There are post-Labour Day rituals in this country. As summer fades, students go back to school and CEOs and CFOs hit the road to talk up their companies at investor conferences.
While the pandemic means things look a little different this year – children wear masks, meetings are virtual – everyone keeps moving forward. And according to institutional investors who are in the audience when executives step on to virtual stages, this September’s road shows reveal a growing gap in leadership across Corporate Canada.
Fund managers are giving rave reviews to management teams that detail how their companies adapted quickly to life during COVID-19 and to those who can show they successfully overhauled their approach to doing business. When these chief executive officers stop talking, institutions start buying their stocks.
At the other extreme are executives who explain their company’s approach to COVID-19 is to batten down the hatches, tap government programs and hope for a vaccine. Fund managers have a clichéd response to this sort of CEO thinking: Hope is not a strategy. Only the nimble are going to prosper.
One of Canada’s oldest companies – Canadian National Railway Co. – emerged as a star of this conference season. CEO Jean-Jacques Ruest and his colleagues popped up on Zoom for three investor events over the past two weeks, held by Bank of Nova Scotia, Morgan Stanley and Cowan & Co. After recently celebrating its 100th birthday, the former Crown corporation showed it is light on its feet.
CN, along with most public companies, withdrew the financial guidance it provides to investors last March when the pandemic hit North America. That left shareholders guessing at the company’s prospects. As part of their recent presentations, CN executives revealed how they rejigged the railway – 25,000 employees moving about 110,000 rail cars each week across 33,000 kilometres of track – when business all but shut down in late March and April.
Rather than store locomotives and cars in rail yards, the traditional approach when equipment is idle, CN figured out which of its customers ran essential services that would be needed most as the economy reopened – food distributors and farmers were at the top of the list. The railway took steps to keep employees safe, then shifted empty trains to sites near these clients, such as 23 Canadian and U.S. terminals that feature refrigerated facilities. Maintenance and security teams were redeployed. It was a massive logistical exercise. It helped ensure grocery store shelves remained stocked.
CN cut non-essential spending in March, shutting down its share repurchase program, but decided to follow through on $2.9-billion of planned investments. In July, the company ordered 1,500 new grain hoppers. At the time, Mr. Ruest said: “By investing in the construction of these new cars, we want to help quickly stimulate the North American economy by supporting manufacturing and agriculture-related jobs.”
In August, when most of the world was off on vacation, CN began moving freight through a new ship-to-shore transport system in Halifax. The East Coast’s largest cranes now service the biggest container vessels to ever dock in Canada. This only happened after the railway spent $85-million upgrading its Nova Scotia network.
CN’s stock price is up by 44 per cent since the broad stock market selloff in March. Coming out of the Scotiabank conference last week, analyst Konark Gupta said in a report: “While the railroad is facing volume headwinds in the near term due to the impact of COVID-19 on the global economy, we like it on a relative basis for its top-quality and defensive attributes, strong balance sheet and management team.”
By this point in the pandemic, every CEO has a plan. What now differentiates companies – and dictates if their stock price goes up or down – is how quickly their culture and work force can adapt. Institutional investors are taking in CEO presentations from the likes of CN, and taking the view that if you’re not nimble, you’re nowhere.
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