CP Rail’s new boss is itching to get started
Hunter Harrison returned to his home in Ridgefield, Conn., shortly after 2 a.m Friday morning.
The 67-year-old was meant to live out his retirement dividing his time between his Double H horse stables there and in Florida after a storied career in the rail industry that was capped when he retired as chief executive of Canadian National Railway Co. in 2009.
Instead, Mr. Harrison had just spent the last few hours aboard a private jet from Calgary digesting his decision to sign a four-year contract to become the new chief executive of his former rival, Canadian Pacific Railway Ltd. There were no regrets. Only enthusiasm for what lay ahead, he said.
“It was pretty big day,” Mr. Harrison said Friday morning in his first interview since taking the job. “I’m very excited and ready to get in the saddle again.”
While CP interviewed a handful of other candidates for the post of CEO, none could stack up to the legacy Mr. Harrison has built over the past 50 years as a railroader and his track record at CN and Illinois Central Railroad.
Some people take to retirement. Others, like Mr. Harrison, can never really leave the game.
There’s going to be a lot of change going on
That is why it didn’t take Bill Ackman much to convince him last fall to come out of retirement as the centrepiece of his plan to fix CP’s chronic underperformance. Mr. Harrison being named CEO Friday capped a seven-month proxy battle at CP, led by Mr. Ackman’s Pershing Square Capital Management LP. It saw CP’s former CEO, Fred Green, resign in May and some of its board members, including former chairman John Cleghorn, not seek re-election under pressure from shareholders.
With Mr. Ackman’s victory complete, all that remains is to see whether his ambitions were well guided.
The rest will be on the shoulders of Mr. Harrison, who says he has two goals as CEO: get the railway on the right track and ensure it remains there once he’s gone.
“I’ve got two basic tasks to accomplish here for the board. One is to get this operation turned around,” he said. “The second thing is to recognize that I’m not going to be here for five or 10 years.
“My second task then is to put a team in place that can develop what I would I call some sustainability so there isn’t an issue when I walk out the door.”
Over the next four to six months, Mr. Harrison said he would be devising a plan to improve CP’s performance, and that shareholders could expect to see that plan start “moving the needle” in 12 to 18 months. He doesn’t expect the plan will deviate largely from the plan CP currently has in place. But it will be more focused on operations and execution rather than simply on being as marketing-driven railway as it was in the past. But Mr. Harrison said he hoped to find some middle ground between them.
“I don’t think we need to rip it up,” he said about CP’s current strategy. “It’s kind of like a hockey team: Everyone wants to score goals. It’s just how that gets accomplished and what is the most effective way to get that accomplished.”
What changes under his leader-
ship is the credibility the previous management lacked, said Fadi Chamoun, BMO Capital Management analyst.
“We believe that Hunter Harrison will bring a greater level of intensity, focus and discipline to execution, which increases the likelihood of realizing a meaningful improvement in operating margins over the next several years,” he said.
Mr. Harrison said he remains committed to reducing CP’s operating ratio to 65% by 2015, from 80% at the end of the first quarter. Several analysts have said that sort of improvement in that time frame is unrealistic. But Mr. Harrison disagrees. “At this point, I know of no reason not to stand behind it,” he said.
But Mr. Harrison said he is also focused on building a team around him to help achieve those goals and to ensure they continue once he’s gone.
“I [have] to sit down with the team and be sure we are all on the same page here, decide who the players are, and let them know what is expected,” he said. “There’s going to be a lot of change going on, but
we’re going to try to manage this as effectively as we can and it will all start to come together.”
In terms of succession, Mr. Harrison said he would begin looking both internally and externally once that plan gets on track. He said he wouldn’t rule out courting some of his former colleagues at CN either once his non-solicit clause stemming from his retirement expires at the end of the year.
“Certainly, we’re going to look internally to see what we’ve got, and then, I’m sure we’ll look externally over the next two or three years,” he said.
“My non-solicitation ends at the end of this year, and I have a lot to
do between now and then rather than focus on the succession plans.”
One of the names Mr. Ackman floated when he first approached CP’s board last November about his plan to improve the railway was Keith Creel, CN’s current head of operations. Mr. Harrison said he remains friendly with Mr. Creel, in fact, he recently sold him a horse. But he insists the relationship is a personal one.
He did note CP’s board had just done a review of the best rail talent in its CEO search that might turn up some candidates as well.
“This could be the best No. 2 job in the industry, because clearly, they’re not going to have to be No. 2 for long,” he said.
His old railway didn’t waste any time reminding Mr. Harrison of his obligations Friday.
CN said it wouldn’t try to block his appointment at this time, but also warned him it would be monitoring his moves. CN has already halted Mr. Harrison’s pension and retirement benefits and filed a lawsuit to uphold the decision claiming he has already violated his non-compete agreements. The matter is still before the courts.
“CN is concerned that it will be difficult, if not impossible, for Mr. Harrison to perform his new duties for CP without drawing upon his broad knowledge of CN’s confidential information — which he is not permitted to do,” Mark Hallman, CN spokesman, said in an email. “If it appears that Mr. Harrison is using confidential CN information, CN might seek injunctive relief at that time.”
Mr. Harrison had already heard the threats Friday, and brushed them off, saying he didn’t know what confidential information he would have two and half years after his retirement. Instead, he said he would focus on fixing things at CP.
“I want to look back in three, four, or five years and say we — the team — were able to accomplish a lot for the shipper, the employee, and maybe more importantly, the shareholder, in terms of returns,” he said.
“Then I can go out to pasture again.”