After months of taking a beating from the Surface Transportation Board on it's proposed merger with Kansas City Southern, along with a salvo of criticism and expression of interest in achieving a controlling interest in the railroad by TCI, a hedge fund based in the United Kingdom, Canadian National's board of directors fired back today with a strongly-worded letter to shareholders and the investment community.
While CN says it was the first railroad to adopt PSR under Hunter Harrison, the company says there is a danger of going too far. “We understood from the beginning that PSR was only the first step towards realizing the full potential of rail. In his seminal book, “How We Work and Why,” Hunter made clear that the optimal outcome for customers, shareholders, the industry, and the economy is to be found in achieving the right balance between service, safety, and cost control,” the board says. They added a quote from Hunter’s book – “The ultimate goal of all our jobs is to create value for our customers and our shareholders by providing good service to our customers.”
The Board goes on to say: “Make no mistake: OR is important as one measure of performance. But we are not in the ‘OR business.’ We are in the business of moving freight safely, reliably, efficiently and sustainably to power our customers’ businesses, help grow the North American economy and create shareholder value by doing so.”
The Board adds “Even that question is too narrow. The right question is: Who do we railroad for? Should we railroad only to maximize short-term returns at all cost for as long as we can before worn-out assets, frustrated customers, concerned communities, burned-out employees, chagrined regulators and upset elected officials blow the whistle? Or, should we do things differently this time?”
The Board makes another important point: “The obvious answer is that we have to run the railroad in a balanced and sustainable way that meets the needs of our customers – and the economies that depend on us – because that is how we will create shareholder value over time.”
The letter discusses the investments the railroad has made for long-term success, and offers a detailed rebuttal to the many of the railroad’s “faults” as espoused by TCI.
The entire letter can be found on the CN website.