Norfolk Southern鈥檚 CEO will be under more pressure to improve profits after the railroad鈥檚 shareholders voted Thursday to elect three of the board members an activist investor nominated, but he won鈥檛 be fired right away.
Ancora Holdings had nominated seven directors as part of a bid to take control of the railroad鈥檚 13-member board and overhaul its operations. The Ancora picked up from major investors, two major rail unions and proxy advisory firms wasn鈥檛 enough to persuade shareholders to elect Ancora's entire slate.
Ancora's Jim Chadwick blamed passive investors for failing to support the investors' nominees. Chadwick promised to hold accountable and keep fighting to improve the railroad.
鈥淔or the passive investors. If anything should go wrong here and there鈥檚 another derailment and people die, this is on you,鈥� Chadwick said. 鈥淵ou ignored the recommendation of the proxy advisors, the unions, the largest customer of the company. You gave us literally no support and we still won three board seats without you. What happens at Norfolk Southern now is on your firms and your conscience.鈥�
The board members voted out included Chair Amy Miles.
Norfolk Southern's stock price, which soared after Ancora announced its campaign to oust Shaw, immediately fell after the results of the vote were announced. It was trading down 3% at $224.84 Thursday morning.
Shaw had argued that Ancora鈥檚 plan would cut the railroad too deep and jeopardize the improvements in and service Norfolk Southern has seen since its in .
Shaw鈥檚 plan calls for keeping more workers on hand during a downturn to make sure the railroad is prepared to handle the eventual rebound in shipments once the economy recovers and continuing to invest in safety improvements to prevent derailments. He received the backing of the rest of rail labor, several key regulators and a number of the railroad鈥檚 customers.
鈥淣orfolk Southern has persevered through several challenges over the last year. We have met every challenge and never lost sight of where we are taking our powerful franchise,鈥� Shaw said. 鈥淲e are keeping our promises and delivering tangible results, and there is more to do.鈥�
Ancora had argued that Norfolk Southern should implement the industry standard operating model that is designed to minimize the number of workers, locomotives and railcars a railroad needs.
The Precision Scheduled Railroad operating model relies on running fewer, longer trains on a tighter schedule and switching cars between trains less often to streamline operations. Shaw had argued that running the railroad too lean would jeopardize the improvements in and service Norfolk Southern has seen since its in .
Rail unions have said they believe Precision Scheduled Railroading has made the industry because inspections are so rushed and preventative maintenance may be neglected.
The Brotherhood of Locomotive Engineers and Trainmen union that backed Ancora encouraged Shaw to keep improving safety and consider adopting some of the proposals the investors made to expand the railroad's pilot program to let workers use an anonymous federal safety hotline to report concerns and abandon all talk of trying to reduce the current two-person train crews down to one.
The leaders of the BLET union on Norfolk Southern 鈥� Dewayne Dehart, Jerry Sturdivant and Scott Bunten 鈥� said they were alarmed when Shaw said this spring that he would also implement a version of Precision Scheduled Railroading and they would call out decisions they deem bad for workers and investors.
鈥淎lan Shaw and his team showed real leadership after the East Palestine disaster and made major moves to make the railroad safer and more competitive," the BLET union officials said. 鈥淗owever, changes in his team and strategy in recent weeks left many stakeholders and shareholders feeling uncertain about the railroad鈥檚 future direction.鈥�
For now, Shaw and the Chief Operating Officer he just hired in March, John Orr, will have more time to prove their strategy will work. NS paid CPKC railroad $25 million to get permission to hire Orr. But if they don鈥檛 bring Norfolk Southern鈥檚 profit margins in line with the rest of the industry, their jobs could still be in jeopardy.
鈥淵our CEO has missed earnings estimates for six quarters in a row and destroyed a town in our own state,鈥� said Chadwick, whose firm is based in Ohio. 鈥淎nd if this underperformance continues, we will hold you accountable. But we will work with you for the mutual benefit of all stakeholders.鈥�
Edward Jones analyst Jeff Windau said it's clear Ancora is going to keep up the pressure on Shaw, and if results don't improve then the investors may nominate additional directors next year to try to take control of the board.
鈥淭he spotlight is still going to be there even though this election is over,鈥� Windau said.
Ancora wanted to hire former UPS Chief Operating Officer Jim Barber to be the railroad鈥檚 next CEO and former CSX railroad operating chief Jaimie Boychuk as the chief operating officer. Barber keeping more workers on hand during slower times is wasteful and compared it to UPS keeping all its seasonal workers it hires for the holiday season on the payroll year round.
The investors had projected their plan would cut more than $800 million in expenses in the first year and another $275 million by the end of three years. Ancora said say they didn鈥檛 plan layoffs, but wanted to use attrition to eliminate about 1,500 jobs over time.
Norfolk Southern has said it鈥檚 own plan to make the railroad more efficient would generate about $400 million in cost savings over two years and improve its profit margin. But analysts have said its profits might still lag behind the other major freight railroads because they are all working to get more efficient too.
Josh Funk, The Associated Press
