Jean-Jacques Ruest, Canadian National Railway Co.’s chief executive officer, will leave the Montreal-based railway in January amid calls for his resignation from an activist shareholder.
CN , which made the announcement after markets closed on Tuesday, said it has appointed an executive search committee to find a replacement for Mr. Ruest, a 25-year CN employee who became CEO in 2018.
Investor Christopher Hohn, whose U.K. hedge fund TCI Fund Management Ltd. is CN’s second-largest shareholder at 5.2 per cent, has called for Mr. Ruest and chairman Robert Pace to resign after CN lost the battle to acquire Kansas City Southern. The Missouri-based railway’s board supported a lower takeover bid from Canadian Pacific Railway Ltd. after the U.S. regulator blocked a key step in CN’s purchase. Mr. Hohn has criticized CN’s lagging financial and market results under Mr. Ruest. Mr. Pace is due to retire in the spring.
On a conference call with analysts on Tuesday, Mr. Ruest, 67, made no mention of the reasons for his retirement. He said he might delay his departure until his successor is hired, and will continue in his role in the coming quarter.
In response to an analyst’s question, he declined to address TCI’s pressure for him to resign, and said it was up to the board to engage with the activist investor.
CN will face a vote for control of its board room on March 22, after Mr. Hohn called a vote on the board’s makeup. Mr. Hohn’s slate is comprised of rail veterans, including Gilbert Lamphere as chairman, Jim Vena as CEO, in addition to board nominees Allison Landry, Rob Knight and Paul Miller.
Mr. Hohn said Mr. Ruest’s departure is an admission by the board that change is needed, and called on CN to hire Mr. Vena and meet with the four independent board nominees.
“Dismissing the same CEO that the board put in place just three short years ago is a good start, but it does not address the fundamental problem of a lack of leadership, failed strategic oversight, and the vacuum of operational expertise at the board level,” Mr. Hohn said in a statement.
Mr. Ruest said CN’s committee will interview “all candidates, known and unknown.”
“We know there is at least one candidate out there, but I think the world is bigger than that,” he said.
Anthony Hatch, a railway analyst at New York’s ABH Consulting, called Mr. Ruest’s announcement a “bombshell.” “I didn’t see this coming,” Mr. Hatch said.
It is unclear what this means for CN in its fight with TCI, he said. “How do you go into battle without your general? I remain confused. Is this a white flag? Is Jim Vena the anointed one?”
In response to pressure from Mr. Hohn, CN in September said it would increase operating profit by $700-million by slashing expenses and laying off 1,050 people. CN said it might sell its trucking and Great Lakes shipping divisions, and will boost share buybacks. The company said the changes will increase 2022 earnings a share by 20 per cent, and improve the operating ratio to 57 per cent.
Mr. Hohn criticized CN over the new strategy.
“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,” he said in his statement.
CN announced Mr. Ruest’s departure as it released financial results for the third quarter. Profit rose to $1.6-billion from $985-million. Adjusted for a deal termination fee from Kansas City Southern and other one-time items, CN’s profit was $1-billion. Revenue rose by 5 per cent to $3.6-billion. The operating ratio deteriorated by 2.8 percentage points to 62.7 per cent.
CN jumped into the fight for KCS in April in a bid to stop a planned merger with CP. CN won KCS’s support and trumped CP’s offer with a US$29.8-billion bid. However, the U.S. regulator blocked CN’s application to hold Kansas City Southern in a voting trust while awaiting approval for the deal itself, and CN lost the U.S. railway’s support. TCI criticized CN’s move to pursue the bid despite the antitrust hurdles and possible termination fees.
CP’s takeover of KCS, worth about US$25-billion, is awaiting shareholder and regulatory approval. TCI said CN will face a tougher competitor in CP, which will have the only rail network that links Mexico, the United States and Canada.
Your time is valuable. Have the Top Business Headlines newsletter conveniently delivered to your inbox in the morning or evening. Sign up today.