The bet that stings the most, however, was his ill-fated run at the now-defunct U.S. book chain Borders, which didn’t result in a proxy contest, but cost Pershing an estimated $200-million after a failed merger attempt forced the chain to declare bankruptcy. “We went down with the ship,” Ackman says. Although the loss was the worst in Pershing’s history, Ackman prizes the lesson he learned: “If you are in a tough business with a weak management,” he says, “you’re finished.”
For Ackman, that rule applies to investments and to politics, which explains why, during our last interview, on the night of the U.S. election, the avowed Democrat revealed he had voted for Republican candidate Mitt Romney. His rationale: “I voted for Romney because if we don’t save the economy, we are not going to save the country. I think Obama has lost the confidence of the business community. He is like Fred Green—he has had four years, and he hasn’t made a lot of progress.”
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CP’s entrenched directors, however, refused to dump their man—even though he operated one of the most inefficient railways in North America. “It seemed so obvious to us that the right thing to do was to replace Fred Green with Hunter Harrison,” says Ackman. “It was disappointing to us that we were not successful convincing the board.”
CP’s directors dismissed Harrison as a “detrimental” leadership candidate, yet offered no alternative management or strategic changes to fix CP’s bloated operating costs, which equalled 81.3 per cent of its revenue in 2011, compared to industry-leading CN’s operating ratio of 63.5 per cent. Just before Pershing began buying up an eventual 12 per cent stake in CP, its stock price had dropped to a two-year low of $44.92 on the TSX.
At times, the CP board seemed driven into angry confusion by Ackman’s battle strategy. In January, two months after their encounter at the Montreal airport, Ackman fired off an e-mail to Cleghorn warning of a “nuclear winter” if the board did not heel to his demand for a new railway chief. The lengthy message was so stinging that even Pershing’s advisers privately refer to it as the “tear gas” e-mail.
In April, Ackman again infuriated directors by questioning the integrity of the railway’s financial reporting—during a televised interview on BNN. The insult was “outrageous,” fumed Cleghorn in a release. “We demand that you publicly retract your untrue accusations and offer your apology to the company, our shareholders, our board of directors, our audit committee, and the dedicated employees whose integrity you called into question.” Ackman did neither.
Ackman’s most vitriolic outburst occurred after his proxy vote triumph at CP’s annual meeting in Calgary this past May. Minutes after his overwhelming victory—which saw Cleghorn, Green and four other directors resign—Ackman walked into a meeting room at the Sheraton Hotel. Waiting at the table were his chosen directors, plus most of the board’s remaining old guard, including retired Suncor chief Rick George, U.S. rail veteran Tony Ingram, and Madeleine Paquin, head of Montreal cargo operator Logistec Corp.
Ackman was proposing that two members of his slate—former head of the Alberta Treasury Branches Paul Haggis and U.S. railway veteran Stephen Tobias—be named chairman and interim CEO, respectively. Instead of bowed heads and a trembling white flag, Ackman faced a counteroffensive. Staring down the activist, the directors proposed installing Ingram as chairman, and chief financial officer Kathryn McQuade as interim CEO.
Ackman’s furious outburst could be heard in an outside hallway, where a clutch of advisers was standing by. According to people familiar with the session, Ackman challenged Ingram’s credentials, accusing the directors of attempting to thwart his long-term plan to name Harrison CEO. “I think you missed what just took place at the shareholders’ meeting,” Ackman yelled. “We will go right back outside and we will run another proxy contest to replace the balance of the directors.”
After a recess, the startled stalwarts agreed to a compromise: Tobias was named interim CEO and Paquin, acting chair. Within months, George and Ingram had resigned from the board, Harrison was anointed CEO, and Haggis became chairman.
Half a year later, Ackman is asked to explain his Calgary outburst. “Ballistic is too strong a word,” he says. He searches long and hard for diplomatic words to explain his passionate reaction in the CP boardroom. “There were a lot of bruised feelings,” he says. “It took a while before we were able to work it out. The first few hours were not easy.”
When it is suggested that his anger may be a deliberate act to unnerve his adversaries, he is incensed. “I don’t act, ever,” he says. “I’m exactly who I appear to be. I am unfiltered, for better or worse.”