Commentary

Death Of CRX's Harrison Raises Questions About Disclosure

The death Saturday of E. Hunter Harrison, the cost-cutting, streamlining, straight-talking railroad executive who had been leading turnaround efforts at CSX railroad as its president and CEO since March, has observers wondering if the company should have been more inquisitive about his health problems before it snatched him away from Canadian Pacific Railway five months before his scheduled retirement.

The 73-year-old Memphis-born executive died in Wellington, Fla., near West Palm Beach, two days after taking a medical leave “due to unexpectedly severe complications from a recent illness,” Teresa Stepzinski and Roger Bull report in the Sarasota Herald-Tribune. CSX is based in Jacksonville, Fla. 

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“Over a career that spanned six decades and several railways, [Harrison] forged a reputation as a tough executive who turned around three rail carriers,” writes Eric Atkins for the Toronto Globe and Mail. “Along the way, his gruff manner and bare-bones railway operating model rejuvenated underperforming companies, enraged unions and customers and made a lot of investors wealthy.”

The Wall Street Journal had reported in May that Harrison — who has been credited with profitable-if-wrenching overhauls of the Illinois Central and Canadian National Railway operations in addition to Canadian Pacific — was on portable oxygen and frequently working from home.

“Harrison took the top position at CSX … after hedge fund Mantle Ridge Capital bought a share of the company and pushed Harrison as president. He was head of Canadian Pacific at the time and a well-known in the railroad industry for turning around companies with what he called precision railroading,” Stepzinski and Bull write. “Since then, the railroad has often been mired in controversy. Harrison had removed hundreds of locomotives, tens of thousands of rail cars and laid off at least 2,300 people with predictions of more.”

The controversy, and turnover, included entrenched senior managers. 

“Several top executives complained to directors about Mr. Harrison’s leadership,” sources tell the Wall Street Journal’s Paul Ziobro, David Benoit and Joann S. Lublin. “Among the concerns were his health, one of the people said. They were also upset with changes to the railroad that had rattled customers and Mr. Harrison’s push to scrap several projects CSX had pursued with government funding, others said.

"The board was divided over the issue, but ultimately sided with Mr. Harrison, the people said. Three top executives quit, including chief operating officer Cindy Sanborn and chief marketing officer Fredrik Eliasson. Mr. Eliasson had been in line to become CSX’s chief executive before Mr. Harrison came on the scene,” they continue.

Harrison’s death “just two days after the railroad announced his medical leave resurrects questions about just how much companies should disclose about the health of their leaders,” write David Voreacos and Thomas Black for Bloomberg. CSX shares were up about 60% through Dec. 14, hours before Harrison's medical leave was disclosed but plunged 7.6% after the announcement, they report.

 “We are confident that our disclosures are adequate and appropriate,” Bryan Tucker, a CSX spokesman, said via email to Bloomberg yesterday.

“U.S. Securities and Exchange Commission rules don’t require companies to disclose serious health problems in the executive suite, said Allan Horwich, a partner at Schiff Hardin LLP and Northwestern University law professor. That said, a company couldn’t issue half-truths or lie about an executive,” write Voreacos and Black.

“The most important thing is whether there were statements made by the company since he was hired that were inconsistent with the true state of his health at the time, and whether the company knew that,” Horwich tells them. “Did they knowingly or recklessly omit facts in what they said about the management team that would expose them to liability?”

Harrison was a legendary figure in the industry, harkening back to an era when railroad magnates had the cachet that tech magnates do today.

“Hunter was a larger-than-life figure who brought his remarkable passion, experience and energy in railroading to CSX,” the company said in the statement announcing his death. 

“The Board is confident that Jim Foote, as acting chief executive officer, and the rest of the CSX team will capitalize on the changes that Hunter has made,” Edward J. Kelly III, chairman of the CSX board, said. 

Foote, who worked under Harrison for 25 years, said “he will go down as the best railroader ever, plain and simple,” reports William C. Vantuono, editor-in-chief of Railway Age, which twice named him Railroader of the Year (2002 and 2015). As for his own feelings,  Vantuono writes: “The now-legendary railroader who started his career in 1963 as a carman-oiler on the Frisco was no different than you or I. He was just Hunter. I’m sure that’s how he would like us to think of him.”

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