Hunter Harrison and James Foote meet again

Executive duo last served together at Canadian National
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Then Canadian National CEO E. Hunter Harrison, left, and Chief Sales and Marketing Officer James Foote worked well together when this picture was taken for CN's annual report in 2008. Foote now works for Harrison again, as CSX Corp.'s chief operating officer.
Canadian National
JACKSONVILLE, Fla. — Management changes happening at CSX Transportation echo the moves CEO E. Hunter Harrison made while leading Canadian Pacific, where he brought in people from Canadian National to help implement Precision Scheduled Railroading.

But at CP, the bulk of the top management changes came in a five-month span, not in a single day.

“I can't think of another example of such a sweep of top executives,” says rail historian H. Roger Grant, a professor at South Carolina’s Clemson University.

CSX said Chief Operating Officer Cindy Sanborn and Chief Marketing Officer Fredrik Eliasson were resigning, while Executive Vice President of Law and Public Affairs Ellen Fitzsimmons would retire. Only Chief Financial Officer Frank Lonegro is a holdover from the previous management team.

Veteran CN executive James Foote was named chief operating officer and replaces both Sanborn and Eliasson.

Harrison and Foote have maintained a friendship that dates to their days working together at CN, former colleagues say. Foote was CN’s chief sales and marketing officer from 2000 to 2009, while Harrison led CN from 2003 through the end of 2009.

Foote left CN after Claude Mongeau was named to succeed Harrison as chief executive. Prior to being tapped for the CSX position, Foote was president and CEO of Bright Rail Energy, a company seeking to transition railroads to locomotives powered by natural gas.

“Jim has a proven track record with implementing Precision Scheduled Railroading and has more than 40 years of railroad industry experience,” Harrison wrote in a memo to CSX employees.

Foote, a lawyer, has minimal operating experience. He held management positions at Chicago & North Western, and joined CN in August 1995 as vice of president of investor relations to assist in the company's privatization. He later served as CN's vice president of merchandise.

When Foote was promoted to executive vice president of sales in 2000, then CN CEO Paul Tellier praised his role in boosting traffic.

"Jim's leadership has been key to the success of CN's aggressive marketing strategy,” Tellier said. “That strategy has seen a host of new intermodal and carload services unveiled this year, including new transcontinental intermodal schedules that cut almost 24 hours off transit times between Toronto and principal western Canadian cities. CN, year-to-date, leads all North American railroads in traffic growth."

Foote knows Harrison’s operating philosophy, what’s expected at a Harrison-led railroad, and will be a positive addition to the team, Wall Street analysts said.

“Foote could be the trusted, proven railroader that could be a solid backup for Hunter,” says John Larkin, an analyst with Stifel Equity Research. “Just being part of the senior team at CNI was akin to accumulating operating experience.”

But one industry insider said the lack of direct operating experience could be a liability.

“Credibility with ops people comes from working day and night in the field,” says one insider who wished to remain anonymous. “If, for example, you haven't changed a knuckle 50 cars from the head-end in blinding rain at 2 a.m., you won't have much credibility among the ranks of T&E personnel, superintendents, and trainmasters. These are the people who get trains over the road and want to be led by people who know their daily grind.”

Some industry observers expressed surprise at the timing of the moves, which come less than a week before CSX’s scheduled investor day and while the railroad remains under the Surface Transportation Board’s microscope in the wake of a summer of service disruptions.

Many said they were surprised that Harrison, who became CEO in March, waited this long to make management changes.

Concerns about Harrison’s health — he has an undisclosed medical condition that limits his travel and forces him to rely on supplemental oxygen — may have had something to do with the timing.

Investors and analysts have raised questions about the railroad’s succession plan. During last week’s quarterly earnings call, Harrison, 72, said the issue was not being ignored and that it may be addressed during the Oct. 30 investor day. Late Wednesday, however, CSX postponed the investor day, citing the executive changes. No new date was set.

Foote, 63, may be viewed as a short-term successor while CSX grooms Lonegro to be its next CEO, Larkin says. Harrison has a four-year contract.

“Given Mr. Harrison’s focus on operations, and Ms. Sanborn’s operational acumen, her departure is a surprise move and creates further distance from the legacy CSX, as Ms. Sanborn and Mr. Eliasson were part of the triumvirate that were considered to be potential CEO candidates,” Bank of America Merrill Lynch analyst Ken Hoexter wrote in a note to clients.

The legacy of CSX is of little concern to Harrison, however, as he tries to transform its corporate culture and impose his operating philosophy.

CN veterans Foote and Executive Vice President and Chief of Staff Mark Wallace — along with 15 or so CN people hired in operations — will help Harrison more quickly change CSX and its operations, according to people who have worked with Harrison.

The hedge fund-led deal that brought Harrison to CSX prohibited him from hiring CP executives, with the exception of Wallace.
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