Hunter Harrison, former CEO of Canadian National Railway, began his career scrambling under trains in Tennessee to oil wheel gears and led a widely admired turnaround of the railway from 2003 to 2009.Christinne Muschi
Influential investor Bill Ackman wants retired railway legend Hunter Harrison to put his former adversary, Canadian Pacific Railway Ltd. , back on track.
According to people familiar with the strategy of Mr. Ackman's New York hedge fund Pershing Square Capital Management LP, the high-profile shareholder activist recently recommended to CP's board that Mr. Harrison, 67, replace the railway's chief executive officer, Fred Green. Pershing Square began accumulating in September what is now a 14.2 per cent stake in the railway.
Mr. Harrison, who began his career scrambling under trains in Tennessee to oil wheel gears, led a widely admired turnaround of Canadian National Railway from 2003 to 2009 as CEO, and before that at Illinois Central Railroad. Sources said Mr. Harrison and Mr. Ackman have had some initial discussions and the retired executive has expressed interest in returning to work.
By campaigning for Mr. Harrison, Mr. Ackman is apparently betting that the veteran railway executive will be able to leverage his reputation and experience to push for significant profit gains and operating efficiencies at a railway that has the poorest performance records of major North American railways. If Mr. Harrison is hired, shareholders can expect an immediate boost to CP's stock price and an ambitious strategy to cut costs and speed up train operations that echo his successful transformations at CN and Illinois Central.
It is understood that some of CP's directors have expressed enthusiasm for Mr. Harrison and requested a meeting with him. Mr. Harrison, however, has stalled any discussions with CP until after Saturday, the expiry date on an agreement he signed when he retired in 2009 from CN that restricts him from competing against the railway.
Spokespersons for CP and Mr. Ackman declined to comment. Mr. Harrison, who currently breeds and trains show horses in Connecticut and Florida, did not return requests for comment.
Mr. Ackman is borrowing from a playbook he used at struggling retailer J.C. Penny by recommending a management shakeup. In a recent letter to Pershing Square's investors, he described his recruitment of former Apple Inc. retail chief Ron Johnson to lead J.C. Penney's turnaround as "one of the most significant contributions that we have ever made to any company."
News of Mr. Johnson's appointment last year triggered a significant surge in the retailer's stock price.
Sources said discussions between Mr. Ackman and CP's board have been amicable to date. It is understood that the investor supported the board's decision this month to appoint two new directors. One of the appointees was a long-time lieutenant to Mr. Harrison, former CN executive vice-president Ed Harris.
CP's directors, led by chairman and former Royal Bank of Canada chief John Cleghorn, have been under pressure to make changes at the laggard railway ever since Pershing emerged as its largest shareholder. CP ranks as the least efficient of North America's Big Six railways with operating costs equalling 82.4 per cent of its revenue in the first nine months of 2011.
At industry leader CN, operating costs were 63.1 per cent of revenue, the legacy of Mr. Harrison's "precision railroad" strategy that saw profits double under his leadership.
CP has attributed much of its poor performance to the unforgiving terrain its trains must travel across. CP's tracks climb through steep Rocky Mountain grades and flood-prone Prairies, leaving it vulnerable to disruptions and slowdowns.
Mr. Ackman, according to sources, dismisses the challenging geography as excuses for what he calls poor management. He has argued that Mr. Harrison could significantly improve CP's profitability by applying the "precision railroad" strategy he employed to turnaround Illinois Central and CN.
A hard-nosed operator and compelling public speaker who held "Hunter Camps" to motivate staff, Mr. Harrison pushed workers at both railways to reduce operating and staff costs by streamlining operations and imposing a scheduling discipline on its freight trains. The approach generated huge profit increases, but by the time Mr. Harrison left in 2009, CN was wrestling with growing complaints from customers about poor service and from union leaders who voiced concerns about safety risks.