The future of CN is bigger than just one shareholder: CN Rail CEO
The outgoing head of Canadian National Railway Co. said that his plan to cut hundreds of jobs and streamline the company to be a better railroad operator isn't happening because he’s getting "pushed around by a hedge fund."
Jean-Jacques Ruest, president and chief executive officer at CN Rail, said in an interview the strategic plan that aims to get CN’s operating ratio, a key industry metric, down to 57 per cent by next year was built with the railroad's long-term interests in mind, rather than addressing short-term gains. Ruest's comments come after the company announced he would retire as early as January while its board conducts a global search for his replacement.
"We've done some mistakes in the past, from which we've learned, we dont want to go back there," he said.
"And we're not going to go back there just for the sake of being pushed around by a hedge fund. Thats not the plan. The plan we have for 2022 is not how low can you go, it's how low should we go."
That hedge fund that Ruest referred to is TCI Fund Management LLP, the U.K.-based firm that holds a 5.3 per cent stake in CN Rail and has launched a proxy fight against the company. TCI wants to replace Ruest with former CN Rail executive Jim Vena and has proposed four new board members that it believes will instill more operational expertise at the director level.
In a statement Tuesday, TCI Fund Management Co-Founder and Portfolio Manager Chris Hohn said Ruest’s exit is "a good start" but added CN needs to address other issues, including a lack of leadership and failed strategic oversight.
"Putting a new plan out a month ago without having the CEO needed to implement it is a massive corporate governance failure and puts the future of the company at risk," Hohn said.
Ruest said CN Rail's strategic plan, which focuses on raising its operating income by $700 million and boosting its earnings per share 20 per cent next year, isn't aimed at "cutting too deeply" into the company's workforce. On a conference call Tuesday, CN Rail executives said that roughly 800 staff members have been laid off, with another 250 or so expected to be let go in the fourth quarter.
"There was feedback, not so much from TCI, but we got feedback from our shareholders, they want CN to have a convenient middle-of-the-road operating ratio and that's what we defined for next year," Ruest said.
"We think we will have an opening ratio, which is a byproduct of everything I've talked about, that will also please our shareholders, at least those who care about the long term of CN."
Ruest said he has the support of CN Rail's board despite losing out in the bid to acquire Kansas City Southern (KCS) to its main rival, Canadian Pacific Railway Ltd. He said that he deferred a retirement announcement earlier this year to focus on the KCS takeover plan.
"We actually parked this (retirement) discussion last spring and pursued the KCS transaction very hard," Ruest said.