Norfolk Southern is accusing activist investor Ancora Holdings of trying to “buy votes” to oust CEO Alan Shaw and the majority of the company’s 13-person board after the hedge fund signed a labor pact with a Teamsters division supporting the hedge fund’s suggested changes.
The railroad said Ancora is violating the Railway Labor Act in signing a memorandum of understanding with The Brotherhood of Locomotive Engineers and Trainmen (BLET) on the grounds that Norfolk Southern should be granted exclusive negotiating authority with the union.
Related Stories
The agreement indicated that if the activist investor proxy fight is successful, the BLET would win several concessions, including taking over remote-control switching operations currently handled by conductors and no longer requiring engineers to work as conductors.
“Ancora’s actions are a blatant attempt to buy votes through backdoor deals to take control of the company,” Norfolk Southern said in a statement Monday. “This desperate effort by Ancora, if successful, provides concessions to the BLET that limit operational flexibility and destroy significant value for the company.”
Ancora calls the allegations “meritless” and “exactly the type of stunt we predicted Mr. Shaw and his Board would pull when their support faded.”
BLET is one of two Teamsters divisions now backing Ancora, alongside the Brotherhood of Maintenance of Way Employees (BMWED). This bucks the wider union trend which has largely been in favor of Shaw and the incumbents at Norfolk Southern.
The union’s support runs counter to its previous anti-Ancora sentiment, with the union’s general chairman Dewayne Dehart saying in February, “Ancora would be bad for investors. It’s easy to imagine a train wreck under their proposed plans, both literally and figuratively speaking.”
While Ancora said the Teamsters’ support raises further questions regarding the ability of the current management team to improve its relationship with the company’s workforce, that message appears to have stoked a fire in some other labor organizations.
Twelve unions reiterated Friday in a statement that they believe Ancora’s proposed strategy is not “fit for purpose,” with the unions urging shareholders not to support the hedge fund’s director nominees.
“Railway labor unions, shippers and federal regulators have all warned that Ancora’s plans will jeopardize the safety and service improvements that Norfolk Southern has made since the 2023 derailment in East Palestine, Ohio,” the group of rail unions said. “We further believe that Ancora’s plans for increasing profits are nothing more than short-term cost-cutting to artificially lower the operating ratio—all at the expense of its customers, long-term investors and ultimately the U.S. economy.”
Ancora gets big win with Glass Lewis support
The accusation came the same morning the hedge fund secured perhaps its biggest form of support yet from a proxy advisor in its attempt to revamp the railroad’s operating model.
On Monday, Glass Lewis unveiled it is siding with Ancora in its campaign, recommending that Norfolk Southern shareholders vote for six of Ancora’s seven nominees for the board overhaul, only leaving out former presidential candidate John Kasich.
Both Shaw’s and the board’s fate, and the future direction of the Norfolk Southern business model, will be known after the vote takes place at the company’s May 9 shareholder meeting.
Poor operating margins and the company’s “resilience railroading” strategy have been the central concerns for Ancora, which believes Norfolk Southern would be better off operating its trains under the precision scheduled railroading (PSR) model that is leveraged by most Class I railroads.
PSR aims to minimize wasted hours and equipment, by operating on a similar fixed schedule to passenger trains rather than rolling trains only when they’re filled with cargo. The model has garnered criticism from some in the industry, who argue it is a detriment to service quality and safety due to staff cuts and longer trains.
The current resiliency model instead emphasizes more resources in down freight periods, with the intent to pick up extra market share from under-resourced trucks and rail competitors when market conditions improve. This model has been criticized by Ancora for deprioritizing scheduling, leading to lower on-time arrival rates, along with claims that it still makes it difficult to handle trough volumes.
“We believe the operating performance of the company has been consistently worse than its peers for an extended period,” the Glass Lewis report said. “We are also inclined to agree with Ancora’s critique of the company’s current operating strategy as being one that relies on inherently incompatible railroading concepts. [I]t’s not readily evident to us the company’s current leadership had built up a sufficiently positive track record such that investors might reasonably have the patience to allow management to implement a relatively novel operating strategy.”
ISS, another influential proxy advisory firm, is expected to issue its recommendation this week. Proxy advisors like Glass Lewis and ISS have recently weighed in on board votes across the retail supply chain at Kohl’s and Pitney Bowes, both of which saw their CEOs jump ship in the months after the board elections took place.
As part of the proposed changes, Ancora wants to replace Shaw with former UPS chief operating officer Jim Barber and replace newly appointed chief operating officer John Orr with former CSX executive vice president Jamie Boychuk.
Update: ISS recommended on Tuesday that Norfolk Southern shareholders support five of Ancora’s seven board nominees, withholding an endorsement from Barber but describing him as a “credible director and CEO candidate nonetheless.”
The proxy advisor recommended shareholders support Shaw’s reelection to the board over Barber, but said shareholders should not support current board chair Amy Miles.
