Winnipeg Free Press - PRINT EDITION

A new wind blowing at CPR

Shareholders likely to shake up board

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With less than 24 hours left before Canadian Pacific's annual meeting -- the one in which shareholders will be asked to choose between the board slate presented by CP versus that put forward by activist shareholder Pershing Square Capital Management -- it's starting to feel like things will be different at the iconic company by today.

If this was taking place in the world of sport, some might say the fat lady is singing, or at least she's warming up. In other words, it's very likely over for CP chief executive Fred Green, for board chairman, John Cleghorn, and at least four other directors, if not six.

Unlike the recent Alberta election, the CP meeting is unlikely to produce a different result than the polls are suggesting.

A few months ago, it appeared Pershing's founder and CEO Bill Ackman might not succeed in his quest to shake things up at Canadian Pacific.

There was, and still is, some general discomfort with having former CN CEO Hunter Harrison taking over the reins at CP from Green because he's known to be tough on both customers and staff.

One of the arguments for keeping the existing management and board of directors was grounded in the strength of CP's current strategic plan, which was beginning to show results.

Another reason for support of the status quo was that even if CP were operated like CN, it would never produce the same operating ratio because the nature of the tracks and the routes were so different.

But in the past week, CP has had to react to the news that influential institutional shareholders such as the Canada Pension Plan Investment Board and Ontario Teachers' Pension Plan have decided to back the Pershing Square slate. Other support for Ackman has come from proxy advisory firms Glass Lewis, Egon-Jones and, more recently, Institutional Shareholder Services, which issued a report that was a harsh, if not somewhat sarcastic, rebuke of CP's board and management.

There are three observations to be made regarding what has transpired.

The first is the decision by the CPPIB to back Ackman. Talk to anyone on the street and the CPPIB is held up as an example of what is possible with the right management, staff and governance structure. No one bets against the CPPIB; it is viewed as the gold standard. Thus, if it is seeing fit to vote for change, the mere mortals among us, CP included, should pay attention.

The same holds true for Ontario Teachers, known for its innovative approach to investing, not to mention consistently generating enviable returns.

It's well known that Green and several members of the CP board have been beating the bushes talking to investors and selling their plan to improve the operating and financial performance of the railway.

The fact neither the CPPIB nor Teachers are supporting the incumbent slate or the CEO is a very strong statement they don't believe the plan that Green and company have presented these last months.

Months down the road, after the dust has settled, the inflection point in this proxy fight will be seen as when these two institutional investors announced how they would be voting.

The second observation is that just because a board of directors is made up of accomplished individuals, it does not necessarily translate into a strong board. While CP is by no means the worst example of a clubby, old boys board in corporate Canada, what happens today is undoubtedly going to affect board composition in this country.

The third observation relates to how CP behaved throughout the process.

In some respects, it was reminiscent of a time gone by -- one that was more in keeping with the character of the board and management than with today's world of instant information.

While Ackman made himself available to anyone who wanted to hear his version of why change is important at CP, the Green team was nowhere to be found. When asked what was behind his lack of visibility, Green said it was shareholders who were going to vote -- and his time was better spent with them, rather than being front and centre in the media.

In the end, however, no one outside CP got to know Fred Green, let alone hear him defend his plan for the storied railway. He will probably go down as the Adlai Stevenson, the U.S. politician, of the rail business -- competent and capable, but lacking in persona.

And these days, for better or worse, that simply isn't enough.

-- Postmedia News

Republished from the Winnipeg Free Press print edition May 17, 2012 B7

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