Plan B

CSX's Surprising Second String

New operations chief Ed Harris has plenty of experience, but he and Harrison didn't always see eye to eye.
Photographer: Luke Sharrett
At Closing, February 16th
56.10 USD
At Closing, February 16th
233.04 CAD

CSX Corp. is making some curious choices as it copes with the death of CEO Hunter Harrison.

The railroad announced on Monday that longtime railroad executive Edmond Harris would become its executive vice president of operations. He'll be taking over some of the responsibilities that had belonged to James Foote, who was elevated to the CEO job after Harrison's untimely death last month. Foote himself has only been at CSX a few months, his appointment coinciding with the abrupt resignations of former Chief Operating Officer Cindy Sanborn and Chief Marketing Officer Fredrik Eliasson.

Recovery Mode

CSX finished 1.8 percent higher on Monday following news of Harris's appointment. The stock has recovered its losses following Harrison's death.

Source: Bloomberg

News of Harris' appointment seemed to go over well with CSX investors. The fact that Harris, like Foote, had previously worked with Harrison at other railroads where he'd employed his profit-boosting magic may bolster their confidence that the playbook can be applied at CSX even in his absence. 

It's worth noting, however, that while CSX's press release plays up Harris's overlap with Harrison at Illinois Central and Canadian National Railway Co., it makes just a brief mention of their interactions at Canadian Pacific Railway Ltd. There's a reason for that: Harris and Harrison were on opposite sides of Bill Ackman's battle to install the latter as CEO. The two didn't always see eye-to-eye when it came to the profit potential of the railroad nor did they have the nicest things to say about each other. It begs the question of whether Harris is really the best co-conductor to carry on Harrison's legacy. 

Harris did a brief stint as Canadian Pacific's chief operations officer and was named to the railroad's board in 2011 as its fight with Ackman started to heat up. Some speculated at the time that his appointment was advocated by Ackman, but if so, he certainly didn't take the activist investor's line. Harris took issue with the idea that the kind of efficiency Harrison had achieved at Canadian National could be replicated at Canadian Pacific and argued he wasn't "best-suited" for the CEO job. Speaking with the Financial Post in 2012, Harris pointed to a variety of disadvantages including the geographic complexities of Canadian Pacific's routes. I point this out because CSX's circuitous lines and the difficult terrain they cross have also been highlighted by many of that company's followers as a potential hindrance to Harrison's goals there.

Work in Progress

CSX ran into service issues that spawned a surge of customer complaints as Harrison implemented his turnaround plan. While the company initially brushed aside the gravity of the issues, it did have to adjust its guidance because of the disruption.

Source: Bloomberg, company filings

NOTE: Guidance was revised on Sep. 6, 2017. Operating ratio is a measure of profitability in which a lower number is better.

Harris stepped down from Canadian Pacific's board in May 2012 as Ackman's victory became apparent. Later that year, Harrison told the Globe and Mail that if Harris "walked into the door there… I would go and attack him." This was five years ago. It's possible Harris and Harrison buried the hatchet. Perhaps Harris became a believer in Harrison's strategy; the latter did after all exceed his goal of a 65 percent operating ratio at Canadian Pacific, with the company reporting a margin of 58.6 percent in 2016 (a lower number here is better). But at the very least, expect Harris to get questions when CSX reports earnings next week as to how his views have changed when it comes to Harrison's signature railroad turnaround plan.

Success Story

At Canadian Pacific, Harrison proved doubters wrong and then some with his ability to improve the company's profitability

Source: Bloomberg Intelligence

As a final note, CSX doesn't seem to have learned its lesson when it comes to hiring men in the twilight of their careers. When Harris was named to Canadian Pacific's board in December 2011, the company cited his 44 years of railroading experience. By my math, that would now give him at least 50 years of experience. Like Harrison, he has already "retired." Harris retired from Canadian National back in 2007 , noting that "the 24/7 world of railroading is very demanding, and very fulfilling." After being named Canadian Pacific's chief operations officer in 2010, Harris spent only about a year in the job in a full-time capacity, later acknowledging that health issues forced him to step back. 

Experience isn't a bad thing, but Harris's boss Foote also isn't a fresh face and eventually CSX will need a new generation of leaders. Relying on an all-male cast of former-retirees is not a great long-term strategy. It should be worrying to investors that the company appears to be either unable (or unwilling) to fill positions with internal talent.

The jury's still out on CSX's turnaround. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

    To contact the author of this story:
    Brooke Sutherland in New York at

    To contact the editor responsible for this story:
    Beth Williams at

    Before it's here, it's on the Bloomberg Terminal.