Canadian National Railway Company chief executive Jean-Jacques Rouest will leave the Montreal-based railway in January, amid calls for resignation from an activist shareholder.
CN, which made the announcement after the market closed on Tuesday, said it has appointed an executive search committee to replace Mr. Ruest, a 25-year-old CN employee who became CEO in 2018.
Investor Christopher Hone, whose UK hedge fund TCI Fund Management Ltd is CN’s second largest shareholder at 5.2 per cent, has asked Mr Ruest and chairman Robert Pace to resign after losing the battle over CN’s takeover of Kansas City Southern. The board of the Missouri-based railway backed a low takeover bid from Canadian Pacific Railway Limited after a US regulator blocked a significant move in the purchase of CN. Mr. Hohn has criticized CN’s backward financial and market results under Mr. Ruest. Mr. Paes is due to retire in the spring.
On a conference call with analysts on Tuesday, Mr Ruest, 67, made no mention of the reasons for his retirement. He said he may delay his departure until his successor is appointed, and will continue in his role in the coming quarter.
Responding to an analyst’s question, he declined to address TCI’s pressure to resign, saying it was up to the board to engage with an active investor.
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CN will face a vote for control of its board room on 22 March, when Mr Hone called for a vote on the makeup of the board. Mr Hone’s slate includes rail veterans, including Gilbert Lamphere as chairman, Jim Venna as CEO, in addition to board nominees Allison Landry, Rob Knight and Paul Miller.
Mr Hone said Mr Ruest’s departure had been accepted by the board that change was needed, and asked CN to appoint Mr Vena and meet with four independent board nominees.
“Removing the same CEO that the board hired just three years ago is a good start, but it doesn’t address the fundamental problem of a lack of leadership, unsuccessful strategic oversight and a lack of operational expertise at the board level.” Mr Hone said in a statement.
Mr Ruest said CN’s committee would interview “all candidates, known and unknown”.
“We know there is at least one candidate out there, but I think the world is bigger than that,” he said.
Anthony Hatch, a railway analyst at ABH Consulting in New York, called Mr Ruest’s announcement a “bombardment”. “I didn’t see it coming,” said Mr. Hatch.
He said it is not clear what this means for CN in a fight with TCI. “How do you go to war without your commander? I’m confused. Is this the white flag? Is Jim Vena the Anointed One?”
Responding to pressure from Mr. Hone, CN said in September that it would increase operating profit by $700 million by slashing expenses and laying off 1,050 people. CN said it could sell its trucking and Great Lakes shipping divisions, and would promote share buybacks. The company said the changes would increase its 2022 earnings per share by 20 percent, and improve operating ratios to 57 percent.
Mr. Hone criticized CN over the new strategy.
“Implementing a new plan a month ago without requiring the CEO to implement it is a major corporate governance failure and jeopardizes the future of the company,” he said in his statement.
CN announced the departure of Mr. Ruest as it released its third quarter financial results. Profit increased from $985 million to $1.6 billion. Adjusted for deal termination fees from Kansas City Southern and other one-time items, CN’s profit was $1-billion. Revenue rose 5 percent to $3.6 billion. The operating ratio fell 2.8 percentage points to 62.7 percent.
The CN jumped into a fight with the KCS in April to prevent the planned merger with the CP. CN won the support of KCS and overtook CP’s proposal with a US$29.8-billion bid. However, the US regulator blocked CN’s application to place Kansas City Southern in a voting trust while awaiting approval for the deal, and CN lost the support of American Railways. TCI criticized CN’s move to go ahead with the bid despite antitrust hurdles and potential termination fees.
CP’s acquisition of KCS, valued at approximately US$25 billion, is awaiting shareholder and regulatory approval. TCI said CN would face a tough competitor in CP, which would have the only rail network connecting Mexico, the United States and Canada.
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