US Hedge Fund Activists Tackle CEOs

CSX is only the latest example of shareholder activists pushing for change in leadership.

Hunter Harrison

CSX, a market leader in rail transportation, is replacing its leadership. Hunter Harrison, an industry veteran, is taking over as CEO. Paul Hilal, a hedge fund shareholder activist who has invested in the company, spearheaded this change of management together with Harrison. The move comes after Harrison’s successful financial turnaround of Canadian Pacific Railway—although he was forced ultimately to resign.

CSX is one of several recent cases where shareholder activists have pushed for change of management. Hedge fund activism, generally, is on the rise, and eVestment, in a February report, notes that “activist hedge funds ruled the hedge fund universe in February with an industry-leading +2.53% performance for the month, bringing year-to-date returns for activist funds to +3.03%.”

Shareholder activists have focused historically on directors, management compensation, stock buybacks and corporate spin-offs as easier ways to change corporate strategy and improve financial performance. Yet recently, targeting a CEO has become more frequent and visible, especially if one of the replacement CEO candidates, like Harrison in the CSX case, is already part of the restructuring process or the current CEO is close to retirement.

The economic and strategic importance of CSX should not be underestimated. A leading North American freight and rail operator, CSX serves 23 states, DC and two Canadian provinces, connecting major metropolitan areas. CSX’s rail, intermodal and rail-to-truck cross-loading services are used by major industries, such as energy, construction and agriculture.

Railroad companies such as CSX may benefit from renewed infrastructure spending in the US. President Donald Trump has spoken of a plan for “$1 trillion investment in the infrastructure of the United States, financed through both public and private capital.” As yet, however, no concrete plan has materialized.