CP units rest in a yard - Date/Photographer unknown.

4 February 2013

Rivals CP Rail and CN Rail
Forge Executive Poaching Accord

Toronto Ontario - Canadian Pacific Railway Ltd.'s decision to hire away a top Canadian National Railway Co. executive came with the hefty price in the form of an agreement not to hire roughly 60 of its rivals' top marketing and operations executives through 2016.
 
CP said Monday it had appointed CN's chief operating officer, Keith Creel, as its new president, chief operating officer, and the likely successor to Hunter Harrison as its CEO.
 
The two railways had already been locked in a legal battle after CN halted roughly $40 million in post-retirement benefits owed to Mr. Harrison stemming from his non-compete agreements implemented after his retirement from CN in 2009. Mr. Creel is also believed to have been subject to similar agreements with CN.
 
But the railways said Monday they had also reached a global settlement in which sources have said CP agreed to not hire roughly 60 of CN's top marketing and operations executives through to the end of 2016. The agreement is in exchange for CN dropping all litigation against CP and Mr. Harrison as well as other, undisclosed terms.
 
The move was seen by industry observers as a means to convey to markets that the bleed from CN to CP would end with Mr. Creel.
 
"It's a positive for CN because, from an investor's standpoint, we had an overhang," said Walter Spracklin, RBC Capital Markets analyst. "You're taking away the worry that these executives are going to be poached."
 
Karen Bock, a partner in the Employment & Labour Group at Davis LLP, said the careers of the CN employees affected by the no-hire policy will likely be negatively impacted by the decision as it significantly limits their employment options. But she said she was unaware of any legal grounds for them to fight it on.
 
"It doesn't impinge on any rights that the employees might have," she said. "They couldn't, for example, say that they're not going to hire any women for the next three years, or that obvious stuff. But there's nothing that prevents one employer agreeing with another that they're not going to touch each others' employees."
 
No hire policies are not unheard of and are most commonly employed with highly-mobile workforces, including technology, insurance, and other financial service sectors that would otherwise be subjected to endless poaching from their competitors.
 
But Stephen Gleave, a partner at Hicks Morley, said he believed there is a case to be made that such arrangements are unenforceable because they are reached without the consent of the employees and unfairly impede upon their mobility.
 
While there is no legal precedent in Canada that he is aware of, Mr. Gleave was prepared a few years ago to mount a challenge to a similar arrangement that had been put in place between two U.S. companies who tried to bring their arrangement North of the border.
 
He said he was prepared to challenge that no-hire policy based on English case law, in particular one relating to Kores Manufacturing, before the company opted not to pursue it.
 
"Not only are these people saying who they'll hire, but more importantly, refuse to hire somebody because they've been at another company," Mr. Gleave said. "That's stopping employee mobility."
 
Anil Verma, a professor of Industrial Relations and Human Resource Management at the Rotman School of Management, said even if the arrangement is legal, he said it would been ethically cleaner for the companies to agree that CP wouldn't solicit the affected workers but leave the choice open for the employees.
 
Keith Creel's appointment as CP president and chief operating officer is the final piece in the ongoing transformation of the railway following the proxy battle waged by Bill Ackman's Pershing Square Capital Management LP last year.
 
The Financial Post first reported Mr. Ackman's interest in hiring away Mr. Creel from CN last March. Those with knowledge of the situation said when Pershing Square first approached CP's board in 2011 its plan not only called for the appointment of Mr. Harrison, 68, as CP's CEO, but also Mr. Creel as his head of operations and eventual successor.
 
Both men worked closely together at CN prior to Mr. Harrison's retirement, and have a close personal relationship as well, including a shared passion for raising horses.
 
The appointment of Mr. Creel was made possible after Mr. Harrison's non-solicit agreement expired with CN at the end of 2012, which opened negotiations between the parties.
 
"Mr. Creel is a highly regarded rail operations executive so we view his addition to CP's executive team as unambiguously positive," said Cameron Doerksen, National Bank Financial analyst. "Given the fact that Mr. Creel had previously worked under Hunter Harrison at CN, this move does not come as a surprise."
 
Those with knowledge of the situation also say the CEO position at CP is Mr. Creel's to lose once Mr. Harrison's own four-year contract expires in 2016.
 
In the meantime, combined with board member Stephen Tobias, Pershing Square now has its dream operating team in place to run the company.
 
The move does, however, leave a hole in CN's ranks. But the country's largest railway said it has plenty personnel within its ranks to help fill the position.
 
Analysts said the likely candidates include Jim Vena, CN's senior vice-president for the southern region, and Mike Cory, CN senior vice-president for the western region.
 
"While the departure of Mr. Creel is a negative development for CN Rail, we believe the company can tap into its significant bench strength to fill its COO position," said Fadi Chamoun, BMO Capital Markets analyst, adding that the settlement with CP also puts to rest the risk of further poaching of CN's executives.
 
Scott Deveau.

Vancouver Island
British Columbia
Canada