Analysis: CP Rail back-to-work order may hurt efficiency push

Fri May 25, 2012 12:49pm EDT
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By Susan Taylor

TORONTO (Reuters) - Back-to-work legislation alone probably won't resolve the issues of high labor costs and restrictive work rules for Canadian Pacific Railway Ltd (CP.TO: Quote), whose operating performance is still the worst in its industry.

The Canadian government has vowed to end a strike by 4,800 locomotive engineers and conductors by next week if necessary, and CP Rail shares have risen more than 3 percent since the work stoppage began early Wednesday.

Even so, experts say, CP can best achieve its goal of lowering labor costs through collective bargaining, and a government-imposed end to the strike might complicate matters for Canada's second-largest railway.

"When you take the process away from the parties, particularly the employees and the unions, they will react," said George Smith, who teaches labor relations at Queen's University in Kingston, Ontario.

In CP Rail's case, "employees, if they decide to disrupt the operation, they can do that with great ease and with very little recrimination."

CP Rail is under heavy pressure to get results. A boardroom coup at the storied company and impending management changes have highlighted the urgency of the task.

Last week, CP Rail's chairman and its chief executive resigned when it became clear that most shareholders supported a slate of dissident directors nominated by Pershing Square Capital Management, CP's largest shareholder. Led by the brash William Ackman, the hedge fund is pushing for an aggressive turnaround plan.

"Irrespective of the strike, I think that shareholders have voted for change," said Jeff Kauffman, an analyst at Sterne, Agee and Leach.   Continued...