By Jacquie McNish, Paul Ziobro and Joann S. Lublin
As CSX Corp. officials talk with investors and analysts ahead of
a key shareholder vote next month, they are being confronted with
the same awkward question: How is the health of the railway's new
chief executive, Hunter Harrison?
Since the 72-year-old Mr. Harrison won an activist battle to
take the helm at CSX earlier this year, company watchers have been
puzzled by the outspoken railway maverick's low profile. He appears
no more than a few days a week at CSX's Jacksonville, Fla.,
headquarters and he has been spotted using a portable,
over-the-shoulder oxygen system, say people familiar with the
matter.
The railroad's shareholders are set to vote June 5 at their
annual meeting on a resolution to pay $84 million to reimburse Mr.
Harrison for compensation he surrendered when he resigned from
another railroad to pursue the top job at CSX. He has a four-year
contract with CSX.
In an interview with The Wall Street Journal, Mr. Harrison said
he has been cleared by his doctors to work and that his fellow CSX
board members are aware of his medical condition, which requires
him to sometimes use the oxygen system. He declined to discuss the
details of his condition and said the board has decided the matter
isn't sufficiently material to the company's performance to
disclose.
"There are times when I get a little shortness of breath so I
take oxygen and it helps. Sometimes I get a cough and the oxygen
makes it go away," said Mr. Harrison, who took a medical leave in
2015 to recover from a surgery and a bout of pneumonia.
CSX spokesman Rob Doolittle said Mr. Harrison "has been and
continues to be actively and deeply involved on a daily basis" but
declined to discuss the CEO's medical condition. "In the absence of
performance questions, as a matter of policy we do not comment on
health-related matters of any CSX executive."
Edward Kelly, an independent CSX director who will take over as
the company's chairman at the annual meeting, declined to
comment.
The boards of many public companies have struggled with how much
to tell shareholders when a CEO is faced with health challenges.
Board members must balance the executive's right to privacy against
investors' right to material information that could cause
share-price moves.
Most boards disclose a CEO's illness only when it is
incapacitating, said Douglas Chia, executive director of corporate
governance at the Conference Board. But given the looming
shareholder vote, CSX directors should inform investors about Mr.
Harrison's health, he said. The CEO's current and future health
conditions "are likely a material factor for the purposes of voting
on that particular pay package," Mr. Chia said.
"The board fully considered Mr. Harrison's age as well as his
experience in hiring him as for this position, and addressed the
associated risks in his employment agreement," CSX's Mr. Doolittle
said.
The topic of Mr. Harrison's health was broached during initial
discussions earlier this year between CSX and activist hedge fund
Mantle Ridge about installing Mr. Harrison as CEO. Mr. Harrison
declined CSX's request that an independent physician chosen by the
company's board review his medical records. The two sides reached
an agreement in March that allowed Mantle Ridge to nominate five
new directors, including Mr. Harrison, to its current board.
Mr. Harrison said he has sharply curtailed travel and
headquarters appointments since he recovered from pneumonia and
other health issues in 2015, when he was CEO of Canadian Pacific
Railway Co. He conducts most of his business from his home office
near West Palm Beach, Fla., where he monitors the progress of new
train schedules and cost cutting at CSX rail yards and dispatch
centers from computer screens.
"I'm having a ball and I'm running on so much adrenaline that no
one can stop me," Mr. Harrison said in an interview. "Don't judge
me by my medical record, judge me by my performance."
Mr. Harrison said he plans to attend next month's shareholder
meeting.
Investors regard Mr. Harrison as being so pivotal to
transforming CSX and boosting its profits that its stock price rose
nearly 30% in March on news that he was vying for the CEO post. CSX
shares fell 3.2% to $49.47 on Wednesday.
As part of his CSX contract, Mr. Harrison was granted options to
buy 9 million shares, at $49.79, that will vest over four years.
Mr. Harrison personally acquired 300,000 CSX shares for more than
$15 million last month, fulfilling one of the company's
corporate-governance requirements. In the company's proxy filing
for its annual meeting, CSX said one risk investors should consider
is that Mr. Harrison may not be able to serve out the entire
four-year contract.
One institutional investor with a CSX stake who declined to be
identified said he is troubled about the lack of a clear
explanation of Mr. Harrison's health. "We will want to hear from
him," he said before deciding whether to approve the pay package
next month.
CSX executives, including Chief Financial Officer Frank Lonegro
and Chief Operating Officer Cindy Sanborn, are scheduled to appear
at bank-sponsored conferences over the next few days and are likely
to face questions about the state of their CEO's health.
Despite the health concerns, shareholders may be reluctant to
vote down the pay proposal, as Mr. Harrison has said he would
resign if the board won't grant the compensation package.
"If you're an investor, there's really no option B to pick, not
unless you want to see your investment tank," Cowen & Co.
analyst Jason Seidl said.
Write to Jacquie McNish at Jacquie.McNish@wsj.com, Paul Ziobro
at Paul.Ziobro@wsj.com and Joann S. Lublin at
joann.lublin@wsj.com
(END) Dow Jones Newswires
May 17, 2017 17:00 ET (21:00 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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