Don’t put investors ahead of safety
CLEVELAND, October 19 — These are heady times for the railroad industry in the United States.
Thanks in part to the dedication of hard-working railroaders like the 55,000 members of the Brotherhood of Locomotive Engineers and Trainmen, the industry is making money like never before. And as a side effect of these high dollar times, the industry is attracting new investors like never before.
In recent months, high-profile investors such as Warren Buffett’s Berkshire Hathaway Inc. have invested millions of dollars in railroads like BNSF Railway, Union Pacific, and Norfolk Southern.
The industry has also attracted aggressive hedge fund investors, such as The Children’s Investment Fund, or TCI. These hedge fund investors are typically out for only one thing — money for shareholders. They’re out to earn money for investors, sometimes at the expense of the company in which they invest.
As the Times-Union reported on August 12, hedge funds like TCI “often look to break up companies they own and sell the pieces, cashing out as the profits from the sale are distributed to shareholders. Another strategy: pressuring management to take cash a company had been planning to use for other purposes and instead distributing it to shareholders.”
For example, the Florida Times-Union also reported that pressure from TCI led to the breakup and sale of a Dutch banking firm. While TCI made money for its investors, the fallout caused 550 workers to lose their jobs in Jacksonville, Fla.
In a similar high-pressure move, TCI this week called for the ouster of CSXT Chairman Michael Ward. The dispute apparently is over how CSX spends its money — TCI wants CSX earnings to be split among investors while CSX employs a more conservative approach, keeping cash on hand for capital improvements.
While it may make good financial sense to provide shareholders a return on their investment, it makes very good sense to run a safe railroad. With several high profile accidents in 2007, CSX must invest in its infrastructure rather than cave in to pressure from greedy and aggressive hedge fund investors.
“Being pressured to forgo investment in ‘a critical piece of the nation’s infrastructure’ by ‘Cayman Island hedge fund managers who answer to a handful of anonymous investors’ personally bothers Ward,” the Times-Union reported. “It rankles me not as a CEO, but as a citizen of the United States,” he said. “Investing in people and safety creates the money to do things.”
All this being said, BLET National President Don Hahs is critical of the leadership of the United Transportation Union for siding with TCI in its call for Ward’s ouster at CSX.
“It is ill advised to be a party to support hedge funds that may be detrimental to the employees of a railroad, but that appears to be what the UTU leadership has done,” BLET National President Don Hahs said. “Hedge funds often benefit the shareholders but hurt the stakeholders. Our members are the stakeholders in CSX. Putting them and their safety at risk by siding with aggressive hedge fund investors is not a smart thing to do.”
Friday, October 19, 2007
bentley@ble.org
