Norfolk Southern CEO Alan Shaw will remain in his role after all.
More than a year after a train derailment that spilled hazardous chemicals in East Palestine, Ohio that attracted widespread negative attention to the rail company, Norfolk Southern fended off a proxy fight from activist investor Ancora Holdings after shareholders voted to keep Shaw in his role.
Ancora didn’t come home empty handed, with three of its seven director nominees elected to the board and Norfolk Southern chair Amy Miles being ousted in the vote. Once finalized, the new 13-person board of directors will each serve a one-year term expiring in 2025.
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Norfolk Southern said it would elect a new chair at its next meeting, to be scheduled in the coming weeks.
While Shaw gets a second wind, he will be under more pressure with the new board in place, as investors made it clear that they thought some of Ancora’s claims had some merit.
Beyond getting past the $1.1 billion derailment, which generated criticism from residents, lawmakers and investors alike and provoked some questions about the safety of U.S. railroad operations, Norfolk Southern has to address declining service levels and poor earnings results compared to other Class I railroads.
Ancora had long argued that the rail had to establish infrastructure to support the precision scheduled railroading (PSR) operating model, instead of its current “resilience railroading” strategy. The hedge fund said that under its own CEO candidate to replace Shaw, former UPS executive Jim Barber, it planned to incorporate a more traditional framework for PSR that would help cut the company’s operating ratio from 67.4 percent of revenue to 57 percent within three years.
Norfolk Southern said it also would reach a sub-60 percent operating ratio, but it would take a year longer than Ancora’s plan. The plan would generate about $400 million in cost savings over two years. The company’s resilience strategy relies in part on not furloughing train crews during downturns like the current ongoing freight recession so the railroad could maintain service and capture volume in a rebound.
However, it is likely that certain elements of PSR will be further implemented with the Norfolk Southern strategy going forward. One of the three new board members voted in Thursday, Sameh Fahmy, is a former executive vice president of precision scheduled railroading at Kansas City Southern—suggesting that there will be some new influence on how the company’s operating model will be carried out.
With the vote, the rail company also staved off the replacement of newly appointed chief operating officer John Orr with former CSX executive vice president of operations Jamie Boychuk.
Norfolk Southern defeated an effort that was backed in part by one of the major proxy advisors, Glass Lewis, while counterpart ISS recommended to keep Shaw in place. Ancora also had the support of multiple labor unions, including separate divisions of the Teamsters, as well as one of its largest customers, steel manufacturer Cleveland-Cliffs.
Ancora called the changes “meaningful,” saying it would keep holding Shaw accountable and push for the appointment of a qualified operator “who can actually drive shareholder value.”
“This represents a loud and clear message to replace the company’s unqualified CEO and reconsider its ineffective strategy, which has driven industry-worst customer delivery times, severe derailments and persistent share price underperformance,” read a statement from Ancora chairman and CEO Frederick DiSanto, and James Chadwick, president of Ancora Alternatives. “Notably, CEO Alan Shaw received what we deem a resounding vote of no confidence based on preliminary voting results that indicate he barely received support from holders of 50 percent of the company’s outstanding shares.”
On the other hand, more unions have come out in favor of the vote. The Transportation Trades Department (TTD) of the AFL-CIO, which is a coalition of 37 transportation- and logistics-related unions that threw support behind Shaw, applauded the vote.
“While we certainly do not agree with Mr. Shaw on everything, we asked for him to remain because we believe he has made meaningful safety improvements since the train derailment in East Palestine, Ohio last year,” said Greg Regan, president of the TTD of the AFL-CIO in a statement. “We also believe his leadership would better serve rail customers, workers, and Shareholders in the long run. Any way you slice it, Mr. Shaw is better than Ancora’s proposed alternative.”
Among the new directors elected to Norfolk Southern’s board were the railroad’s own nominees Richard Anderson, former CEO of passenger railway Amtrak, and former U.S. Senator Heidi Heitkamp.
Aside from Fahmy, the Ancora-supported board electees include former U.S. Surface Transportation Board commissioner and vice chairman William Clyburn, Jr. and Gilbert Lamphere, chairman of MidRail Corporation and co-founder of MidSouth Rail Corporation.
