CN chief executive to retire as railway faces pressure from activist investor

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Canadian National Railway Co chief executive Jean-Jacques Ruest will retire in the new year, a move that comes as the railway faces pressure from an activist investor to rejig its leadership.

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Canada’s largest rail carrier announced the change to its top ranks before a third-quarter earnings call with analysts on Tuesday evening. The move comes one day after shareholder TCI Fund Management Ltd. published plans to shake up the railway’s leadership and operations.

Ruest will stay on as president and chief executive officer and as a board member until January 2022, or longer if required to find a successor. He joined Montreal-based Canadian National more than two decades ago and took the helm of the company in 2018.

Ruest had delayed discussions on his retirement plans due to Canadian National’s bid for Kansas City Southern — which it lost to rival Canadian Pacific Railway Ltd. — chairperson Robert Pace said in a statement. Canadian National’s board also appointed a committee to search for its next CEO and make recommendations.

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“I am not going anywhere, and I will deliver with the team here on fourth quarter results and to be sure that we have a successful setup for the 2022 business plan,” Ruest said during a conference call with analysts.

In a 102-page presentation unveiled on Monday, TCI reiterated its criticisms of Canadian National and said that the railway must create more capacity by investing in its network and by marketing the railway to new customers as a more environmentally sustainable option to trucking.

“The board has been responsible for multiple corporate governance failures, including permitting a brain-drain of high quality operators to leave Canadian National, sanctioning the failed bid for Kansas City Southern, establishing a board that has no meaningful railroad experience and expertise, and selective, inconsistent and potentially misleading disclosure of material information that shows a deliberate lack of transparency with respect to corporate governance matters,” TCI said in a statement.

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TCI — which owns more than 5 per cent of the railway making it Canadian National’s second-largest shareholders — first opposed Canadian National’s bid for the U.S. railway in August. In September, it launched a proxy fight  to remove Ruest and four board members over the railway operator’s failure to accomplish the deal. A few days later, Canadian National pushed back with its own plan to boost profits, cut costs and resume share buybacks as it moved to regain ground with shareholders.

As part of TCI’s recommendations, it named former chief operating officer of Nebraska-based railway operator Union Pacific Corp., Jim Vena, as a candidate for CEO. Vena previously worked for Canadian National for 40 years, moving through the ranks from brakeman to chief operating officer before his departure in 2016. He later joined Union Pacific in 2019.

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In response to an analyst question about whether Canadian National would consider Vena for the job, Ruest said that the search committee plans to cast a wide net for candidates.

“That takes a little time,” Ruest said. “We know there is at least one other candidate out there, but the world is bigger than that and before the board makes a decision, they want to be very thorough.”

Ruest said that the changes at Canadian National are not a response to calls from TCI, but instead demonstrate that the activist shareholder’s demands are becoming aligned with the railway’s long-term strategy.

The shareholder meeting called by TCI is scheduled for March 22.

“When they put out their press release earlier this week, it was a bit of a vague presentation with no clear targets,” Ruest said.