(The following story by Robert Wright appeared on The Financial Times website on June 23.)
LONDON — The chief executive of the US rail company facing a crucial showdown with investors this week has admitted that the company underperformed for many years but insisted it was now catching up.
Michael Ward, of CSX, said that the business – the US’s third-largest railroad company by revenue – had been recovering performance since 2004, the year after he took over as chief executive.
The battle between CSX and The Children’s Investment Fund, a London-based hedge fund, has attracted nationwide interest in the US after senators and some journalists argued TCI’s efforts to elect five members to CSX’s 12-person board risked the security of a vital piece of US transport infrastructure.
A court also ruled this month that TCI and 3G Capital, another hedge fund co-operating with it, had failed to properly disclose their stakes, which were built up partly through the use of swaps. However, the funds will still be allowed to vote at Wednesday’s annual meeting in New Orleans after an appeal court on Friday rejected CSX’s attempts to have their votes discounted.
TCI argues that CSX underperforms its peers among the seven largest US and Canadian railroads, known as the Class Is.
However, CSX’s operating ratio – the proportion of operating revenue taken up by operating costs – has improved sharply since TCI first invested in the company last year. For the first quarter this year, its operating ratio stood at 77 per cent, behind only Norfolk Southern, with 76.9 per cent and Canadian National Railway, with 72.9.
Mr Ward conceded the company was performing badly when he became chief executive. “In 2003 we were underperforming,” he said. “Since 2004, we have had consistent messages [from management] and consistency of leadership.”
Mr Ward said that CSX was now moving to close the performance gap with Norfolk Southern, which has long been more profitable and efficient.
“In the last several years we’ve made quite a bit of progress to close that gap,” he said. “That will put us in a very competitive position, not only with Norfolk Southern, but with others in the industry.”