Bill Ackman on Seeking a New CEO at Canadian Pacific

The CEO of Pershing Square Capital Management on his public crusade to install a new leader at Canadian Pacific Railway
Illustration by Jimmy Turrell

Once you have a big stake in a company, you can usually influence its strategy. Before we pick a target we run an algorithm we call Return on Invested Brain Damage—the return has to be high enough to justify the work. Most of the time, management is not the problem. At Canadian Pacific [of which we own 14 percent], you have a CEO who has underperformed for six years and runs the worst-performing railroad in North America. We’ve sought to replace him with a man who had the best track record in the industry at Canadian National: Hunter Harrison.

Soon after we disclosed our stake, I spoke to [CP] Chairman John Cleghorn. We agreed to meet at the Montreal airport on Nov. 2. Although I’d said we wanted to talk about a management change, he and [CP CEO] Fred Green were there. After three of us made a presentation, Mr. Cleghorn said, “I’ve spoken to the board and want to let you know we’re 100 percent behind Fred.” I couldn’t believe the board made its decision before hearing our case. I asked to speak to him alone and said, “Look, the last thing we want here is a proxy contest, but if you’re not open to alternatives, we’ll go to the shareholders for support.” I got back on the plane. After the doors were closed and the engines started, the pilot said, “Bill, do you recognize this gentleman on the tarmac?” I looked out the window and there was John Cleghorn, standing in front of our plane with his arms folded. We powered down and I got out. He said, “Bill, I’ve had a chance to talk to Fred Green. He’s prepared to step aside for Hunter; that’s how much he hates CN. The board would like to work with you.” I got back on the plane and said, “That was easy.” We were practically high-fiving each other. I expected a call the next day. Thursday passed. Then Friday. On Saturday, I sent an e-mail and he called to say the board wanted Hunter to meet with their CFO. When I said we could join the board and work together on the CEO transition, he paused: “You want a board seat?” We’d already asked for two. I later realized they were determined to stand by their man.

We’ll take our slate of seven board nominees to a vote on May 17. I don’t like public battles. This is only our third proxy contest in eight years. You have to go to the mat if it’s right for shareholders. — As told to Diane Brady 

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