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Supply Chain News: Death of CSX CEO Hunter Harrison Creates Uncertainty at Railroad

 

Will Precision Railroading Initiative Continue Under Interim CEO Jim Foote? $84 Million Upfront Payment Now Gone

Dec. 18, 2017
SCDigest Editorial Staff

Hunter Harrison, who was in the process of transforming rail carrier CSX since he controversially took over the top spot in early 2017, died at age 73 over the weekend, sending CSX's share price tumbling and creating uncertainty aroundf CSX's direction under a new CEO.

CSX hired Harrison away from Canadian Pacific railway earlier this year despite concerns then about the state of his health and his demand for an $84 million upfront payment. Harrison said the upfront pay was needed as reimbursement for compensation and benefits he forfeited by leaving Canadian Pacific ahead of schedule and payment of a related tax indemnity that could amount to as much as $23 million.

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CSX is now positioning that Foote, only recently hired as COO, is basically just a younger version of Harrison, and that the programs will continue.

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That upfront bonanza was of course on top of the tens of millions of dollars in salary and incentive compensation over a four-year employment agreement Harrison received. CSX was so uncomfortable with these demands that it called for shareholders to vote on them on an advisory basis, and investors backed the deal in June, with 93% approving the extra payout.

CXS announced Friday that Harrison – known to be in ill health, was taking a medical leave of absence, and that executive Jim Foote would take over the CEO role on an interim basis. That sent CSX shares down almost 8% Friday. Then Harrison died over the weekend. However, late in the trading day Monday CSX shares were up about 1%.

In May, before the shareholders approved the big payout, the Wall Street Journal reported that Harrison had an undisclosed medical condition that has frequently forced him work from home and that when inside CSX he often carried a portable oxygen tank.

It also turns out the Harrison refused CSX's request to let an independent physician do a pre-hire review of his medical records. They hired him anyway.

“I'm having a ball and I'm running on so much adrenaline that no one can stop me,” Harrison told the Journal. “Don't judge me by my medical record, judge me by my performance.”

Now, after his death, the $84 million payment is gone, and shareholders have Foote as interim CEO instead.

As he had done at Canadian Pacific, Harrison was moving to transform CSX with what he called “precision railroading.” In a relatively short time, Harrison had made major changes at the CSX.


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That for example, included new train schedules, cost-cutting and terminal closures, as well as the closing a number of so-called “hump yards,” traditionally used by railroads to manage the switching of freight cars.

Amid all the operational changes, CSX ran into a number of service issues in the middle of the year, prompting a letter from the Surface Transportation Board calling out a series of complaints it had received from CSX customers across many service areas.

In an email to customers, Harrison then blamed the delays and other issues on a small percentage of recalcitrant employees who are not getting on board with the new program. The rail workers union shot back that the service issues were all at Harrison's feet.

In its Q3 2017 earnings release, CSX said the precision railroading initiative had already produced efficiency gains of $95 million in the quarter, with a lot more to come.

With Harrison's death, will the initiative lose momentum? That is hard to say.

CSX is now positioning that Foote, only recently hired as COO, is basically just a younger version of Harrison, and that the programs will continue.

“The real, real, real heavy lifting has already been done,” Foote is quoted as saying after assuming the interim CEO spot.


Any reaction to Harrison's career or passing? Let us know your thoughts at the Feedback section below.

 

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