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Analysts say chief executive officer Jean-Jacques Ruest’s departure opens the door to negotiations between CN and investor Christopher Hohn pushing for changes in leadership and direction at Canada’s largest railway.Mark Blinch/Reuters

Investors drove up Canadian National Railway Co.’s share price by about 5 per cent to a new high on Wednesday after chief executive officer Jean-Jacques Ruest announced his retirement amid resignation calls from an activist investor.

Mr. Ruest announced his plan to retire in January late Tuesday as the Montreal-based freight carrier issued positive financial results, further buoying market sentiment.

Analysts say Mr. Ruest’s departure opens the door to negotiations between CN and the activist investor pushing for changes in leadership and direction at Canada’s largest railway.

CN, in response to pressure from investor Christopher Hohn, in September said it would slash costs, sell some divisions and boost share buybacks. Analysts said the rise in the share price on Wednesday is a signal investors believe the plan does not go far enough, and that CN’s prospects will improve further under new management.

Mr. Hohn, whose TCI Fund Management Inc. is CN’s second-largest investor, has repeatedly called for Mr. Ruest to resign as well as chairman Robert Pace, ahead of his scheduled retirement date in early 2022. The activist investor has proposed a slate of four directors he wants elected to the company’s board on March 22. He said CN’s financial performance has slumped under Mr. Ruest’s three-year term, and says the leadership bungled the attempt to buy Kansas City Southern .

“It is unusual to see a leader launch a strategic plan and financial targets only to announce retirement five weeks later with no visibility into succession,” said Fadi Chamoun, a Bank of Montreal analyst. “Whether this is a signal that the board of CN might be more open for the type of change that TCI is proposing is yet to be seen.”

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CN formed a committee of directors to look for a successor to Mr. Ruest, and hired an outside search firm to help in the process. “The board will consider all candidates, inside the company, outside the company, male and female,” Mr. Ruest told analysts on a conference call on Tuesday.

Mr. Hohn’s pick for CEO is Jim Vena, a former CN operating chief who is credited with improving operations at Union Pacific Railroad. Analysts say candidates are expected to include two other rail veterans who worked at CN and other carriers: Sameh Fahmy and Mike Cory.

Mr. Fahmy, an operations executive at Kansas City Southern, worked for CN from 1981 to 1985, and between 1994 and 2013. He also helped Hunter Harrison implement precision railroading at CSX Corp. in 2017.

Mr. Fahmy has announced that he will retire from KCS by the end of the year, when the Missouri-based agreement to be taken over by Canadian Pacific Railway Ltd. is expected to be approved by shareholders.

Mr. Cory is another adherent of the late Mr. Harrison’s cost-cutting operations model. He worked for CN for 40 years, beginning as a labourer in Winnipeg and departing in 2019 as chief operating officer. He has since worked as operating chief at Australia’s Pacific National railway.

Mr. Hohn’s choice, Mr. Vena, is a 40-year CN veteran who left the railway in 2016 after being overlooked for the top job. He became operating chief at Union Pacific, where he implemented the precision railroading model and improved efficiency.

Konark Gupta, a Bank of Nova Scotia analyst, said Mr. Vena and Mr. Fahmy are potential candidates, but the choice is not clear yet.

Mr. Hohn responded to the news of Mr. Ruest’s departure by calling on CN to hire Mr. Vena “immediately,” and to appoint his four nominees for directors, including Gilbert Lamphere as chairman.

Walter Spracklin, a Royal Bank of Canada analyst, said it appears Mr. Hohn’s push for a vote on board membership will continue. “The tone of TCI’s immediate response to the CEO announcement suggests this was not enough to satisfy their demands – suggesting at least for now that the contest will continue,” Mr. Spracklin said in a note to clients.

CN’s CEO committee includes Justin Howell, a board member who is an executive at Cascade Investment LLC, tech billionaire Bill Gates’s money manager. Mr. Spracklin said Mr. Howell’s inclusion signals the next CEO will have the support of Mr. Gates, CN’s biggest shareholder.

“With changes made at the board and management levels, it would appear that investors’ desire for change is indeed occurring,” Mr. Spracklin said.

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