Railroads led by caretaker CEOs
Seconds- in- command for CP, CN are taking reins for ailing bosses
Canada’s two largest railroads are giving investors a glimpse of what the future may hold by putting seconds- in- command in charge while health issues sideline the chief executives.
Canadian National Railway Co. chief financial officer Luc Jobin is co- ordinating the company’s leadership team until November while CEO Claude Mongeau is treated for a tumour. At Canadian Pacific Railway Ltd., COO Keith Creel is overseeing day- to- day operations while Hunter Harrison recovers from leg surgery that the carrier said in July would mean an absence of “a few weeks.”
“Absolutely this is an audition,” Robert Mark, associate director of research at MacDougall MacDougall & MacTier Inc., a wealthmanagement firm, said by phone from Toronto. “At CP, people will be scrutinizing Creel more because he is the heir apparent.” At Canadian National, where there isn’t an obvious successor, the company “will look to see who steps up,” Mark said.
The timing means that Canada’s two biggest industrial companies are being led by caretaker CEOs. With the Canadian economy in a recession, Creel and Jobin face similar challenges — overcoming declines in shipments of coal and crude oil and keeping costs in check through furloughs and other reductions.
“In the next six months, there is little reason to buy the railroads,” said Philippe Le Blanc, whose Cote 100 Inc. asset- management firm owns Canadian National stock among the $ 750 million it oversees.
“But if you have a long- term perspective, the rail franchise is worth investing in. In five years’ time, both companies will be bigger and more profitable.”
So far, the caretakers have been keeping an even keel. Canadian National rose 5.1 per cent in the past three months through Wednesday, while Canadian Pacific declined 4.2 per cent, outperforming their U. S. peers.
The Canadian companies move less coal, a trouble spot for the U. S. carriers, and are getting a boost from the weakening Canadian dollar.
Investors have also been reassured by the depth of the management bench: Creel has already been anointed Harrison’s successor when the CEO retires in 2017.
“Railroads are big- picture businesses,” Mark said. “CP made its 180- degree turn when Hunter was brought in, and the future is pretty well planned out. Strategy is not going to change. Plus, the boards are fully intact.”
Canadian Pacific rose 0.7 per cent to $ 192.92 at 9: 40 a. m. in Toronto, while Canadian National gained 0.3 per cent to $ 76.01.
At Canadian Pacific, the 47- yearold Creel — whom Harrison hired away from Canadian National in 2013 — has been preparing for the job for more than a year.
He began his railroad career at Burlington Northern Railway in 1992 before joining Illinois Central Corp. in 1996.
He and Harrison went to Canadian National when it acquired Illinois Central in 1999.
Canadian National’s Jobin, 56 and CFO since 2009, has a much different background — all of it outside the railroad industry.
He previously worked as executive vice- president at Power Corp. of Canada, the holding company of Quebec’s Desmarais family, having earlier spent 22 years with Montrealbased Imasco Ltd., rising to CEO at the company’s Imperial Tobacco unit.
Doctors found a rare type of precancerous soft- tissue tumour in Mongeau’s larynx, Canadian National said Aug. 12. His treatment plan calls for surgery, about one month of healing and about six weeks of targeted radiation therapy to “completely cure the illness,” the railroad said. After a successful operation, Mongeau, 53, is “recovering well” and he “remains engaged with CN’s business,” Mark Hallman, a company spokesman, said Monday.
“It’s sad news, but CN is a very big company and I suppose no one is irreplaceable,” said Le Blanc at Cote 100. “Mr. Mongeau has done an exceptional job in the last few years. He built an excellent team around him, and Mr. Jobin has done well as CFO.”
Harrison, 70, is recovering in Connecticut after undergoing surgery to have stents implanted in his legs. He remains “actively engaged” in the company’s business, spokesman Marty Cej said last week.
The CEO did make a public appearance in September, travelling to New York for a CNBC interview alongside Creel and hedge fund manager Bill Ackman, one of Canadian Pacific’s largest shareholders.
Ackman engineered the proxy fight that led to Harrison’s hiring in 2013, following his 2009 retirement from running Canadian National.
Harrison’s physical absence from the office has no impact on Canadian Pacific’s operations, Creel said.
“You should expect more of the same as far as performance,” Creel said Sept. 17 at a Morgan Stanley conference in Laguna Beach, Calif.
“As far as when he leaves and when he is not here, it should be a flip of a switch and it’s going to be a non- event.”