Activist investors secured their biggest victory at one of the seven large North American railway operators on Thursday as the chief executive, chairman and four other executives of Canadian Pacific stood down ahead of a shareholder vote.
The decision by Fred Green, the chief executive; John Cleghorn, the chairman; and four non-executive board members comes after months of pressure from Pershing Square Capital Management, a hedge fund, to shake up management.
CP, the operator of Canada’s second-largest rail network, has consistently underperformed Canadian National, its larger rival.
The resignations paved the way for Pershing Square to win election for its seven nominees to the board at CP’s annual meeting. CP had conceded that it would allow one Pershing nominee on to the board even before the resignations.
The new candidates are expected to try to turn round the railway, which has one of the worst operating ratios – the proportion of revenue eaten up by operating costs – of any large operator in the North American industry.
CP had an operating ratio of 80.1 per cent in the first quarter this year, against 66.2 per cent at Canadian National.
Bill Ackman, Pershing Square’s chief executive, warned the meeting in Alberta that the new board would not make progress overnight in improving performance. But he added: “We will deliver on our commitment to make this railway one of the best in the world.”
The shake-up marks the first time that shareholder activism has forced big changes at one of the seven large “Class I” railways that form the backbone of North America’s rail freight system.
A previous attempt by The Children’s Investment Fund (TCI), an activist investor, to force change at CSX, the largest railway network on the US east coast, achieved limited success.
Mr Cleghorn told the meeting that the past few months had witnessed a “spirited debate” about CP’s future. He wished the new board and the company well, he said. “We have got to have two strong railroads in this country.”
Activist investors have steered clear of challenging the managements of large US and Canadian railways, largely because most have enjoyed significantly improved profitability in recent years.
CP’s shares rose $0.69 in New York to $75.56.