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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