Sunday, January 15, 2012

Will Hunter Harrison reemerge—at CP?

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Hunter Harrison, CN’s iconic former chief executive and a Railway AgeRailroader of the Year recipient who is now retired in Florida raising show horses, has been approached to run Canadian Pacific Railway.

But CN isn’t happy about it, according to reports published by Reuters and the Toronto Globe and Mail.

web-Harrison-Hu 1361495cl-8CN “publicly cautioned its former chief executive, E. Hunter Harrison, on Friday (January 13) against participating in hedge fund manager William A. Ackman’s plan to put him in charge of running the Canadian Pacific Railway, saying that would violate his employment contract,” reported Ian Austen and Kamil Krzaczynski of Reuters. “Harrison is widely credited with turning CN into one of North America’s most cost-efficient railways. But the directors of Canadian Pacific have rejected Ackman’s proposal to have him lead a similar transformation at that railroad, which lags behind CN in efficiency.

“Earlier this week, Ackman, whose firm, Pershing Square Capital Management, is the largest shareholder in Canadian Pacific, said he was planning a proxy battle to replace the company’s board in order to make Harrison the railroad’s chief executive. CN, however, does not appear interested in seeing Harrison improve the fortunes of its rival. ‘As part of his employment contract with CN, Mr. Harrison agreed, upon retirement as president and CEO on Dec. 31, 2009, to be bound by a broad range of confidentiality and multiyear noncompetition and nonsolicitation provisions,’ CN said in an e-mail statement.

“’CN has asked Mr. Harrison to respect his commitments to CN and to reconsider his expressed interest in a position at Canadian Pacific,’ the Montreal-based railroad said. ‘CN has also put William A. Ackman of Pershing Square Capital Management, L.P., on notice to cease any efforts to induce breaches of Mr. Harrison’s contractual obligations to C.N.’

“Harrison’s blanket noncompete agreement with CN expired at the end of 2011. But CN said in an earlier statement that his retirement and pension arrangements separately prohibited him from competing against the company or trying to hire its employees until the end of 2014.

“Ackman said Monday that Harrison was ‘excited by the opportunity’ of running a railway again. Harrison expressed similar sentiments in an interview with The Globe and Mail (below) of Toronto earlier this week. The two men met on Friday, and Ackman said in an interview that Harrison was still interested in becoming the chief executive of Canadian Pacific, despite the warning from CN. Ackman acknowledged that if he was successful in changing chief executives, Harrison would lose his CN pension and require compensation from Canadian Pacific. But he characterized the cost of that arrangement as ‘not material’ to Canadian Pacific. He also said Friday that CN’s warning was an endorsement Harrison’s skills. ‘This confirms to me that he’s the best man for this job,’ Ackman said.”

According to the Jaquie McNish and Brent Jang of the Globe and Mail, Harrison is “keen to take the reins at CP.”

“Famed railway leader Hunter Harrison said he is ‘excited’ about the prospect of running another freight carrier, this time former rival Canadian Pacific Railway Ltd. ‘I am eager for another opportunity,’ Harrison told The Globe and Mail in an exclusive interview Tuesday from his family home in Wellington, Fla., his first public comments since he emerged as a candidate to run the historic Canadian company. Harrison, who is credited with transforming industry laggard CN Railway Co. into North America’s most admired and efficient railway, has been put forward as a potential chief executive officer for Canadian Pacific by New York [hedge] fund manager Bill Ackman, CP’s largest shareholder. Ackman has launched a battle to gain control of the board, saying the company can be run with lower costs—and that Harrison is the man to make that happen.

“When approached last fall by Ackman about the possibility of leading CP, Harrison said he realized that ‘passion and enthusiasm’ have been missing from his life since he retired in 2009 as CEO of Montreal-based CN. Harrison, 67, said he has missed the bustle of the corporate world despite his new life as a company director and owner and trainer of show horses. He said he is in ‘great health’ after heart bypass surgery in 1998, and his wife Jeannie and his doctor agree that he is more suited for work than retirement. ‘I feel like I can still make a significant contribution. If the opportunity presents it itself, I am ready to go,’ he said.

“If he gets the job at CP, it would rank as one of the corporate sector’s more dramatic comebacks. Harrison is past retirement age and would be running CN’s archrival. Any turnaround at CP would potentially come at the expense of Harrison’s former employer, where he was CEO from 2003 to 2009, and chief operating officer before that under Paul Tellier. Harrison said he is not troubled by the prospect of competing against a company that employed him for more than 11 years. He said a non-compete agreement that restricted him from joining a CN competitor expired last month and the two Canadian railways do not ‘compete head to head’ because only about a quarter of their tracks operate in similar locations.

“’I left [CN] in good shape. I fulfilled my responsibilities. I think that two strong rail systems in Canada are good for everybody. I don’t think a strong CP hurts CN,’ he said.

“At CN, Harrison regularly exhorted employees to work harder at sessions that became known as Hunter Camps; he compelled freight customers to follow fixed train schedules; and he kept a constant eye on the company’s rail network through special television screens installed in his home. As CN sped ahead, CP was left behind and today ranks as the least efficient of the Big [Seven] railways. But whether Harrison makes it to the executive suite at CP depends on the outcome of a battle between Ackman and the railway’s board of directors, each of whom must persuade investors of their vision for the company. The activist investor is currently soliciting candidates for an alternative slate of directors that would likely be put to a shareholder vote at the company’s expected annual meeting in May.

“Days after he acquired what is now a 14.2% stake in CP in October, Ackman flew from his home in New York to meet with the company’s directors in Montreal to propose replacing incumbent CEO Fred Green with Harrison. On Monday (Jan.9), CP Chairman John Cleghorn issued a public letter supporting Green and rejecting the appointment of Harrison as ‘detrimental’ to the company’s efforts to modernize its fleet and rail networks.

“A number of industry analysts have praised Harrison as a ‘compelling’ candidate for CEO. ‘His experience running CN ... is ideal to apply to improving CP, in our view,’ JPMorgan analyst Thomas Wadewitz wrote in a report this week. ‘[It] may prove difficult for CP’s board to sustain a fight against the appointment of Mr. Harrison as CEO.’

“If he takes the driver’s seat at CP, Harrison said he would adopt many of the same strategies that worked for CN and before that Illinois Central Railroad. He said his priority would be to ‘change the culture’ at a railway that blames its poor performance on geography, weather, and terrain. In recent months, CP has blamed unusually difficult winter and spring flooding conditions for operating problems and poor financial results. It also attributes poor operating efficiencies to the steep mountain grades its trains must travel through.

“’I don’t buy into those excuses, Harrison said, because ‘you are always going to have weather in Canada. You are not going to change the mountains, the rivers or the geography of things. You have what you have and you got to deal with them the best you can and develop a plan and move forward.’”