CP rattled by call to ditch directors

TORONTO — Canadian Pacific Railway Ltd. was dealt a potentially devastating blow Thursday in its continuing battle with activist investor Bill Ackman.

An influential proxy advisory firm issued a scathing report recommending shareholders show several incumbent directors the boardroom door, including chairman John Cleghorn, and its CEO, Fred Green.

Institutional Shareholder Services Inc. said it was also recommending the entire slate of seven nominees put forth by Ackman’s Pershing Square Capital Management LP.

Pershing Square has been seeking to replace Green as chief executive with Hunter Harrison, the former head of rival Canadian National Railway Co., which has been resisted by the board.

The matter is headed toward a shareholder vote on May 17 at the company’s annual general meeting in Calgary, where Pershing Square will submit its minority slate of nominees for the board, which it hopes will give it a mandate to push through the management change. CP’S own slate of 16 nominees, includes Ackman and 15 incumbent directors.

ISS said in addition to the seven Pershing Square nominees, CP’S shareholders should elect nine incumbent directors, but withhold their votes for Cleghorn, Green, Tim Faithful and Ed Harris for failing to provide adequate oversight of the company’s operations.

ISS said it based its recommendations mainly on the railway’s inability to improve its operations and profitability under Green since he was appointed in 2006. It noted total shareholder returns amounted to 19.2 per cent at CP over the past five years, while CP’S rivals had returned between 56 and 117 per cent.

ISS also said CP’S operating ratio — an important gauge of the company’s profitability, measuring its operating costs as a percentage of revenue — remained stubbornly high during Green’s tenure while rivals have made considerable improvements. ISS said it didn’t buy that this was the result of unique structural or weatherrelated challenges, as CP claimed.