Filed by Canadian National Railway Company
Pursuant to Rule 425 under the Securities Act of 1933
Subject Company: Canadian National Railway Company
Commission File No. 333-94399
[CN LOGO]
Leading a transportation revolution
Notes for remarks by
Jack T. McBain
SENIOR VICE-PRESIDENT, OPERATIONS
CANADIAN NATIONAL RAILWAY COMPANY
at the Rocky Mountain Business Seminar
University of Alberta
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Jasper, Alberta
February 25, 2000
(Please check against delivery)
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I'm very pleased indeed to be taking part in the 35th Rocky Mountain Business
Seminar, and I congratulate the student organizers for yet another timely and
thought-provoking program. CN is very proud to be among this year's Executive
Partners.
Your theme this year - leadership - is particularly relevant in these rapidly
changing times. Why does one company succeed while others fall by the wayside?
The reasons are many, but in my view they all boil down to the issue of
leadership.
In my talk today, I want to reflect on leadership qualities and apply these
reflections to one of the great success stories in Canadian business during the
past decade: the transformation of Canadian National from a tradition-bound
Crown corporation to a leading international railroad.
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What qualities define an effective leader? Before answering that, let me first
refer to a quote by Jean Paul Getty that is frequently used by CN's chief
executive officer, Hunter Harrison. The quote shatters the myth that many have
that leadership comes from experience.
Getty said, "In rapidly changing times, experience can be your worst enemy."
So, with that in mind, let's return to my original question, What qualities
define an effective leader?
First, a leader holds a clear vision of what an organization can and must
become to succeed. The vision must be bold and striking, but it must also be
realistic. It must be seen to be attainable.
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Second, a leader must be able to articulate the vision in a manner that will
inspire and motivate others. A leader possesses top-notch communication skills
and can galvanize people by appealing to their intelligence and self-interest.
Employees want to know how change will affect them, and what they must do to be
successful. A leader needs to be able to articulate this clearly, in a way that
employees can understand in their work environment. Leaders find ways to
communicate with those who have trouble listening.
Third, successful leaders have a certain amount of humility in their make-up.
They're open to advice from colleagues and experts in the field. They listen to
their people; they encourage original thinking. They're not too proud to change
course when presented with a solid case for doing so. Leaders learn to listen
to those who have difficulty communicating.
Finally, effective leaders are never satisfied with the status quo. Even when
the organization's reality matches their vision, they never become complacent.
They're constantly on the alert for threats and opportunities on the horizon.
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Now, let's apply these leadership qualities to Canadian National and see how
vision, the ability to articulate and sell the vision, willingness to listen
and learn, and refusing to give in to complacency have shaped the CN success
story.
The story begins in 1992, when CN found itself at a crisis point - perhaps the
most extreme in its 70-odd years as a federal Crown corporation. True, the
company had significant strengths, including an extensive, well-maintained rail
network and equipment fleet as well as some of the industry's most capable
people.
However, these strengths were outweighed by some very real problems. Most
pressing was the competitive challenge from the trucking industry, with its
cost and tax advantages, and from the newly revitalized U.S. rail sector. A
large portion of the network was severely underused, especially in Eastern and
Central Canada. CN was also very much overstaffed. Its labor productivity
lagged significantly behind that of U.S. competitors.
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These problems had actually been building for decades, and as a result CN had
become heavily indebted. But as a Crown corporation, it had very little leeway
to tackle the debt problem - no hope of an equity infusion either from
government or from private investors.
Perhaps most insidious of all, there was no compelling sense of urgency within
the company in the face of the growing crisis. Most CN people expected that the
company would simply muddle through and survive somehow, as it always had.
At that point, a new leader appeared on the scene - Paul Tellier, formerly
Canada's top public servant as Clerk of the Privy Council, who became CN's
president and CEO in October 1992.
Mr. Tellier was quick to assess the situation. He recognized CN's strengths as
well as the urgency of the problems and the need for dramatic action. At the
same time, he saw CN's potential and articulated his vision for the company: to
become the best railroad in North America.
The next step was to sell that vision to his management team. Now, none of us
wanted to see the company go down the tubes, but we needed to be shaken out of
our complacency. And most of us welcomed the new energized atmosphere around the
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company. It was a breath of fresh air, no doubt about that. That changes had to
be made was not news. But perhaps it took a newcomer to the industry to really
make a difference, especially if that person possesses exceptional leadership
skills.
Once Mr. Tellier's vision became a shared vision, we began a step-by-step
planning process to make it a reality. We listened. We learned. We surveyed the
North American rail industry, taking as our benchmarks the most successful U.S.
railroads and analysing how they had managed to transform a very sick industry
into the picture of robust health.
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Working as a team under Mr. Tellier's leadership, we crafted a solid business
plan focused on first on aggressive cost-cutting. It called for reducing the
workforce by one-third and pruning the network of its less productive segments.
Secondly it involved major service improvements and a stronger customer focus,
as well as investments in systems and installations that would boost both
productivity and revenue potential. Lastly and currently, the plan involves
growing the top line.
In little more than a year, our strategies began to produce positive results.
For the first time in years, CN was showing profitable growth. We were clearly
on the right track. However, significant challenges remained. We were still
plagued by network over-capacity east of Winnipeg, a problem we shared with
Canadian Pacific. Both railroads felt the solution lay in merging our eastern
operations into a new jointly owned company, and we held talks to that end
during 1994. Ultimately, we failed to reach an agreement, but the exercise did
serve to focus some long-overdue attention on CN's situation.
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The government recognized that despite great progress over the previous few
years, CN would do much better under private-sector ownership. And the company
was clearly ready for privatization.
In November 1995, the government's shares in Canadian National were listed on
the Toronto, Montreal, and New York stock exchanges. Within a day, the entire
issue had been sold to private investors, raising more than $2 billion for the
government in the largest, most successful privatization in Canadian history.
Since then, the company has gone from strength to strength. CN's first year as
an investor-owned company was the best in its history. Subsequent years have
been even better. Last year our operating ratio - which is the rail industry's
standard productivity measure - ranked as the best in North America.
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Does that mean we can take a break and rest on our laurels? Not a chance. We
have to keep driving for competitive advantage - because the world won't stand
still for us. And that's precisely what we're doing with our latest initiative:
a transaction with one of the largest railroads in North America, Burlington
Northern Santa Fe. Leaders understand that you can never stand still.
To help you understand the rationale for the move, let's take a look at the
current business situation in North American transportation. North-south trade
flow now dominates the continental marketplace, and it's growing at more than
10% annually. Our challenge is to serve that marketplace in the most efficient
way possible while maintaining our strong east-west link.
We took a key step last year when we acquired the Illinois Central Railroad,
which runs north-south through the heart of the United States, from Chicago to
New Orleans. When it became part of CN, we created the only railroad to serve
three North American coasts: Atlantic, Pacific, and Gulf of Mexico. A marketing
alliance with the Kansas City Southern further extends our reach, giving our
customers direct access to markets in Mexico.
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However, even when we were putting the finishing touches on these deals, we
knew we would have to go farther to avoid being overtaken by fast-moving events
on the transportation scene. We had to respond to the threats and seize the
opportunities.
The threat lay in the strength and heft of the huge U.S. rail systems that had
emerged from a series of massive consolidations over the past few years. These
rail giants have the reach and economies of scale to overwhelm smaller entries
like CN in the competition for continental trade.
We saw our opportunity in joining forces with one of the largest and strongest
of these mega-railroads. Burlington Northern Santa Fe has extensive operations
throughout the western, midwestern, and southern United States. A CN-BNSF
combination would have the potential to become the biggest and best railroad in
North America - which remains our ultimate vision.
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The transaction combines strength with strength to form an organization, North
American Railway, that is, greater than the sum of its parts. The new railroad
won't overwhelm the competition but rather create new competitive options for
shippers all over North America. And it puts Canada firmly in the driver's seat
as the continental transportation revolution accelerates.
What's in it for Canada? Almost by definition, what's good for Canadian
producers is good for Canada. This is a huge country, with a climate and
terrain among the most challenging on Earth. We depend on trade to a much
greater extent than most other developed countries.
And what's in it for CN, its employees and shareholders? As far as CN is
concerned, the CN-BNSF combination will augment its financial strength and
durability. It will secure CN's long-term future by strengthening its position
in a highly competitive marketplace. And it will give CN an even more balanced
revenue mix so that it can more effectively withstand the downside of
individual commodity cycles.
As for CN shareholders, the combination will give them an ownership stake in a
company with the size and reach to expand market share and improve
profitability. And that means higher returns in the future.
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CN has come a long way over the past eight years. Under strong leadership, it
has been transformed into one of the best railroads on this continent. The
process called for some tough decisions, but we didn't back down, no matter
what the skeptics said.
It also called for innovation in the form of customer-focused systems and
processes aimed at creating competitive advantage and business growth. We were
determined to become an industry leader in the areas that matter most to
customers. And what matters most? It's reliable delivery, hands-down. Shipments
from an Alberta chemical producer, for instance, must reach North Vancouver in
time for scheduled further distribution. A car manufacturer relies on
just-in-time delivery of autoparts to keep production lines moving
cost-effectively.
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In our business, the key to reliable service is to operate a scheduled
railroad, which means running trains according to a predetermined schedule and
cars on individual trip plans. These individual trip plans deliver goods on
time from our customer's door to their customer's door. This delivery schedule
is measured in hours, not days. No delays. No missed connections.
We took the first step towards scheduled operations in 1993 when we acquired
the industry's most advanced shipment management software and dubbed it our
Service Reliability Strategy, or SRS. Interestingly, we bought the software
from the Santa Fe Railway, which merged with Burlington Northern a few years
later to form BNSF, our transaction partner today.
Once we had implemented the system, we refined and expanded it so far beyond
its original capabilities that we now have the capability to run a scheduled
railroad. In fact, we're acknowledged as the industry leader in this area. Our
service plan holds us to precise trip plans for individual cars so that we can
deliver on customer commitments while controlling costs.
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As a result, we can promise shorter transit times, we make more efficient use
of our equipment assets - and our railroad runs with the precision of a
conveyor belt. And what matters most to our employees? Safety. This is a core
cultural value at CN, and we strive to be the safest railroad in North America.
Not surprisingly, safety and reliability are very closely linked. The safer we
are, the fewer times our conveyor belt is shut down, benefiting customers. The
safer we are, the more confident our employees are in delivery quality service.
It's a virtuous circle.
CN's success story is essentially a story of leadership. But it's also a work
in progress because customers' needs will continue to evolve. We believe that
the transaction with BNSF will strengthen CN's ability to meet shippers' needs,
both today and tomorrow. North American Railways, Inc., is a made-in-Canada
response to a continental challenge. And CN is proud to be a leader - a
staunchly Canadian leader - in the ongoing transportation revolution.
Thank you.
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Investors are urged to read the joint proxy statement/circular/prospectus
related to the CN/BNSF combination that was filed with the United States
Securities and Exchange Commission (SEC) on Form F-4, together with any
amendments to it, as it contains important information. Investors can obtain
this and any other documents filed with the SEC without charge at the Internet
web site of the SEC (www.sec.gov). Other filings made by CN on Forms 40-F and
6-K may be obtained for free from the CN Corporate Secretary's office at (514)
399-6569. Other filings made by BNSF on Forms 10-K, 10-Q and 8-K may be obtained
for free from the BNSF Corporate Secretary's office at (817) 352-6856. For
information concerning participants in CN's solicitation of proxies for approval
of the combination, see "Certain Information Concerning Participants" filed by
CN under Rule 14a-12.
