From the 1850s through the end of the nineteenth century, railroads expanded capacity greatly, each reigning over specific territories. Their power and importance prompted federal regulation. In 1906, the Hepburn Act gave the Interstate Commerce Commission authority to set the prices railroads could charge customers—regulations that remained in place until 1980. The effect of such price control, which barges and trucking escaped, riveted the industry on cutting costs and crimped the railroad’s incentives to promote customer service.2
Beginning in the 1930s, the industry idled as expanding alternatives—aviation, barges, trucking, and pipelines—diminished demand. From the 1950s on, with the proliferation of automobiles and the growth of suburbia, demand for passenger rail service eroded in many parts of the country. The industry had more assets than its business could support. In response to this excess, railroads merged with one another, whittling their number down from hundreds to scores.3
The initials in the name BNSF offer a flavor of that process. Burlington dates to 1849, with the founding in Illinois of the Aurora Branch Railroad, which grew into the Chicago, Burlington, and Quincy Railroad. Northern components include nineteenth-century industry forces: the Great Northern Railway and the Northern Pacific Railway. These two consolidated in 1970 to form Burlington Northern (called the BN).4 The Santa Fe dates to 1859’s formation of the Atchison, Topeka, and Santa Fe Railway, among the first to complete a transcontinental railroad.
By the 1970s, the railroad industry was in crisis. Rail continued losing ground to other modes of transportation, the passenger rail business all but died, and profits shrank, all while the costs of rail maintenance remained high. Milestones of the period underscoring the troubles included the federal government’s creation of the National Railroad Passenger Corporation (“Amtrak”) to provide passenger service and the bankruptcy of the Penn Central. A consensus emerged that regulation was part of the problem, leading to industry deregulation in the Railroad Revitalization and Regulatory Reform Act of 1976 and the Staggers Act of 1980.
Deregulation created a radically different business environment. The new world was competitive and demanded change in corporate operations. BN moved more aggressively than its rivals for one reason: its board appointed executives who came from outside the industry, a group with no allegiances to existing culture.5
At BN in the 1980s, policy changed to stress return on investment rather than scale of operations and a longer-term outlook than predecessors had held.6 The railroad industry had not historically been characterized as entrepreneurial; employees thought of their jobs as running trains rather than serving customers.7 Deregulation changed all that. The managerial mission shifted from being railroad operators to asset managers.8 BN, for instance, began research and development to find cheaper, cleaner, and more local fuels to power locomotives.9 By the early 2000s, senior executives spoke only in terms of return on invested capital rather than the industry’s traditional talk of market share.10
Historically, autonomy was not an industry hallmark either. Although company cultures varied, all had rigid command-and-control management systems. Some (such as Santa Fe) used a top-down militaristic style, others showed managerial arrogance, and a few (including Great Northern) were more caring for employees though still hierarchical.11 At BN after deregulation, the historical practice of command-and-control changed, too. Management found that rigid adherence to rules and blind respect for hierarchies proved ineffective in business.12
Employee safety provides a vivid example of the cultural changes that occurred. For more than a century through the 1970s, all railroads had poor safety records. Old-fashioned railroad culture ensured it—macho men wore rings easily caught in machinery, sported beards that interfered with dust masks, and swung on and off moving equipment. Command-and-control cultures reinforced ignorance about danger and complacency about protection. Management and workers, led by hostile union s, each held the other side responsible for injuries and accepted the status quo.
At BN, the depth of these attitudes led to the worst safety record in the industry.13 But during the early 1990s, a group of senior managers created a revolution in railroad safety. They sold the agenda to colleagues by stressing the high costs of unsafe conditions: liability claims and settlements, along with disrupted operations. They banned climbing on moving equipment, wearing rings, and growing beards. The company began training programs to shift its culture from the bravado of traditional railroad lore to the prudence of contemporary attitudes.
BN’s safety record improved greatly. Billions of dollars were saved, along with untold eyes, fingers, limbs, and lungs.14 The company reinforced its successes with a merit system called the 2.5 Club, a reference to the industry’s lowest injury rate (2.5 injuries per 200,000 man-hours). Every employee in the group received five shares of BN stock. So radical was this change—merit systems were unheard of in punitive-oriented command-and-control traditions—that proponents within management not only lobbied fellow executives but worked with union representatives to increase labor’s support among the rank and file. The culture changed industry wide. For example, the Santa Fe developed improved safety measures, too, including giving employees one free pair of steel-toed boots every year.