Feb 16th, 2012 – Brendan Wood International releases the first of a series of Special Reports for investors in Canadian Pacific Railways Limited.
According to investors, confidence in Canadian Pacific senior management ranked in the bottom 5% amongst the 41 firms in Brendan Wood International’s Global Transportation Index. Mr. Ackman’s proactivity has placed the management and board in a defensive position, having forced management to visit shareholders and better explain their leadership and strategy for the company. Mr. Ackman has therefore become a contender in shareholder’s minds for the position of one who understood their concerns better than the directors who supposedly represented those shareholders.
Brendan Wood, global Chairman of Brendan Wood International, said “although the demand for Canadian Pacific stock is heightened for obvious reasons, confidence in the management and board ranked close to last in the sector. However Canadian Pacific’s board, led by former Royal Bank CEO John Cleghorn, is a highly experienced leadership group, whose full response to this challenge is yet to unfold. For the present however, investors appear to approve the wakeup call to management from Mr. Ackman.”
“Mr. Ackman has accurately targeted the categories in which Canadian Pacific has been ranking weakest with shareholders over the past year”, said Stewart Borden, Canadian Partner. The following table lists Canadian Pacific’s rankings in the Global Transportation Index by category.
CP RANK (Out of 41 companies) / Shareholder Confidence Driver
40th – Senior Management
38th – CEO
38th – Acquisition Capability / Balance Sheet
33rd – Strategy
32nd – CFO
28th – Board
15th – Long-Term Growth Potential
13th – Short-Term Growth Potential
10th – Disclosure
5th – Upward Potential of Stock
Culture of Invisibility
“Mr. Ackman’s intervention and that of other similarly proactive investors signal the erosion of a ‘culture of invisibility’ in which most boards carry out their duties unseen by shareholders. Whereas the modern board is fully accountable for a company’s strategy, leadership and performance culture, shareholders are increasingly aware of boards who do not effectively ‘drive the business’ making sure that strategy and management are fully competitive. As yet, shareholders are not accusing Canadian Pacific of an ornamental board, apathetic to issues and absorbed in governance rituals. It seems that Canadian Pacific’s board will become visible, if not proactive, amongst investors. Much depends on how well their vision for the business is articulated. Undoubtedly, Mr. Cleghorn will be further expressing the board’s position in relation to its strategy and operating issues.” says Wood.
Hunter Harrison, former CEO of CN Rail was designated a TopGun by the Brendan Wood Panel of Investors in 2010, as was Claude Mongeau his successor. There are, nonetheless, shareholder questions about Mr. Harrison’s ability to lead the Canadian Pacific organization, and Mr. Harrison has yet to face challenges from investors about his loyalty and commitment versus opportunism.
Mr. Ackman, sometimes touted as a potential dark horse candidate for the U.S. Republican nomination, is undoubtedly an inspired and highly ambitious individual. This promises to be a spirited debate which Brendan Wood International intends to follow, monitoring shareholder interest for the benefit of all parties. It is not unlikely that some aspects of the debate will change the attitudes towards boards away from ornamentalism and towards accountability.
“Mr. Ackman getting his way is hardly a given” says Neil Cameron, 30 year Corporate Historian for Brendan Wood International. “On the surface, Ackman’s move looks very strong, well-financed, presented only as a ‘cultural’ transformation rather than a buyout. Fred Green is not without a stratagem or two. If not exactly trying to wrap himself in the Canadian flag, Green has also spoken in Vancouver about the ‘social license’ aspect of CP: a ‘stakeholder’ rather than pure shareholder appeal, noting CP’s good client relationships, environmental concerns, and similar strengths. This may appear very thin armour plate; modern institutional shareholders are scarcely known for sentimental and historical attachments.”
Cameron believes, however, that this argument could conceivably tip enough shareholders to fight off the American fund proposing an American CEO, even though Harrison has already been a Canadian success story at CN. “CP is not just an ‘iconic’ Canadian firm; it is THE iconic Canadian firm. As it was once said of Frederick the Great’s Prussia that it was a state attached to an army, Canada could almost be described as a state attached to a trans-continental railway. The CPR was once such a huge part of the whole Canadian economy that equity investors did not even need to bother consulting indexes to assess the general state of the stock market; they would just consult the Canadian Pacific price, much as American investors used to check the price of U. S. Steel.”
Brendan Wood’s Worldwide Shareholder Confidence Index: The Brendan Wood Panel of over 2000 investors and advisors in the investment process evaluate nearly 2,000 companies on eleven core-buying criteria, with the results aggregated into the Brendan Wood Shareholder Confidence Index on a real-time basis. The Worldwide Panel represents over US$3 Trillion dollars in actively managed assets. Brendan Wood partners’ first interest in conflicts is to create as level a playing field as possible for the investor panel. Tracking their issues and concerns and polling their votes is a valuable service to all concerned in a debate of this kind for its Worldwide Investor Panel.
Stewart Borden, Partner, Brendan Wood International
Henry S. Brenzel, Panel Manager, Brendan Wood International
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