Shareholders of Norfolk Southern, the troubled freight railroad, voted Thursday against an activist investment firm’s attempt to oust the company’s chief executive and take control of its board.
But activist Ancora, a Cleveland company, managed to gain a foothold in the company, after shareholders voted to place three of its directors on Norfolk Southern’s 13-member board. Ancora had hoped to gain control of the company’s management in an effort to cut costs and increase Norfolk Southern’s profits and stock price.
The result was a partial victory for Norfolk Southern executives, who had to defend themselves against criticism over the company’s safety record and poor financial results. A company train transporting dangerous chemicals derailed last year in East Palestine, Ohio, forcing residents to evacuate.
The results of the shareholder vote, which were preliminary, were announced Thursday morning during a virtual company annual meeting.
During the meeting, Alan Shaw, general manager of Norfolk Southern, said he looked forward to working with the new directors.
“Norfolk Southern has persevered in the face of several challenges over the past year,” he said. “We have faced every challenge and never lost sight of where we will take our powerful franchise.”
For several weeks, Norfolk Southern and Ancora fought for shareholder support in a battle of bitter statements filled with railroad details.
Ancora argued that Norfolk Southern had lost its way and needed to roll out a set of practices aimed at limiting spending and simplifying its 19,100-mile rail network. In response, Norfolk Southern said its financial performance was improving and claimed it was building a railroad that would better withstand economic ups and downs. During the coronavirus pandemic, freight railroads scaled back operations so much that they struggled to meet customer demand when the economy rebounded.
Ancora directors elected to the board include William Clyburn Jr., a former railroad regulator, and Sameh Fahmy and Gilbert Lamphere, former railroad executives. Norfolk Southern board chair and candidate Amy E. Miles was not re-elected.
In a statement, Frederick D. DiSanto, Ancora’s chief executive officer, and James Chadwick, president of Ancora Alternatives, said they “will continue to hold Mr. Shaw accountable and push for the appointment of a qualified operator”. Ancora held a 0.16% stake in Norfolk Southern at the end of 2023, according to securities filings.
Norfolk Southern shares were down about 3 percent Thursday morning after the shareholder vote. The final certified vote tally will be released next week, a Norfolk Southern spokesperson said.
Ancora’s campaign sparked a debate over how freight railroads should be managed. The investment firm preached the virtues of precision rail, the term 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 introduced elements of precisely timed rail transportation.
But critics of the efficiency policy say it can cut rail capacity too much, making freight railroads unreliable for customers. They point to the performance of CSX, a rival to Norfolk Southern, which introduced a precision programmed rail network in 2017.
Speaking before the vote, Martin J. Oberman, outgoing chairman of the Surface Transportation Board, the federal agency that oversees freight railroads, said Ancora’s cuts could have left Norfolk Southern without the ability to make in the face of increased demand and unexpected disruptions.
Ancora had said she would carry out the proposed overhaul over three years to ensure it was done well.
Norfolk Southern essentially acknowledged before the vote that it must continue to become more efficient by appointing a chief operating officer with a strong industry reputation in March.
The company, however, has not abandoned a plan that relies on finding new revenue – in part by winning contracts from trucking companies – and having sufficient rail capacity and employees available to quickly respond to the increase in demand.
But Norfolk Southern now needs to show investors that it can make more money with this approach.
Sympathetic rail analysts said Norfolk Southern executives may have struggled to meet financial goals because the East Palestine accident, which occurred in February 2023, temporarily hampered the railroad’s operations and distracts management.
Norfolk Southern remains 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.
Tony Hatch, a longtime rail analyst who supports Mr. Shaw’s approach, said the vote gave management some breathing space. But he added: “They will be under surveillance. This is not a free pass. It could happen again.
News Source : www.nytimes.com
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