(The following article by David Finlayson was posted on the Edmonton Journal website on April 23.)
EDMONTON — Old habits are holding CN hostage and employees must develop a passion to embrace change, CEO Hunter Harrison told shareholders Thursday.
Despite the company’s financial success, “we’re not where we want to get yet, particularly on the people front,” he told the company’s annual meeting here.
“A change at CN is essential. It’s a mature industry held hostage by conventions and old habits. The status quo is not an option.”
People scoffed when CN introduced freight scheduling in 1998, saying it was impossible to guarantee delivery times. Now other companies are copying the CN model, he said.
Harrison also wants to change the “19th-century” freight labour policies that pay employees by the mileage.
New labour agreements at U.S. operations, where workers get an hourly wage and job guarantees in exchange for a more flexible schedule, could work in Canada, he said.
It’s already been discussed with the Canadian running trades, currently in contract negotiations with the company, he added.
Harrison also said the five-week strike earlier this year taught the company it has to do a better job explaining changes to workers and listening to what they have to say. “I believe people are assets, not a liability.”
Canada’s largest railway Thursday rewarded Harrison’s 16 months as chief executive by extending his contract five years to 2008.
Terms were not revealed, but last year Harrison’s compensation package, excluding shares, almost doubled to $2.88 million US after he became CEO. This figure includes a base salary of $1.1 million US and a bonus of $1.43 million US.
Board chairman David McLean said Harrison is mostly responsible for CN being the industry’s service and efficiency leader. Harrison noted CN shares have risen 500 per cent since the Crown corporation went private in 1995, and have performed three times better than the S&P 500.
The company has increased its market capitalization from $2 billion to $15.5 billion over the same period. As well, it has reduced its operating ratio — operating costs as a percentage of revenue — from 89 per cent to less than 70 per cent, he said.
The next most efficient North American railroad, CP, is 10 points worse.
Sales and marketing vice-president Jim Foote said delivering a quality product at a fair price was the key to CN’s success.
A few years ago the company committed to customers’ demands without considering how to deliver on them, he said.
“We had to make trade-offs on a daily basis, and sold our services based on price and not on the value delivered.”
Today, the scheduled railroad concept allows CN to do exactly what it promises based on a reliable transportation product, not price, he said.
“There’s nothing wrong, when you have a good product, with asking your customers to pay for that.”
The fact CN has led all North American railroads in overall customer satisfaction the last two years, and continues to increase market share, proves it’s working, he added.