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Ontario Teachers backs Pershing’s call for management change at CP

The Ontario Teachers’ Pension Plan (OTPP) said Monday it supports a management change at Canadian Pacific (TSE:CP) (NYSE:CP), suggesting the railway’s performance has failed under CEO Fred Green’s tenure.

The OTPP is the latest shareholder to make a public statement of its support in a change of management at CP.

OTPP owns 2.3 million shares in CP, and on its website said it is voting for all seven nominees for the board put forth by investor Bill Ackman’s Pershing Square Capital Management L.P.

"We have carefully reviewed the arguments of CP and Pershing Square, considering CP's historical performance and future opportunities within the context of the best interests of CP and our plan members going forward," the OTPP said.

"We note CP's performance has been below its peers during Mr. Green's tenure as CEO and are not convinced that the most recent results provide irrefutable evidence that CP is performing better than its peers."

Ackman issued a statement in the wake of the OTPP report, saying Pershing was "honoured" by the OTPP’s "strong expression of support".

"This vote, from one of Canada's most important institutions, sends the strongest possible signal that the past has been unacceptable, and that the future must be different," said Ackman.

"A loud and clear message from shareholders will enable the reconstituted board to put the past behind it, have a fresh start, and work most efficiently and effectively toward our shared goal."

The OTPP said CP had "failed to persuade" it that Hunter Harrison, the former head of rival railway Canadian National Railway Co. and the frontrunner for the job of CP CEO,  would be a liability for CP.

"We believe that CP's multi-year plan (MYP) is similar to those previously executed by Mr. Harrison and that a change in management would not imperil the success of executing the MYP," said the OTPP in its report.

"Therefore, in view of CP's relative historical underperformance, the proven success of Mr. Harrison executing similar MYPs and the absence of compelling evidence that his appointment is harmful to CP, we believe there is more risk in maintaining the status quo and support change at CP."

Earlier Monday, Ackman filed another letter to CP shareholders saying that Pershing has received “overwhelming support and encouragement” from other shareholders.

"In a recent poll of shareholders who own 45 percent of the company, Brendan Wood, an independent research firm, found that 94 percent of shareholders surveyed support the nominees for management change," said Ackman.

In his letter, he quoted the shareholder proxy advisory firm Institutional Shareholder Services (ISS) as saying: "What shareholders appear to have witnessed over these [incumbent] 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."

CP, meanwhile, issued a response to the ISS report on Monday, saying that it believes that the ISS report on the CP proxy contest "contains a number of statements and comparisons that are inaccurate or misleading."

"Putting to one side that ISS is not qualified to make judgments on running a railroad, it is clear that ISS is maintaining a double standard in its discussion of credibility and expectations," said CP.

CP is asking shareholders to cast their votes on a universal ballot at the upcoming annual general meeting. The ballot 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 a 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.