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CP union wants Fred Green out

Date: Tuesday, January 17, 2012
Author: Scott Deveau, Financial Post

Bill Ackman’s efforts to oust Canadian Pacific Railway Ltd.’s chief executive, Fred Green, received a ringing endorsement Monday from one of the railway’s largest unions.

William Brehl, president of Teamsters Canada Rail Conference Maintenance of Way, was unequivocal in his support of Mr. Ackman’s efforts to replace Mr. Green with Hunter Harrison, the former CEO of rival Canadian National Railway Co.

“Our outlook, and the employee’s outlook, and I would even guess the majority of management, is of the opinion that Fred Green has to go,” Mr. Brehl said in interview. “He hasn’t done a good job for the past five years, and the last couple months have rendered him completely ineffectual.”

Mr. Brehl represents roughly 4,200 CP employees responsible for maintaining, building and inspecting the tracks. While he said he was uncertain whether Mr. Harrison was the best choice to succeed Mr. Green, he agrees with Mr. Ackman that a change at the top was needed.

“We’ve seen what has happened during the last five years under the Fred Green regime, and we welcome a change,” he said. “Hunter Harrison may be better. [He] may be worse. We don’t know. He’s an unknown quantity to us at CP.”

Mr. Brehl’s support serves as an endorsement of Mr. Ackman’s strategy to turn around CP, which has underperformed other top-tier railways in recent years.

Mr. Ackman’s New York-based hedge fund, Pershing Square Capital Management LLC, holds 14.2% of the railway, making it the largest shareholder. He has been seeking to replace Mr. Green with Mr. Harrison in recent weeks, but has come up against stiff opposition from the company’s board, whose chairman, John Cleghorn, sent a letter to shareholders last week saying Mr. Green and his plans for improving the railway had received unanimous support from the board.

Mr. Ackman said in an interview Monday his next move will be to present an alternative minority slate of directors in proxy materials to be filed in the coming weeks.

He said he believes he can work with certain members of the 15-person board, but others will need to be replaced in order to push Pershing’s agenda to see Mr. Harrison installed as CEO.

While he is still finalizing his slate of directors, he said he would seek to remove members of the board who oppose his plan.

He said Pershing’s goal is not to take control of CP, but rather to put forth a slate of directors who would be open to change at the top.

“If we’re successful in getting shareholders to vote for that platform, once our directors are elected to the board, the other directors will realize the train has left the station,” he said.

Mr. Ackman plans to host a large meeting with shareholders the first week of February aimed at making his case for replacing Mr. Green, including highlighting details of what he sees as Mr. Green’s misteps and the metrics with which CP has underperformed its peers under his tenure.

Mr. Ackman will make his appeal with some of CP’s larger shareholders in a series of private meetings ahead of the company’s annual general meeting this spring, he said.

At the same time, CP’s board is preparing its own strategy for reaching out to its shareholders.

Mr. Brehl said he agrees with Mr. Ackman’s assertion that CP’s weather-related excuses for underperforming its peers last year were simply that – excuses.

“All of us on the ground say the same thing, CP Rail’s been around for 131 years and that’s 131 winters to learn how do deal with snow,” said Mr. Brehl, who has 32 years of experience in the Revelstoke division. “What they do is they cut corners, they cut labour, and they don’t get the machinery out there in time. Because they had a mild winter the year before, all of a sudden they thought for the rest of history the winters were going to be like this one.”

CP stood by its claims Monday that its operations were severely hampered by weather in 2010 and 2011, including avalanches and floods last summer.

“Thanks to our dedicated employees, our company has regrouped from the weather,” Ed Greenberg, CP spokesman said. “Now CP’s operations are in rhythm and our game plan remains unchanged, to continue to improve safety, service reliability, productivity and efficiency.”

Mr. Brehl acknowledged he has had a strained relationship with Mr. Green, including a five-week strike in 2007 by his members. But he said despite being the head of CP’s second-largest railway union, he has yet to have any face-to-face time with Mr. Green, who took over as CEO in 2006.

“Hunter Harrison, I’ll give him credit for this, whenever there was trouble at the table, he showed up there and bargained himself,” Mr. Brehl said. “Fred Green. No. He’s above that.”

Mr. Harrison also had his fair share of union battles, including a four-day strike in 2009 by CN’s engineers when he tried to unilaterally impose terms of a new contract on them. Tom Murphy, CAW Local 101 president, who represents 2,400 mechanical staff at CP, said he has yet to meet Mr. Green face-to-face since he took over. But he said given the choice, he has had a good working relationship with other management, and he would prefer Mr. Green remain in his current position.

“It’s better the devil you know than the devil you know only a little bit about,” Mr. Murphy said.