Shareholders of troubled freight railroad Norfolk Southern voted Thursday against an activist investment firm’s attempt to oust the company’s chief executive and take control of the board.
But activist Ancora, a Cleveland firm, managed to gain a foothold in the company after shareholders voted to add three of its directors to Norfolk Southern’s 13-member board. Ancora had hoped to take over leadership of the company to cut costs and increase Norfolk Southern’s profits and stock price.
The result is a partial victory for Norfolk Southern executives, who have had to fend off criticism of the company’s safety record and its poor financial performance. Last year, a company train carrying hazardous chemicals derailed in East Palestine, Ohio, forcing residents to evacuate.
The preliminary results of the shareholder vote were announced at the company’s virtual annual general meeting on Thursday morning.
During the meeting, Norfolk Southern CEO Alan Shaw said he looked forward to working with the new directors.
“Norfolk Southern has overcome several challenges over the last year,” he said. “We overcame every challenge and never lost sight of where we were taking our strong franchise.”
For several weeks, Norfolk Southern and Ancora battled for shareholder support in a battle of bitter statements filled with railroad details.
Ancora argued that Norfolk Southern had lost perspective and needed to take a series of measures to contain costs and simplify its 19,100 miles of rail network. In response, Norfolk Southern said its financial performance was improving and claimed that it was building a railroad that could better weather economic ups and downs. Freight railroads scaled back so much during the coronavirus pandemic that they struggled to meet customer demand as the economy recovered.
The Ancora directors elected to the board are: William Clyburn, Jr., a former railroad regulator; and Sameh Fahmy and Gilbert Lamphere, former railway executives.
In a statement, Frederick D. DiSanto, CEO of Ancora, and James Chadwick, president of Ancora Alternatives, said they would “continue to hold Mr. Shaw accountable and push for the appointment of a qualified operator.”
Norfolk Southern shares fell about 5 percent Thursday morning following the shareholder vote.
Ancora’s campaign sparked a debate about how freight railroads should be operated. The investment firm touted the virtues of precision-scheduled railroading, the name given to practices aimed at making railroads more profitable. Over the past two decades, this approach has reduced costs and made railroads more efficient. Norfolk Southern has implemented elements of the precision schedule.
But critics of the efficiency push say it could limit rail capacity too much, making freight railroads unreliable for customers, and point to the performance of CSX, a competitor to Norfolk Southern, which introduced the precision schedule in 2017.
Before the vote, Martin J. Oberman, the outgoing chairman of the Surface Transportation Board, the federal agency that oversees freight traffic, said Ancora’s cuts may have left Norfolk Southern unable to accommodate a surge in demand and unexpected disruptions get over.
Ancora said they would carry out the overhaul over a three-year period to ensure everything was done well.
Before the vote, Norfolk Southern essentially acknowledged the company’s need to further improve its efficiency by naming a chief operating officer with a strong reputation in the industry in March.
However, the company has not abandoned its plan, which is based on generating new revenue – including by winning orders from trucking companies – and having enough rail capacity and employees to quickly respond to increasing demand.
But Norfolk Southern now needs to show investors that it can make more money with this approach.
Sympathetic railroad analysts said Norfolk Southern executives may have had difficulty meeting their financial goals because the East Palestine accident, which occurred in February 2023, temporarily hampered the railroad’s operations and distracted management.
Norfolk Southern is still under investigation by several federal and state agencies, including the National Transportation Safety Board, which is expected to release its final report on the derailment next month.
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2024-05-09 13:35:26
www.nytimes.com
