An executive at the U.K.-based hedge fund that has launched a proxy fight against Canadian National Railway Co. is rebutting claims of a conflict of interest between the investor and its stake in rival railroad operator Canadian Pacific Railway Ltd. 

TCI Fund Management Ltd. owns a 5.2 per cent stake in CN Rail valued at US$4.3 billion and has sought a special meeting for shareholders to vote on a slate of proposed board directors it believes are better suited to handle the company's business following the railroad's failed takeover attempt of Kansas City Southern. It is also CP Rail's biggest shareholder with an 8.3 per cent stake worth about US$3.7 billion. 

That's led CN Rail to claim that there is a "clear conflict" in TCI's actions to seek greater control over the company through sweeping board and management changes. 

Not so, said TCI Partner Ben Walker. 

"This is a non-issue because investors around the world own companies that compete with each other," Walker said in an interview. He added that TCI also owns stakes in credit rating agencies Moody's Investors Service and S&P Global Inc., while other major institutional investors may also hold stakes in Visa Inc. and MasterCard Inc. without concern. 

"We think the Canadian railroad industry is extremely attractive and we own both CN and CP. However, we have a substantially bigger shareholding in Canadian National because we think the potential it has under a strong board and a world class CEO will be significant." 

CN Rail said Monday it will hold the special shareholder meeting that TCI requested on March 22, 2022. Walker said that roughly six-month wait shows that CN's board and Chief Executive Officer JJ Ruest are "obviously on the defensive and want to buy as much time as possible." 

When that meeting finally arrives, CN Rail shareholders will be able to vote on TCI's four proposed industry executives to join its board: former CSX board member Gilbert Lamphere; former Credit Suisse Analyst Alison Landry; former Union Pacific Chief Financial Officer Rob Knight; and Paul Miller, a former CN vice-president. The investor is also looking to replace Ruest with Jim Vena, a former CN Rail chief operating officer, but that is not subject to a shareholder vote. 

Walker said that TCI hasn't had any direct conversations with CN regarding its planned board and management changes and says the company has refused to engage with the investor, which he calls a "failure of corporate governance." 

"We wanted to file documents with the chairman [Robert Pace] and the board and they refuse to even give us the chairman's email address," Walker said. "Boards should behave in a professional and ethical manner and [abide by] their rules around corporate governance." 

A CN Rail spokesperson said the company provides shareholders who wish to contact its chair a phone number listed on its website and management circular.

“Any shareholder wishing to submit documents to the Board can call that number and will be instructed on how to do so,” the spokesperson said. 

In response to TCI's claims that CN Rail's board and management need to be changed to address recent financial and operational underperformance, the railroad operator outlined a strategic plan on Oct. 1 that looks to add $700 million in additional operating income, slash its operating ratio - the percentage of revenue consumed by operating costs - to 57 per cent from 61 per cent and purchase as much as $5 billion of its stock by 2022. As well, the company expects to lay off as many as 1,050 staff to meet those targets. 

Walker described those moves as "ill considered, hasty and ill-thought through" and said TCI plans to disclose its own long-term sustainable plan for CN Rail "in due course".