By Jacquie McNish, Paul Ziobro and Joann S. Lublin
Railroad executive Hunter Harrison was lured with fanfare to
revive CSX Corp., but an undisclosed medical condition has forced
him to work from home many days, according to people familiar with
the matter, and he sometimes uses an oxygen machine to help him
breathe.
The 72-year-old's health has become a critical question for
investors and analysts ahead of a vote on June 5, when CSX
shareholders are being asked to bless an $84 million payment for
the railway maverick. The sum compensates Mr. Harrison for money he
left behind when he quit his job at a rival railroad to join an
activist investor's fight and take the helm of CSX.
Since Mr. Harrison joined CSX in March, company watchers have
been puzzled by the executive's low profile. He appears no more
than a few days a week at the company's Jacksonville, Fla.,
headquarters and has been spotted using a portable,
over-the-shoulder oxygen system, say people familiar with the
matter.
Mr. Harrison insists he is able to lead a turnaround of the big
U.S. railroad.
"I'm having a ball and I'm running on so much adrenaline that no
one can stop me," Mr. Harrison told The Wall Street Journal in an
interview. "Don't judge me by my medical record, judge me by my
performance." Mr. Harrison took a medical leave in 2015 after leg
surgery and a bout of pneumonia. He has a four-year contract with
CSX but has threatened to quit if his pay package is rejected.
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.
The situation at CSX is unique. In railroading, there is no
individual more key to a company's fortunes -- and its share price
-- than Mr. Harrison, who in more than five decades as a railroader
has turned around three railroad networks. CSX's shares jumped 30%,
adding $10 billion in market value, after news broke in January
that Mr. Harrison would quit his CEO job at a Canadian railroad to
vie for the top job at CSX.
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. 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.
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.
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.
During his final two years at CP, he used the portable oxygen
system and rarely traveled to the company's head office in Calgary,
Alberta, because the high altitude made breathing difficult, people
familiar with the company said.
For many years he has conducted most of his business from his
home office near West Palm Beach, Fla. Lately, he has been
monitoring the progress of new train schedules and cost cutting at
CSX rail yards and dispatch centers from computer screens.
Mr. Harrison said he plans to attend next month's shareholder
meeting.
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.
CSX shares fell 3.2% to $49.47 on Wednesday.
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 18, 2017 02:47 ET (06:47 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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