Past executive calls for global search to replace CEO, who died Saturday
A former CSX Corp. executive, who spent more than a quarter century with the company and witnessed CEO E. Hunter Harrison’s successes, says it’s the corporate board’s responsibility – and challenge – to make sure the railroad company operates on the right track.
Harrison, 73, died Saturday, nine months into the job. The company did not immediately announce a cause of death, although Harrison was battling respiratory issues and using an oxygen tank.
Jacksonville-based CSX said Harrison died “due to unexpectedly severe complications from a recent illness.”
“Restoring market confidence and employee morale and customer satisfaction are key now,” said mergers-and-acquisitions adviser Asok Chaudhuri on Sunday.
Harrison took medical leave Thursday and COO James Foote was named acting CEO.
“I think now the board has tremendous responsibility to sort out all the good things that Hunter launched, as well as the questionable ones, from a long-term perspective, and coach Jim Foote or whoever is the new CEO to continue with the good ones and scrap the bad initiatives,” Chaudhuri said.
He and Harrison served as board members together at TTX Co., a supplier and manager of rail equipment.
Chaudhuri is a 26-year veteran of CSX and a predecessor company. When he left in 2005, he had been senior vice president of corporate development with CSX Corp. and CSX World Terminals, the former global ports division.
Since leaving CSX, Chaudhuri has been a principal at Jacksonville-based Heritage Capital Group, a mergers-and-acquisitions firm with global activities.
Chaudhuri said the board knew about Harrison’s health before hiring him. Before he was hired, Harrison refused the CSX board’s request for an independent doctor’s examination or review of his medical records, reported the Financial Times.
Chaudhuri also said the board had to address the “power dynamics” of the situation at the time.
Canadian Pacific Railway Ltd announced Jan. 18 that Harrison, the architect of “precision scheduled railroading,” was leaving his CEO post early.
Mantle Ridge, a hedge fund led by CEO Paul Hilal, was pushing for Harrison to take over as CSX’s chief executive to force improvements.
CSX Chairman and CEO Michael Ward and President Clarence Gooden soon retired after a combined 87 years with the company.
CSX is Jacksonville’s largest locally based public company. Fortune magazine listed CSX as No. 257 on its 2017 list of the 500 largest companies based on its previous fiscal year revenue of $11 billion.
That was down 6 percent from $11.8 billion, and 18 spots, from No. 239 in 2016.
‘Getting a jolt’
Harrison took over March 6, earning an $84 million payment to cover what he left at Canadian Pacific to take the CSX job on a four-year contract.
Since the announcement that Harrison was taking over, the workforce dropped by at least 2,700 employees and 1,000 contractors and consultants also were cut.
As of September, total employment fell to 22,313.
At the same time, the stock price rose from $36.88 the day before Harrison’s move to CSX was announced to $52.93 on Friday, although it fell 7.68 percent on Friday after the announcement of his medical leave.
“CSX is well-positioned,” Chaudhuri said.
The board, he said, “needs to demonstrate that it is a thoughtful and capable board. It should do a national or international search for a permanent CEO and include Foote as a candidate.”
Harrison had indicated Foote was his successor.
Chaudhuri said Harrison was well-regarded for his operational skills, but it might have been wiser had the CSX board hired him as a consultant rather than CEO.
He said some of Harrison’s changes were favorable from an operations standpoint, making CSX more efficient. Management in place for a long time can become complacent, he said.
“Getting a jolt like we have seen since Hunter was hired can have a positive impact, but that could have been achieved in a less disruptive way and without the associated negative impacts,” Chaudhuri said.
Chaudhuri said employees are “working much longer hours in a stressful environment with lower morale and a fear factor.”
Still, the stock price is much higher than before his hiring was announced.
The implementation of Harrison’s operating system has drawn well-publicized complaints from freight customers about service disruptions,
Harrison said in late November that concerns with the network were overstated and there are groups of people “trying to portray a weakness of CSX.”
Harrison said recent metrics showed operations improved.
Chaudhuri said Foote, whose appointment as COO was announced Oct. 25, is indoctrinated in Harrison’s precision scheduled railroading.
“The market believes his way of operating is what will be instrumental in CSX’s performance,” Chaudhuri said.
Foote, 63, took over the responsibilities of longtime CSX executives Cindy Sanborn, executive vice president and chief operating officer, and Fredrik Eliasson, executive vice president and chief sales and marketing officer, who resigned Nov. 15.
They were among the last remaining top executives from previous leadership.
Trains.com reported that Foote was Canadian National Railway Co.’s chief sales and marketing officer from 2000-09, while Harrison led the railroad from 2003-09.
Before coming to CSX, Foote was president and CEO of Bright Rail Energy, a company seeking to transition railroads to locomotives powered by natural gas.
Board’s turn to act
The board of directors, Chaudhuri said, “must take full responsibility for anything that is good or bad that happens to the company.”
“They basically accepted Hunter’s coming and they accepted Hunter even when everybody knew he was sick. He declined a medical exam,” he said.
While he said the board might have been “sort of forced into” hiring Harrison because of the activist investor, the board must take full responsibility for the next step.
Chaudhuri said if the board and the next CEO can continue with the positive movements instituted by Harrison and improve some of the negatives, such as low employee morale, the company can move ahead on a positive track.
“I’m not too concerned about CSX’s operating performance. The previous management has groomed a capable workforce and systems,” he said.
In a statement Saturday, CSX Chairman Edward Kelly III said on behalf of the board of directors:
“With the passing of Hunter Harrison, CSX has suffered a major loss. Notwithstanding that loss, the Board is confident that Jim Foote, as acting Chief Executive Officer, and the rest of the CSX team will capitalize on the changes that Hunter has made.
“The Board will continue to consider in a deliberative way how best to maximize CSX’s performance over the long term.”
Chaudhuri said Harrison was passionate and knowledgeable about railroad operations.
“Everything good that Hunter has done should continue to be done with tweaks,” he said. “Anything that could have been negative from a long-term perspective should be stopped.”
It’s up to the board.
“Now they have to do their job,” he said.