When last we checked in with our intrepid railroad, legendary railroader E. Hunter Harrison was leading the company through rapid and tumultuous change. Trumpeting his famed ‘Precision Railroading’ and driving CSX’s stock up more than $10B in value, while overseeing rapid consolidation and layoffs, at least shareholders were enjoying the fruits of activist investing.
Looming over this situation were unhappy customers, nervous regulators, and senior executives worried by uncertainty. And over it all lurked the unknown health of Mr. Harrison.
Tragedy struck on December 17th with Harrison’s untimely death. Almost immediately a well-known, New Orleans-based shareholder plaintiff’s firm – Kahn, Swick and Foti – announced an investigation into how much CSX’s board and officers knew about the true nature of Harrison’s health. Harrison had refused to take an independent physical exam when he was installed as CEO in the Spring of 2017. What fiduciary duty the board owed shareholders on the medical condition of an older, obviously physically impaired key executive – Harrison needed oxygen constantly and was frequently trailed by a personal nurse – is an interesting question. That same question arose some years ago with Apple and the health of Steve Jobs.
CSX’s board attempted to address concerns by placing a Harrison confidante from Canadian National – Jim Foote – as President and Chief commercial officer and then quickly adding Ed Harris as COO – another Harrison acolyte from Canadian Pacific. Both gentlemen are over 63, so the long term continuity of the company is certainly in question, especially since Harrison had unceremoniously sacked CSX’s COO, CMO and CLO in October, reportedly for expressing concerns to the board about both Harrison’s health and the negative impact on operations and potential risk from Harrison’s ‘bold’ actions. The board itself was arguably compromised since its composition had materially changed when the activist investor who had brought Harrison to CSX installed a number of friendly board members. This state of affairs became more challenging with the rising stock price.
Interestingly, shortly after Harrison’s death, the CSX board announced in the future it would require independent medical exams for any future CEO.
Most recently CSX was involved in a tragic accident with an Amtrak train in South Carolina on February 4th with two dead and numerous injuries.
The travails of CSX continues to raise fascinating questions about the scope and definition of fiduciary duty – does only the short term share price matter to the exclusion of good corporate ‘hygiene’? Stay tuned as the twists and turns of this saga continue to rumble down the tracks.
Jonathan Broder (LAW ’83) is Vice President – Corporate Development and Chief Legal Officer for Consolidated Rail Corporation. Opinions expressed herein are those of the author and not those of Conrail or CSX.