The fallout from CN’s Surface Transportation Council forced scuttling of its attempted merger with Kansas City Southern went from shrapnel to a zero explosion the day after CPR and KCS rekindled their relationship and agreed to go ahead with their merger.
CN’s board and management are now at the mercy of activist hedge fund TCI Fund Management Limited (TCI), which has become a “beneficial owner” of CN with a 5.2% stake in the railway at the end of August.
“CN is a great company and it has one unique asset – the best rail network in North America,” said TCI Founder and Managing Partner Sir Chris Hohn. “However, the company has been underperforming for too long, so change is needed. We have not sought to fight by proxy, but without urgent action CN’s operational and financial performance will continue to be at risk. lags behind its peers under a board that lacks the right rail experience and operational expertise. The bid for KCS revealed a fundamental misunderstanding of the rail industry and regulatory environment. administration has consistently misjudged the STB and displayed flawed decision-making, spending billions of dollars in the ill-conceived pursuit of an unreachable asset. CN should focus on improvement rather than growth.
The cast of characters is now set in the most recent act of an ongoing soap opera that began on March 21, when CP and KCS announced their first attempt to merge. On Monday, September 13, which might as well be a Friday for CN, CIFF Capital UK LP and The Children’s Investment Master Fund, acting through their investment manager TCI, announced their intention to hold a ‘timely special meeting’ CN shareholders for the purpose of “refreshing” the current board of directors by adding four “independent and highly qualified nominees who will provide the in-depth operational rail experience that the current board lacks.”
TCI intends to replace CN Chairman Robert Pace and Directors Kevin G. Lynch, James E. O’Connor and Laura Stein with Gilbert Lamphere, Allison Landry, Rob Knight and Paul Miller.
Pace has served on the CN Board of Directors since October 1994. “This period of almost 27 years greatly exceeds the 14-year term of office as recommended by CN’s Corporate Governance Handbook,” said TCI. “While Lynch, O’Connor and Stein, who have all served on the Board for over seven years, have had distinguished and varied careers, TCI’s independent and highly qualified candidates will bring more balance to the Board and enable it to achieve success. gain a better understanding of strategic alternatives and opportunities, as well as a broader understanding of the operational challenges and possibilities of operating a railway.
At the same time, TCI intends to replace CN President and CEO JJ Ruest with Jim Vena, who spent most of his career as a railway worker at CN, retired and then resurfaced at Union Pacific for about a year as COO, responsible for implementing the versions of PSR (Precision Scheduled Railroading). Vena, TCI said, “is committed to accepting the CEO position if offered to her in an appropriate and timely manner.”
Vena “has a proven track record as an exceptional operator,” said TCI. “His time at CN, where he was a highly successful and well-respected COO, shows that he knows how to run a successful railroad. During his 40 years with CN, Vena has led all three geographic regions of the network, so he knows the network intimately and is uniquely qualified to be a CEO. AT UP, Vena “has resulted in a remarkable improvement in the operations, service, efficiency and profitability of the company, resulting in a 650 basis point improvement in the operating ratio in two and a half years,” said added TCI.
The formidable quartet of TCI
The four nominees for TCI’s board of directors are well known in the rail industry, having had “long and distinguished careers in the operation and analysis of the industry,” TCI said. “They are all completely independent from TCI… [and] they bring a wealth of experience and knowledge of the railroad, and they also share a common and very achievable goal: to create a culture of operational excellence essential to CN, which is essential if CN is to reach its full potential … CN can do better, and will. ”
Gil Lamphere, President of MidRail Corp., has 40 years of experience in the rail industry and has served on the board of directors of several public and private rail companies, including Patriot Rail (2019-2021, president; CSX (2008 -2015, member of the operations, finance, compensation and public affairs committees); Florida East Coast Railway (2000-2007); CN (1998-2005, elected chairman of the finance committee and member of the compensation committee , Investment and Audit); Illinois Central Railroad (1990-1998, president) and MidSouth Rail (1988-1998, founder).
Allison Landry is currently an independent director on the board of directors of XPO Logistics, Inc., a North American LTL carrier and truck brokerage supplier, and is also a member of the audit and compensation committees. Previously, she spent 16 years at Credit Suisse, where she was the Senior Equity Research Analyst for the U.S. Transportation Sector, specializing in the Railways, Trucking, Air Freight and Logistics sectors. .
Rob Knight is the former CFO of Union Pacific, a position he held for 15 years before retiring in December 2019. During his 40 years at UP, he has also held various leadership roles, in particular that of general manager of the company. energy and automotive business units. Knight is a director of Schneider National and Carrix Corporation, a private transportation services company.
Paul Miller was a CN executive from 1978 to 2011. Over his 33-year career, he held senior positions in operations, marketing and planning. He retired as CN’s Vice President of Safety, Sustainability and Networking in 2011. Miller served on the Safety and Operations Management Committee of the Railway Association of Canada. Canada and the Association of American Railroads Risk Management Working Committee. Since leaving CN, Miller has served as a consultant, board member, volunteer and educator. As a consultant, he has worked with CN, CP, Enbridge, the Railway Association of Canada and the New Brunswick Southern Railway. He was an adjunct professor and railway worker in residence at the Canadian Rail Research Laboratory at the University of Alberta, and he serves on the board of directors of the Chartered Institute for Logistics and Transport in North America, where he holds the title of member. approved (CMILT). He is a registered professional engineer (P. Eng.) In the province of Alberta.
“Advocating for a low carbon rail industry”
TCI dangled an environmental carrot from CN shareholders by saying that over the years it had “built an exceptional reputation as a leader on all ESG issues and policy development,” according to Hohn. “The firm has an active ESG policy with a particular focus on the risk of climate change. TCI has successfully campaigned for many of its portfolio companies to adopt a climate action plan and give shareholders a climate advisory vote at their general meetings. These companies include CN, which adopted the policy at its 2021 AGM, Moody’s, Aena, VINCI and Canadian Pacific. If our new nominees for independent director positions are elected, TCI will continue to campaign for CN to be the industry leader in all ESG matters, adopt new technologies to improve efficiency. its network and that it pushes the industry to cooperate in the development and introduction of new locomotives emitting greenhouse gases. This will have the added benefits of attracting new shippers to the railways, removing freight from the highways and generating higher volume growth for the industry.