The most shocking thing about Hunter Harrison's turnaround plan for Canadian Pacific Railway, unveiled this week, is how sensible it all sounds, given the nasty proxy fight that preceded it.
The headline item is Mr. Harrison's planned 4,500 job cuts, but this is no slash-and-burn exercise. Rather, the former Canadian National Railway CEO hand-picked by activist investor Bill Ackman has taken a hard look at CP's network, assets, how it gets from point A to point B, how it spends money, makes money and rewards employees – and given the whole thing a shake. He's getting rid of unnecessary switching yards and terminals, and unneeded locomotives and rail cars, rail lines and real estate. His goal is to get trains to run longer and heavier, but also faster and more productively, including shaving one day off the five-day journey from Vancouver to Chicago.
Mr. Harrison is also cutting senior executive jobs and making sure those who stay own more stock and focus their career aspirations more on working in the field and less on serving an inefficient, top-heavy bureaucracy he is aiming to pare down. Moving the head office out of pricey downtown Calgary and into CPR rail yards will save over $15-million a year.
To achieve that kind of overhaul you need leadership devoted to making widespread change if necessary, a motivated board to push management to do better, and demanding shareholders. CP had none of that before Mr. Ackman led an overhaul of the board earlier this year. That has changed. Now, not only does the board feature representatives of its largest shareholder, Mr. Ackman's Pershing Capital Management, it also includes Stephen Tobias, a former chief operating officer of railway giant Norfolk Southern Corp.
That's something that was missing from the CP board before: a representative among the blue-chip CEOs and Order of Canada recipients around the table with actual railway experience. (The former board did invite two ex-railroad executives to join last December after Mr. Ackman started agitating for change, but it proved to be too little too late). The railroading business isn't rocket science, but someone with an industry insider's knowledge and understanding of the issues is essential in holding management to account.
It would nice to see every Canadian board push to continually assess and reassess the company's strategy and execution in light of better alternatives. CP used to be a laggard in its industry; now it is the model other boards should emulate.
Sean Silcoff