross-trained in another discipline, and willing to relocate if needed. If they don't want it, they oughtta get their resumes dusted off."
 
For all his tough talk, Mr. Harrison can be surprisingly thin-skinned. This is revealed when he recalls the personal attacks and "lies" that were circulated about him during the punishing four-month proxy battle Mr. Ackman mounted to successfully install seven dissident directors on CP's board earlier this spring.
 
When I remind him that Mr. Ackman and his team repeatedly and publicly skewered CP's former CEO, Fred Green, Mr. Harrison retorts:  "That was about business." But when CN's board publicly criticized as "detrimental" Mr. Ackman's proposal to name Mr. Harrison CEO, that, he says, "was personal."
 
"They started to question my integrity and character. And that is something I feel very strong about. I don't care about the damn money." This last statement prompts Mr. Harrison to pause for a few seconds. Lowering his voice to a gravelly rasp, he adds:  "Uh, well, I shouldn't say that, of course I care."
 
The most painful moment, he says, came in January, when CP director Ed Harris publicly questioned Mr. Harrison's ability to lead Canadian Pacific.
 
"Ed Harris used to work for me. He was a good friend, but if he walked into the door there," he says, pointing to the restaurant's lobby, "I would go and attack him. He was just their mouthpiece. They got Ed to say bad things about me." Mr. Harris stepped down from the CP board in May.
 
His impression of CP's board did not improve when directors interviewed him after the successful proxy battle. That session at Calgary's Petroleum Club, he says, "was a godawful joke, the biggest godawful joke of my life." The directors had two questions:  Why did he not donate more money to his communities and would he agree to a physical?
 
The majority of the directors at that session are no longer with CP. Mr. Harrison apparently thinks he can afford to thumb his nose at them because the railway's profits are improving, its stock price is cresting all-time highs, and he insists he is on track to repeat his CN success at CP.
 
"Canada, within 18 months, will have two of the most successful railways in the world."
 
CURRICULUM VITAE
 
Beginnings
 
Born 7 Nov 1944 in Memphis.
 
Eldest of five children.
 
Son of policeman who became a travelling preacher.
 
Family Life
 
Married to Jeannie. Has two daughters, Libby and Cayce, and three granddaughters.
 
Has homes in Florida and Connecticut and a condo in Calgary.
 
Career
 
1963:  Hired as carman-oiler at St. Louis-San Francisco Railway.
 
1980-1988:  Various positions, Burlington Northern Railroad.
 
1989-1998:  Chief executive officer, Illinois Central.
 
Railroad
 
1998-2002:  Chief operating officer, Canadian National Railway.
 
2003-2009:  CEO, CN.
 
July 2012 to present:  CEO, Canadian Pacific Railway.
 
Hobbies
 
Runs Double H Farm to raise, train, and breed show-jumping horses.
 
Looking for property in Kentucky to expand his horse-breeding business.
 
IN HIS OWN WORDS
 
On the terms for train fanatics:
 
"Buffers and foamers... you know the guys that foam at the mouth when they talk about trains."
 
On the controversy when he jumped to CP from CN:
 
"It's like a sports contract. They sign you to a five-year contract, you play for five years. They don't reup [renew the contract] or someone else offers a lot more, I don't know that it is disloyal to go over there."
 
On leaving CN:
 
"I was disappointed when I left CN. Certain directors can be cruel. They came to me and said Would you consider re-upping? I sat outside that damn board room for six hours while they were in camera. Then they call me back in, about 11:30 p.m., and they say, Thanks, but no thanks. I said, What, you come to Florida and then you do this? and they all were staring at me like deer in the headlights. So there was not a lot of affection when I left."
 
On the fate of his team at CN:
 
"There were about eight or 10 people with Harrison tattoos on them that they just shot. It was ugly, mean, which I didn't like and I thought was totally unfair."
 
On what keeps him awake at night:
 
"I go to bed every night and I sleep good. I don't carry the burden that I have done the wrong thing."
 
Jacquie McNish.