Western Railroad Discussion > Will EHH's Legacy be "Open Access"?

To say CSXT's shippers are not happy is a gross understatement, many of them are livid. That anger is starting to boil over in the trade press. Congress and the STB are also getting a earfull and that will come to head in the upcoming hearing. I really am wondering if EHH's final legacy will be "open access" of some sort?

http://www.mhlnews.com/transportation-distribution/csx-service-disaster-steps-scrutiny-congress-and-stb

Ted Curphey
Ontario, OR

Well... if that isn't the most pleasant article about EHH I've ever read.

The CSX network is much more complex than either CN or CP. Looks like EHH is falling on his face.

funnelfan Wrote:
-------------------------------------------------------
> http://www.mhlnews.com/transportation-distribution
/csx-service-disaster-steps-scrutiny-congress-and-stb

Excerpt from the article:

At this point it appears that the only people who think well of Harrison are the hedge fund managers and investment advisors who are betting that CSX Corporation’s stock will rise to new heights after the railroad’s service issues eventually improve.

I've speculated this (before he officially became CEO of CSX), but the article is sprinkled with examples of EHH's stubbornness from his aging brain. His hedge fund puppeteers don't know any better, or have a set goal in mind which has nothing to do with railroad operations. There's still hope that they can turn things around (my attempt at media's "forced objectivity") but this isn't a tech company where you can alter electrons to make things look good - railroading deals with real physical objects.

cchan006 Wrote:
-------------------------------------------------------
> funnelfan Wrote:
> --------------------------------------------------
> -----
> >
> http://www.mhlnews.com/transportation-distribution
>
> /csx-service-disaster-steps-scrutiny-congress-and-
> stb
>
> Excerpt from the article:
>
> At this point it appears that the only people who
> think well of Harrison are the hedge fund managers
> and investment advisors who are betting that CSX
> Corporation’s stock will rise to new heights
> after the railroad’s service issues eventually
> improve.
>
> I've speculated this (before he officially became
> CEO of CSX), but the article is sprinkled with
> examples of EHH's stubbornness from his aging
> brain. His hedge fund puppeteers don't know any
> better, or have a set goal in mind which has
> nothing to do with railroad operations. There's
> still hope that they can turn things around (my
> attempt at media's "forced objectivity") but this
> isn't a tech company where you can alter electrons
> to make things look good - railroading deals with
> real physical objects.

By alienating the CSX employees and terrifying the managers, EHH has stacked the deck against himself and his investors. These are people (!) who have a vested interest in making CSX successful.

In an ideal world, employees and managers should be substantial owners of the firm, sharing the risk and reward with outside investors. That's not happening here.

Employee owned corporations are not that common and some that claim to be are really not.

tomstp Wrote:
-------------------------------------------------------
> Employee owned corporations are not that common
> and some that claim to be are really not.

Understood. I've mentioned here that 15% or 20% or 25% share ownership will get you seats at the table, and a big vote when major decisions are made. Mantle Ridge only controls something like 4% of CSX, for example.

Having the employees on the same deal track as management creates a symmetry of rewards. It's the difference between being hired help and people who have a meaningful stake in the company's future.

tomstp Wrote:
-------------------------------------------------------
> Employee owned corporations are not that common
> and some that claim to be are really not.

I'd think that top management might be the majority "employee" owners in many cases.

Lackawanna484 Wrote:
-------------------------------------------------------

>
> In an ideal world, employees and managers should
> be substantial owners of the firm, sharing the
> risk and reward with outside investors. That's not
> happening here.


I had an interesting experience last night. A restaurant that my wife worked at for 12 years about 20 years ago had a reunion for its 41st anniversary. The business is a sole prop, on its second (still in the family) owner. Dozens of people came to the reunion, including the founder. They were like family, including the founder and the present owner. Everyone worked hard there. They still do. I've heard about this place for the past five years and experienced it last night. They were (as I once put it to a BN executive) as loyal to the employer as the employer was to them, but with the opposite effect of my relationship with BN. It seems to be a distinction to have worked there. Nobody had anything negative to say about the place or their experience there.

Among other things, the experience substantiates the point that the presence of a union is a sign of bad management. It was really refreshing to experience. It kind of reminded me of my early B&OCT experience, railroad work as I have not experienced since. In the 60s, B&OCT was still very much Daniel Willard's railroad and galaxies away from EHH's railroad.

TAW

Thanks so much, TAW. Of course things
work much better when people are treated
very well and do excellent work because
they own part of the company, and were
employees are viewed as economic assets,
which used to be the case in many US
companies 30 years and more ago, and not
as economic liabilities, which is the case
now at all big companies for the past 30
or so years.

There is an excellent recent article in the
New York times -- posted on the free sfgate
website -- that compares and contrasts the
management philosophy of Kodak in its heyday
with Apple nowadays. The differences are huge,
and go a long way towards explaining why life
has been so bad for most of us in the US ever
since management values changed, around 30 or
so years ago.

http://www.sfgate.com/business/article/Janitors-Apple-Kodak-then-now-12170955.php

EHH is both the problem and only a horrible symbol
of a huge problem that now infects the entire world.
If eHH were the sole cause of the problems, then
firing him or forcing him to leave would fix all tbe
damage he has done to CSX and its employees and its
shippers. but he is not. He is a glaring example of
the toxic philosophy that has infected every large
corporation, which was stated well in the NY Times
article: employees are economic liabilities, you make
the highest profits if you concentrate on your "core
competencies", and quarterly profits and stock prices
are the only things that matter. Not treating your
employees and customers very well and taking pride in
making the best products or giving the best service.

In a decent and healthy society, no one like EHH would
ever have any power over anyone else, and it would be
unthinkable to put anyone like him into any position of
power in any large organization.

cchan006 --
EHH's stubbornness has nothing whatsoever to do with
anything that aging may have done to his brain. He is
stubborn because he is wired to be stubborn, and befcause
he has been rewarded for many years for being stubborn.
The problems he has caused at CSX are not because he is
stubborn per se, but because he is stubborn about the
wrong things -- "wrong" being defined as thing that are
bad for the company as a whole -- its employees -- and its
customers -- the shippers who depend in it -- and their
customers, and many others.

Yes, a tiny number of people have benefited from EHH's
stubbornness, but, overall, he has continually been
stubborn about the wrong things for many years.

CSX is behaving now as it is really an investment management
firm that is running a railroad as a side business to generate
the capital it needs to keep its sick money game going.

CSX is no different in this respect than any other large
corporation.

And nothing will get better for the rest of us until this
toxic management philosophy is replaced by a healthy value
system that values everyone -- not only a tiny number of
hedge-fund managers and investment bankers.

Margaret_SP_fan Wrote:
-------------------------------------------------------
> EHH's stubbornness has nothing whatsoever to do
> with
> anything that aging may have done to his brain.
> He is
> stubborn because he is wired to be stubborn, and
> befcause
> he has been rewarded for many years for being
> stubborn.

He's just the longest-lasting of the clones of the drones that came to be in power at BN in the 80s.

TAW

Margaret_SP_fan Wrote:
-------------------------------------------------------
> cchan006 --
> EHH's stubbornness has nothing whatsoever to do with
> anything that aging may have done to his brain.
> He is stubborn because he is wired to be stubborn, and
> befcause he has been rewarded for many years for being
> stubborn.

In general, I agree with you, but most folks in business leadership choose to retire when they realize they are no longer competitive. One well known company has done that: Gates, Ballmer, then Nadella. Bill Gates and Steve Ballmer are not known to be humble, yet they put their egos aside for the good of the company. You can reach a similar conclusion with other successful companies that continue to be competitive.

EHH is much older than the names I mentioned, so he should be retired by now. I'm sorry, but unless he's in a certain profession where people seem to be ageless (and running a corporation IS NOT that profession), he should have stuck with CN and collect the retirement benefits. EHH is a victim of elderly abuse by the younger folks at Mantle Ridge and other hedge funds. I think that brings home the idea of the aging brain bluntly enough.

A possible absence of fiduciary responsibility by the independent directors of CSX will be an issue in the inevitable share owner lawsuits. I suspect that some directors are already double checking their coverage, they can't be happy about the mess.

(Independent directors are required by law to act in a fiduciary capacity for the interest of the share owners. Not the employees or customers. The information in the public realm certainly provides a lot of fodder on that topic.)

But will there be shareholder lawsuits? After all, the
financial results of the most recent quarter were Good.

Seriously, this whole mess is a gift to the open-access,
mandatory reciprocal switching, and elimination of paper
barriers crowd.

Lackawanna484 Wrote:
-------------------------------------------------------
> A possible absence of fiduciary responsibility by
> the independent directors of CSX will be an issue
> in the inevitable share owner lawsuits. I suspect
> that some directors are already double checking
> their coverage, they can't be happy about the
> mess.
>
> (Independent directors are required by law to act
> in a fiduciary capacity for the interest of the
> share owners. Not the employees or customers. The
> information in the public realm certainly provides
> a lot of fodder on that topic.)

I've been thinking exactly the same way. The independent directors have to be nervous, to say the least. In addition to the pressure being exercised by shippers through the STB, when they start getting phone calls, e-mails and invitations for a chat over drinks by CEO acquaintances at major shippers who are being impacted by CSX service, then things might start percolating. And once the first sabres are rattled by lawyers about a shareholder lawsuit, then the heat really goes up.

Lackawanna484 Wrote:
-------------------------------------------------------
> By alienating the CSX employees and terrifying the
> managers, EHH has stacked the deck against himself
> and his investors. These are people (!) who have
> a vested interest in making CSX successful.

Perfectly stated. I've experienced several times in my career the positive effect of having the employees on your side when major change needs to occur. It's really hard work to build the trust and get everybody pulling together, but well worth it in the long run. So sad that Mantle Ridge and EHH weren't so disposed. Probably in too much of a hurry to make their haul and exit the scene with their pockets well stuffed.

> In an ideal world, employees and managers should
> be substantial owners of the firm, sharing the
> risk and reward with outside investors. That's not
> happening here.

I have agreed strongly with you on this point previously, and I do so again. And it doesn't even require an ideal world. A good-enough world will do, thank you.

And I'll make a point I made in a previous post. Had the unions negotiated for some stock holding stake in previous contracts through the long history of combinations and mergers that made the present-day CSX, and if held in some entity such as a voting trust with a good portion of the dividends reinvested, it's not hard to imagine that the stake would today have enough value over time to allow at least one or two seats on the board. Mantle Ridge pulled off their coup with only a 4% stake.

I'm not up to doing the calculations to support or reject this hypothesis; that's for others who understand such analysis better than I. Maybe I'm totally wrong, but maybe not. And if it had occurred, maybe the size of the stake and the number of board seats wouldn't have been sufficient to sway the rest of the board, or been enough to overcome the sweet talk from Mantle Ridge and their hired guy. But it sure could have made board members think twice, especially the independent directors. Right now, making those independent directors think twice is not such a small thing at all.

MC
Muskegon, Michigan



Edited 1 time(s). Last edit at 09/04/17 19:48 by ironmtn.

CPR_4000 Wrote:
-------------------------------------------------------
> The CSX network is much more complex than either
> CN or CP. Looks like EHH is falling on his face.

E Hunter Harrison is not falling on his face. He has fell on his face and bounced off his ass and hit the floor. Buyers remorse for poor old Chessie Seaboard (CSX for the uninitiated)? To the tune of $84 million! DAMN!!

SantaFeRuss

I have long speculated that EHH is the last of the pre-deregulation managers who were slowly but surely liquidating
their roads. His mantra is cut, cut cut. As has been speculated earlier on TO, how much more can you cut from a
company that's been cutting for thirty years? But were they cutting the right things?

There may be some good that comes out of this, although I'm not sure what it would be. Frailey had a long column in
TRAINS about how CN and CP prospered with EHH, although I was wondering if that came after he left. Officials from
JB Hunt were quoted as saying he was difficult to deal with and only started using CN after he left.

The final outcome of all this is going to be interesting, because if that top line starts dropping, EHH and the hedge
fund behind him may be in big trouble. Just my two cents worth.

Nick Tharalson,
Marion, IA

EHH is arrogant, and confident in his own decisions. That leads to incredible problems when his offer of a price is accompanied by take it or leave it. He's said in the past he wants pricing tiers, with different prices for fast, slow, and whenever, and for days of the week, etc. It's not clear that's a winning combination when the current high price is coupled with whenever. More likely, they'd demand his head on a stick.

I've mentioned in the past that one possible end game is a version of Open Access. There's a precedent for chemical firms which allows certain functions to be dropped into a kind of master limited partnership. Previously, the assets had to be passive, but that rule changed in 2015. Who would drive the trains, switch the yards, set the rates for use, make the final mile delivery, etc would be worked out. The financial gains to the share owners would be huge. The UK and many European countries have similar layouts.

Lackawanna484 Wrote:
-------------------------------------------------------

> I've mentioned in the past that one possible end
> game is a version of Open Access. There's a
> precedent for chemical firms which allows certain
> functions to be dropped into a kind of master
> limited partnership. Previously, the assets had to
> be passive, but that rule changed in 2015. Who
> would drive the trains, switch the yards, set the
> rates for use, make the final mile delivery, etc
> would be worked out. The financial gains to the
> share owners would be huge. The UK and many
> European countries have similar layouts.

I really think that open access would not be a bad thing. I worked under virtual open access. For example, NKP had trackage rights on B&OCT between Pullman Jct (as a B&OCT train on Rock Island trackage rights) and CPT and CNW Wood Street. Theoretically, we could have charged more under Chicago Switching District rules to handle the traffic in interchange, but perishables wouldn't sustain that kind of delay, even with the precision of operation of the 60s. NKP was going to handle the traffic themselves via CJ if necessary. We cost more but provided better service. B&OCT was a well-organized 40 mph railroad and the CJ was first come first served yard limits. We could give NKP a round trip from Pullman Jct. in a lot less time than had they taken C&WI/CJ. We were happy to handle the NKP traffic in their trains in lieu of not handling the traffic at all.

I have thought for many years that the EU version of open access is the way to go (no, the UK interpretation is not the one to be used to promote the concept). Separate infrastructure from operation. Infrastructure ownership remains the same and the infrastructure becomes a toll road. Train operation becomes the users of the infrastructure, including the infrastructure owners (managed separately as a completely separate business unit). All users are charged according to a universally applied pricing structure. I think that there is room for a lot of money for the infrastructure owners (since right now the infrastructure is the emptiest in the developed world) and a vast improvement in rail service.

TAW

TAW

Holy smokes, a lot of anathema being discussed here.

Lackawanna484 and I are advocating for larger employee ownership stakes, and perhaps union seats on the board. Funnelfan and TAW are wondering about or stating openness to open access. And almost everybody doesn't seem to find EHH to be the savior that he was supposed to be. Horrors! The Railroad Anathema Meter is pegged at a 10 and threatening to bust the mechanism!

What will these sane, reasonable TO members advocate next?

Stay tuned!

MC
Muskegon, Michigan