CSX Shakeup: CEO to Retire, 1,000 Managers to Be Laid Off
This story appears in the Feb. 27 print edition of Transport Topics.
CSX Corp. CEO Michael Ward and President Clarence Gooden will retire May 31, and the company will lay off 1,000 managers by the end of March as it decides whether to hire former Canadian Pacific Railway CEO E. Hunter Harrison to take the reins at the Class I railroad.
More than 20% of the managerial staff was offered “enhanced separation benefits,” according to company spokesman Gary Sease.
“A majority of those impacted employees are in Jacksonville, across multiple locations and subsidiaries,” he wrote in a statement to Transport Topics. The company is based in Jacksonville, Florida.
“But affected employees also are in our field organization. Upon further study and evaluation, we will know both the Jacksonville and field management employee impact,” he continued.
Ward, 66, was expected to remain at CSX until 2019, but his job became jeopardized when private investor Paul Hilal entered into negotiations in January with the CSX board of directors to replace Ward with the 72-year-old Harrison.
“This happened in a different order than I would’ve expected. If you asked me to plot out the story, I’m not sure I would’ve plotted it like this,” independent rail consultant Anthony Hatch said.
He expected Ward to announce his retirement in conjunction with the Harrison hiring and that the layoffs would be one of the first moves under the new CEO. He questioned whether CSX announced the retirements and layoffs to help Harrison or to demonstrate to shareholders that Harrison doesn’t need to be hired.
CSX will hold a nonbinding vote of shareholders on the Harrison- Hilal deal March 16. But Hilal, whose firm Mantle Ridge owns about 4.9% of CSX shares, wrote a letter to the board of directors to object to a March 16 meeting.
“If Hunter Harrison wants to go to CSX, I think the investors are going to welcome him. It’s essentially like asking a baseball team, ‘We have Babe Ruth available to bat for you. Would you like him to take a few swings?’?” said Jason Seidl, an industry analyst with Cowen & Co.
While not formally taking a position, the CSX board outlined key differences in the negotiations between the sides when it announced the meeting. One disagreement revolved around the proposed contract and other costs associated with Harrison’s resignation from Canadian Pacific Railway in January.
The board also expressed concern about how many seats Harrison and Hilal would control on a new board. Hilal objected to the claim that he wants six seats on the board to take a majority control. On Feb. 22, CSX extended the deadline to nominate new board members to March 10, the second two-week extension.
“You and I were engaged in a process to identify high-quality independent people that the board and Mantle Ridge could embrace,” Hilal wrote in the Feb. 16 letter to the board. “I gave you a list [including lengthy bios] of 11 exceptional individuals with broad and relevant experience. None of them has any relationship with me outside of my efforts to recharge the CSX board.”
He said adding new directors would be necessary to implement precision railroading, a concept of prioritizing on-time performance and using railcars and locomotives more efficiently to improve reliability.
“Change like that starts at the top, with significant new blood on the board not wed to the old ways or legacy decisions,” Hilal wrote. “The messaging to all concerned constituencies that the external change agent — Hunter — is coming in with very substantial support empowers Hunter. Conversely, without enormous board support, the outcome and rate of the transformation will be at risk.”
Hilal wants CSX to sign Harrison to a four-year contract, but the board countered with two years, which he considers “a lack of commitment.” Hilal also objected to the suggestion that Harrison’s contract would be worth $300 million, calling it a “major mischaracterization” to confuse shareholders.
Scott Group, an analyst with Wolfe Research, wrote in a note to investors that he met with Harrison and Hilal on Feb. 17 to discuss the issues.
“[They] are hopeful they can reach a settlement with CSX to install Hunter as CEO imminently. We remain very confident that Hunter will become CEO in the next [approximately] five months, but it’s not clear to us if it will happen much sooner,” he said.
In the interim, CSX appointed Fredrik Eliasson, the company’s chief sales and marketing officer, to be president.
“The appointment of Mr. Eliasson as president is not intended to pre-empt or otherwise affect any discussions CSX may continue to have with Mr. Hunter Harrison and Mantle Ridge regarding Mr. Harrison becoming the CEO at CSX,” the company wrote in a Feb. 21 statement.
Eliasson, 46, has served as chief sales and marketing officer at CSX since September 2015, where he was responsible for overseeing all customer service activities, growing rail-served markets and developing strategic plans for long-term revenue growth. He was CSX’s chief financial officer from 2012 to 2015.
