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Proxy firm ISS advises shareholders to reject certain CP board nominees

Canadian Pacific (TSE:CP)(NYSE:CP) shareholders are being advised to reject several board nominees at this year’s annual general meeting by proxy advisory firm Institutional Shareholder Services (ISS).

Shareholders are being advised to reject candidates including chairman John Cleghorn and chief executive Fred Green.

ISS also recommended that shareholders withhold their votes for Tim Faithful, Ed Harris, Roger Phillips, and Michael Phelps.

Ahead of the May 17 meeting where shareholders will determine the future of the board, reports from ISS blasted executives’
performance and urged shareholders to back the nominees put forth by William Ackman, manager of Pershing Square Capital – CP’s largest shareholder.

CP's senior executives and board of directors have been fending off demands for major change to improve performance at Canada's second-largest railway.

Ackman has been calling for the removal of CP's chief executive Fred Green, to be replaced with former Canadian National Railway (TSE:CNR) chief executive Hunter Harrison.

"Shareholders may reasonably expect that the board’s incumbent leadership — Cleghorn, as a long-serving CP director and current chairman, and Green, whose tenure as CEO now extends for more than half a decade — would have taken responsibility for steering the company closer to its true potential," the ISS report states.

"What shareholders appear to have witnessed over these directors’ tenure, as a close examination of the evidence in this proxy contest makes plain, is an enduring failure of board leadership, and a bewildering lack of accountability for results," ISS adds.

The ISS report said part of its decision is based on the smaller returns CP has given to its shareholders relative to its peers, noting that over the past five years it has only returned 19 percent to shareholders while its peers returned between 56 percent and 117 percent.

"Because the dissidents have demonstrated a compelling case that poor board oversight has allowed the company’s performance to drift further and further below both its peers and its potential over at least half a decade, it seems clear that change on the board is needed," the ISS report said.

Ackman is seeking to replace seven of CP’s 16 directors with a mixed group of dissident directors that includes himself, Pershing partner Paul Hilal, Alberta Enterprise Corp. chairman Paul Haggis, corporate restructuring specialist Gary Colter, former Onex Corp. executive Anthony Melman, former Norfolk Southern chief operating officer Stephen Tobias, and Rebecca MacDonald, executive chairwoman of Just Energy Group Inc.

CP said in a statement Thursday that shareholders should use the railway’s white-coloured universal proxy to cast ballots to
"exercise their right to specifically choose each one of the 16 best directors to comprise the CP board."

CP is asking shareholders to cast their votes on a universal ballot that includes the names of all 22 directors proposed by the
railway and Ackman - a rare practice according to reports.

Usually proxy votes ask investors to vote for either an incumbent or dissident slate of directors.

“The 16 individuals with the most votes, out of the total of 22 individuals put forward by CP and Pershing Square, will comprise the board elected at the annual meeting” on May 17 in Calgary, CP said.

"We strongly believe that ISS reached the wrong conclusion in failing to recommend that shareholders vote in favour of all of CP's highly-qualified and experienced directors," CP said in a statement Thursday afternoon.

"The perfunctory analysis presented by ISS to justify its flawed recommendation to vote for all seven Pershing Square nominees is directly contradicted by the analysis of CP's efficiency presented by Oliver Wyman, highly qualified, independent railroad industry experts retained by CP's board of directors."