Railroad legend Harrison pledges results for shareholders who vote him in

TORONTO - Railroad legend Hunter Harrison promises he won't disappoint if Canadian Pacific Railway Ltd. shareholders grant him the chance to end his retirement and head up an overhaul of the struggling railroad.

But, the 67-year-old former CEO of rival Canadian National Railway (TSX:CN) also pledges his "no excuses" crackdown on efficiency wouldn't mean slashing costs or massive job cuts.

In a town hall meeting Monday hosted by Pershing Square — the New York hedge fund calling for a shakeup at the railway — Harrison said shareholders need to re-evaluate CP's strategy, as well as its current management, who appear to be confused as to "what they really want to do and accomplish."

"Clearly the execution is not there," he said of CP's strategy to improve its operating ratio — a railway measure of efficiency.

"This is not working, and to sit back and try to make excuses to the investor community, or whoever it might be, is absolutely the wrong place to put your energy."

Bill Ackman, head of the Pershing Square activist fund that holds a 14.2 per cent stake in CP (TSX:CP), held the Toronto gathering to outline why and how shareholders should vote to turn over the CEO role to Harrison and support five new directors when the company holds its general meeting in May.

Ackman said he believes current CEO Fred Green is the wrong man for the job, and endorses handing the reins to Harrison, whom he says has a far better track record.

The Tennessee-born Harrison, who will turn 68 this year, was once named Railroader of the Year by an industry trade publication and has a reputation for making trains run efficiently.

He ran the highly profitable Illinois Central railway in the 1990s and became a senior CN executive when Canada's biggest railway acquired the Chicago-based operator a decade ago.

"We think the board has chosen the wrong CEO," Ackman told the audience of 400. "The result is the worst railroad in North America."

Harrison, who made a $5 million investment in CP last week, said creating a more efficient railway means more than just a change in management.

"You don't make changes from the executive towers, and I've learned that the hard way," he said.

"You make them on the ground with more of a hands on- type approach with people."

Harrison said he will focus on reducing costs, downsizing and managing fewer assets as ways to bring down the company's operating ratio, a statistic that has been at the heart of criticism over CP's performance.

Pershing Square believes Harrison can get Canadian Pacific's operating ratio from 81.3 in 2011 down to 65 in the next four years.

Harrison's emphasis is on what he calls precision scheduling — timing everything from shipping times to shift changes — to make CP more efficient.

Some industry watchers believes paring operating costs will involve major job cuts at Canadian Pacific's workforce of nearly 17,000 people, asset sales or other streamlining moves to boost profits and the railway's stock.

But Harrison stressed that the company must strike a "delicate balance" between "controlling costs" and providing good service for customers.

"Control the costs. Not cut, not slash, not burn, not massive head counts (reductions)," he said.

CP responded with a statement that said Pershing Square's proposal offers no real plan or clear timetable to improve its operations. Meanwhile, the company is seeing results of its recently implemented multi-year plan, it added.

"In Pershing Square's town hall presentation, Pershing Square made a number of assertions and characterizations supported by hypothetical mathematical examples of the effects of speculated improvements on operating metrics," the statement said.

"Pershing Square has no plan and has provided no specific actions to support its hypothetical math. Pershing Square continues to plan a proxy contest based on a call to change management which the CP Board believes would cause serious disruption to CP's business and the multi-year Plan, which is improving CP's operations."

The company believes that plan can lower its operating ratio to between 70 to 72 per cent by 2014.

Ackman noted that the current board owns a total 0.2 per cent stake in the company.

"If there was one director on the board that had $100 million of their own money invested in the company, in my opinion, the business would not be run by the current CEO, would not operate the way it's operated today," he said.

As for Ackman's role in the company, he said he's invested for the long haul, as long as his plan succeeds.

"We've made the bet that we're going to be successful, there really aren't alternatives for us," he said.

Ackman said he believes he'll be able to smooth things over with current board members, despite his motive to overhaul its structure.

"This has not been a particularly acrimonious proxy battle," he said.

Canadian Pacific's 15-member board includes some prominent names, including the CEO of energy giant Suncor Energy Inc., Rick George, and former deputy prime minister John Manley.

The rail company's chairman is John Cleghorn, once Canada's most powerful bankers when he was CEO of Royal Bank in the 1990s.

Criticism that has been levelled at Harrison includes safety and service concerns from customers who, it is feared, could leave CP for a competitor if Harrison takes over.

CP customer Ron Tepper, CEO of transportation company FastFrate expressed some of those concerns at the meeting Monday, saying he would consider switching his business to CN if Harrison were to take over.

"(Green) is very, very focused on customer retention and customer satisfaction and that's something Hunter is not, no matter what he says."

Shares in the company added 87 cents to $74.34, while shares in rival CN fell 77 cents to $77.14 Monday on the Toronto Stock Exchange.