The proxy battle at CP Rail is unprecedented in Canadian business since it resulted in the resignation of the company's CEO and 4 directors. It is hard to recall another proxy battle in recent history that produced such a profound and dramatic result.
It is easy to discount what happened at CP Rail as the result of the work of a determined, experienced shareholder activist who was able to convince other shareholders that the company could achieve superior financial performance with a new executive team. If that is the only takeaway from this “palace revolt,” that would be unfortunate.
From my perspective, there is so much more to learn from the changing of the guard at CP Rail. The fact is that CP Rail was an “underperforming” company in its segment of the transportation industry for a long time. A rail renaissance has been under way for more than a decade. Smart investors like Warren Buffet and more recently Bill Ackman realized that there are only 7 class 1 railways in North America and that there are large barriers to entry. As an oligopoly, the industry has huge pricing power. As energy prices rise and driver shortages increase, rail transportation becomes a very cost and service competitive option to trucking. Moreover, many truckers are converting much of their long haul and even medium haul (e.g. 500 miles) movements to rail. The growth prospects for rail are excellent.
One cannot criticize the CP Rail CEO, a CP Rail “lifer,” who was ousted, and his team, as inexperienced railroaders. One cannot criticize the chairman and the board of CP Rail as not being a “blue chip” group of experienced business leaders. The “rub” is that this team did not keep pace with where the industry was going. An inbred management team coupled with a “clubby” board did not produce results in line with other top performing railroads. It took an activist investor to shake the tree to remove some of the apples.
The question is what would have happened at CP Rail if Bill Ackman had not come along? How long would the company have continued to drift under its leadership team? How many other public transportation companies are in the same position?
There are several key messages that shareholders and senior business leaders across North America should be taking from the shakeup at CP Rail. First, where does your publicly traded company rank against the leaders in your segment of the transportation business? What is the plan to take the company to the top rank in that segment? Are the board and leadership team driving the level of profit growth that is in line with the elite companies in the industry? If not, the CP Rail battle should be a “wake-up” call.
The leaders of privately held transportation companies should also be receiving and digesting the implications of the proxy battle. Is your company Best in Class in its segment of the business? Are you looking at those metrics, whether operating ratio, miles per gallon, market share etc. that provide an outside perspective on how well-run companies in your segment of the industry are performing? Do you have an advisory board or outside resources that you can contact to obtain an independent critique of your results? When was the last time your leadership team tried something new, entered a new market, took courses at a university, and/or participated in one or more social media? When was the last time someone from the outside joined your leadership team? Are there opportunities that are passing you by because you don’t have the resident expertise on your team?
There aren’t many Bill Ackmans around today. That means that the leaders of many companies need to be their own Bill Ackman. They need to challenge their leadership team, their plan and their results. If they don’t, they may be the next leadership team to be replaced or the next company to leave the industry.