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November 2015



Rail News: CSX Transportation

Railroad Innovator Award: Michael Ward is keeping CSX on a continuous improvement course




CSX Corp. Chairman and CEO Michael Ward will receive the 2015 Railroad Innovator Award at Progressive Railroading's annual RailTrends® conference in New York City on Nov. 20.

— by Pat Foran, editor

In his 38-year rail career, Michael Ward has held executive positions in nearly all aspects of CSX Corp.’s business, including sales and marketing, operations and finance. At each stop, he’s been a problem solver, helping to keep the Class I focused on the continuous-improvement curve. As CSX chairman and chief executive officer the past 12 years, he’s helped prep the railroad for the post-coal world, leading the charge to diversify the business portfolio — a strategy that’s kept the Class I in position to remain on the growth track.

And the pragmatic, down-to-earth Ward — “a regular guy in an executive office,” as transportation analyst Tony Hatch characterizes him — has been consistent in his message-sending. During his leadership tenure, the self-described Pollyanna has helped to change the culture at CSX, engaging the workforce to help improve service performance. And he’s kept it real: With Ward, what you see is what you get. What you’re always going to get.

“He is a very transparent human being,” says Pete Carpenter, who served as CSX Transportation’s president and CEO from 1992 through 1999, and vice chairman until he retired in 2001. “He also has a great deal of empathy for others, which I think is crucial for a good leader, and certainly, Mike has proven to be a great leader.”

For these reasons, Progressive Railroading earlier this year named Ward, 65, the recipient of its 2015 Railroad Innovator Award, which recognizes an individual’s outstanding achievement in the rail industry. He’ll receive it at the magazine’s annual RailTrends® conference, which will be held Nov. 19-20 at the W New York Hotel in Manhattan.

Racking up lessons learned

The seeds of Ward’s people skills were sown in Baltimore’s blue-collar Brooklyn neighborhood, where he was raised. His father, Richard, ran a pool hall where, in addition to billiards, Michael learned a few business basics: work hard, provide value, treat people right. Richard expected Michael, the oldest of eight children, to learn more.

“A lot of my pals didn’t go to college,” Ward says. “But my dad had drilled it into my head: ‘You have to get a college degree, and you’ll have to pay for it.’”

To do it, Ward spent his high-school summers in the mid- to late 1960s working in an asphalt factory.

“You could earn enough in summer to go to state college then,” he says. “I had no idea in the world what I wanted to do. I thought getting a business degree, probably, would be helpful.”

Ward got one, in 1972, from the University of Maryland. He wasn’t sure what his next step would be, but he knew what he didn’t want to do.

“When I was working in the factory during those summers, I’d see the guys with white shirts and ties working in air-conditioned buildings and think, ‘Maybe I want to do that,’” he says.

So, Ward figured he “might as well” get a Master of Business Administration degree. He applied to three schools: the University of Maryland, the Wharton School of Business and, because his dad wanted him to, the Harvard Business School — “just to see what they’d say,” says Ward. Harvard accepted his application. Following a two-year stint running his dad’s pool hall to rack up some real-world experience, Ward headed to Harvard and earned his MBA.

Degree No. 2 in hand, Ward once again had no idea what he’d do next. (“Notice the theme,” he says.) What he did know was that he wanted to come back home and work for “any big company in Baltimore.” In 1977, one of those big companies, the Baltimore & Ohio Railroad, offered him a job as a management trainee. That his paternal grandfather had spent his whole career on the B&O, and his dad worked on the railroad for a couple years, were merely coincidences, he says.

‘He was brilliant’

For the next three years, Ward served the B&O, which was part of the Chessie System, a CSX predecessor. Carpenter, then a Chessie System senior vice president, remembers working with Ward on the Chessie-Seaboard System merger, which was consummated in late 1980.

“Mike was my financial analyst and he was brilliant, absolutely brilliant,” Carpenter says. “One thing that really stood out was his ability to summarize. It was very easy with Mike to get to the nub of things.”

That ability to focus — a word Ward used often during the interview for this story — has continued to serve the railroad, and him, well.

“Sometimes, people get caught up in ‘the career,’ rather than doing their job,” he says. “The best thing you can do is focus on doing your particular job. That’s the way you move up.”

Move up he did. In 1981, the B&O sent Ward to Cleveland, where he joined the coal ranks, working his way up to assistant vice president-coal marketing. Ward landed the VP-coal post in 1986, a position he kept for the next decade.

In 1994, CSX Transportation (the combined Chessie-Seaboard) made Ward general manager of the C&O business unit. Two years later, he was named senior VP of finance.

“That was probably the job I was most ill-suited for,” Ward says. “I was good with numbers and very analytical, but a CFO has to be looking for what can go wrong, and I’m a Pollyanna. If the glass is half full, I see it three-quarters full.”

His optimism is partly why he’s such a good problem solver, current and former colleagues say. Mix in his analytical acumen and work ethic (“He’s a work horse, he’s not a show horse,” Carpenter says), and you’ve got someone who can piece together puzzles — a complicated railroad combination, for instance.

As CSX and Norfolk Southern Railway prepared to divide Conrail in 1998, Ward was promoted to executive VP and chief financial officer. Soon, he was given an additional multipart title: EVP-coal and merger planning.

Heading the complex Conrail integration effort “was probably the hardest two years of my life,” Ward says. But he persevered and problem-solved well, says Carpenter, recalling how Ward always had an acute sense of what he knew and didn’t know, and how quickly he’d find the right people to address whatever challenges came his way.

“It can be very, very difficult for people who are accustomed to success the way [Ward] is to understand both their own strengths and weaknesses,” Carpenter says. “When Mike spots a weakness, he works very hard to find people to fill in those gaps.”

Resilient and strategic

Ward was rewarded for his gap-filling, his project management successes and his leadership. In March 2000, he was named EVP-coal service group and EVP-operations. Nine months later, Ward was named president of CSX Transportation.

The promotions kept coming. Ward was appointed president of CSX Corp. in 2002, and chairman and CEO in 2003 — posts he continues to hold.

“One of his greatest strengths has been his resiliency, his toughness — which was evident when he built his railroad back up to industry standards,” says Hatch, citing a program of consistent network and equipment investment that began when Ward took CSX’s reins. “He’s also fended off people who wanted to do it for him.”

Indeed, Ward fans view him as a street fighter who took on the hedge fund The Children’s Investment Fund Management LLP (TCI), which in 2008-09 sought full control of CSX’s board. CSX may have lost the proxy battle, but won the war: TCI ultimately sold its 4.5 percent stake in the company.

CSX’s swift response to energy market shifts — the railroad expects a $450 million decline in coal revenue this year — also reflects Ward’s battle-tested strategic thinking skills.

“Michael was early to recognize coal as a secular problem, and CSX pivoted quickly with the National Gateway and plans to build several intermodal terminals to develop non-coal business,” Hatch says.

The plan also includes serving CSX merchandise customers better. Launched in 2012, a “Service Excellence” initiative is designed to improve communication and foster collaboration.

“Now, there’s much more focus on the first mile and last mile,” Ward says.

Committed to the core

He believes there’s also more focus at CSX on what matters most: people. Since he’s been in the C-suite, Ward has championed a cultural reinvention that’s now part and parcel of CSX’s identity. In 2000, he re-emphasized a “Social Compact” that had been launched a couple years earlier. The compact comprised a “positive correction” policy for union employees and widespread empowerment and quality-of-life programs.

“When you have empathy for others, you tend to see the best in others, and Mike does,” Carpenter says. “That is a wonderful trait if you’re attempting to change a culture — to make it more inclusive, to be able to learn from mistakes rather than finding someone to punish. Mike was certainly a natural leader to move it to another level.”

To Ward, a key component of that next-level work meant viewing, even reconsidering, CSX in a broader context.

“Companies that just chase profit can’t sustain it — you’ve got to define your purpose,” Ward says. “Why do you exist, other than to make money? We needed to give people core values that were immutable, something they could count on.”

Developed under Ward’s watch, CSX’s core values stipulate that:

• reliable service, understanding and meeting customers’ needs, and “owning” customers’ problems are key to growth, and that CSX needs to be easier to do business with;

• each employee needs to be engaged and add value to the company, professional and personal growth should be emphasized, and each worker should be treated with respect and dignity;

• workers need to take time to be safe and look out for one another, and that safety affects customers;

• customer-based performance metrics should be used, performance should be improved via facts, and a problem should be fixed via validation versus speculation; and

• CSX should reward shareholders, ensure the company is a positive influence on communities and the environment, and comply with the axiom, “How you get there matters.”

“When we developed the core values, we didn’t create banners and posters hanging on a wall somewhere — we were going to talk and live it,” Ward says. “Culture change takes time. We’ve been at it more than 12 years and I think we’ve changed it. We’ve changed out two-thirds of our workers since we launched this, so for most of the people here, these values are all they’ve ever known.”

Success and succession

And for many, Ward is the only CSX CEO they’ve ever known. The presumption was that Oscar Munoz, who signed on as EVP and CFO in 2003, and had been named president in February, would succeed Ward in the not-too-distant future. But when Munoz resigned Sept. 8 to become CEO of United Continental Holdings Inc., it meant Ward would extend his tenure as chairman and CEO a few more years.

“I will be around for awhile,” he says.

So will longtime CSXer Clarence Gooden, who now serves as president; he most recently was EVP and chief marketing officer. The departure of Munoz also accelerated the organization’s succession plan. Fredrik Eliasson, who had been EVP and CFO, assumed the new role of EVP and chief sales and marketing officer. Former EVP of Operations Cindy Sanborn was named EVP and COO; and Frank Lonegro, who’d been VP of service design, was tabbed to serve as EVP and CFO.

“The next-generation leaders of this company — Cindy, Fred and Frank — fill three key jobs,” Ward says. “And Clarence and I, with all our experience, are here to help. It’s a really nice blend.”

And it’s one Ward will continue to monitor and nurture.

“We’ve seen Michael and his team adjust well and quickly to the loss of his perceived heir apparent,” Hatch says. “As the longest tenured [Class I] CEO, he’s helping to provide stability in the most unstable industry period I can recall.”

The key elements

You won’t get an argument from Ward. CSX had a solid first half that included record financial performance in the second quarter, but the rest of the year will be much more difficult due to an array of economic factors, including the coal drop-off, say CSX officials. They expect 2015 coal revenue to decline $450 million due to low natural gas prices and high inventory levels, according to a third-quarter earnings release issued Oct. 13. They also believe the coal headwinds will continue in 2016.

Other challenges, too, will keep CSX strategists on the problem-solving path, from contending with what Ward terms the “regulatory regime” in Washington, D.C., (“All these regs are killing us.”) to attracting Generation X and millennial talent to walking the long and winding road that is positive train control implementation.

But in Ward's world, challenges are there to be met; problems, to be solved. “Control the things we can control, and the rest will take of itself,” as he's been known to tell his colleagues. And what he believes CSXers can — and will — control are safety, customer service and efficiency.

“We've created a culture that focuses on people and customers — they are the key elements," Ward says. “And we're doing these things well.”



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