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Perspectives on Cyber Risk
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CSX CEO $84m reimbursement approved

CSX CEO $84m reimbursement approved

June 13, 2017 4:18 PM | Print this page

Ninety three per cent of CSX shareholders have approved, on an advisory basis, the reimbursement arrangements sought in connection with the retention of Hunter Harrison as chief executive officer of CSX, with at least 93 percent of the votes cast in favor according to a CSX announcement of preliminary voting results from 2017 Shareholder meeting.

The payment is tied to compensation that Mr Harrison forfeited as part of his exit from his previous employer Canadian Pacific Railway (CP) in January. At that time, Mantle Ridge agreed to cover the $84m in compensation as part of a consulting agreement with Mr Harrison. According to a New York Times report: 'The New York-based hedge fund had made the payment to extract Harrison early from his previous employer, Canadian Pacific Railway, where he had led a turnaround as CEO'.

Of the $84m payout approved by CSX shareholders, $55m will go directly to Mantle Ridge to reimburse it for payments made to Harrison. The remaining $29m will go to Mr Harrison to cover the balance of what Mantle Ridge describe as 'the remaining extraction costs Mr Harrison incurred to make himself available to join CSX'.

The WSJ reports that Mr. Harrison, who became CEO at CSX in early March, had said he would resign from CSX if the reimbursement wasn’t paid. This appears to be confirmed by the presentation provided to shareholders ahead of the meeting by Mantle Ridge entitled: Vote FOR the Item 5 Advisory Resolution in Order to Retain Hunter Harrison as CEO which states 'if the company (CSX) does not reimburse the $84m, Mr Harrison will resign'.

CSX's board did not vote for or against the resolution or provide voting advice to shareholders – instead, the presentation by Mantle Ridge states that 'the CSX Board is seeking input…the Board understands that Mantle Ridge is making the case for why shareholders should vote in favor' of the reimbursement.
WSJ reports that proxy advisory firms Glass Lewis & Co and Institutional Shareholder Services Inc had recommended that shareholders vote for the reimbursement, despite some reservations including Mr Harrison's health.

Chairman Edward Kelly, assured Shareholders at the meeting that: 'The board is satisfied there is no health issue with respect to Hunter’s performance.' according to a WSJ report. In the same report, WSJ states that an interview following the meeting, Mr. Harrison said that his condition doesn’t allow him to travel as much as he would like, but isn’t impeding his plans to transform CSX. The WSJ reports that while analysts and advocates for Mr. Harrison insist his presence is necessary to turnaround CSX fortunes, 'some people have questioned his appointment'. The report quotes Renny Ponvert, CEO of Management CV Inc as commenting 'He (Mr Harrison) wrote the book on precision railroading but I’m not sure you need to hire the author to execute the plan'.

[Source: The WSJ 05/06/2017; Mantle Ridge CSX Advisory Vote 2017 April 27 2017: Vote FOR the Item 5 Advisory Resolution in order to Retain Hunter Harrison as CEO; New York Times  5/6/2017

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