Norfolk Southern shareholders sign off on 10 board of directors nominees

Facing questions about its leadership in advance of its Annual Meeting of Shareholders today, due to a proxy bout and attempted management takeover by activist investor Ancora Alternatives LLC, Atlanta-based Class I railroad carrier Norfolk Southern is likely breathing a collective sigh of relief today.

The reason for that is that based on the preliminary count of its proxy solicitor, NS shareholders voted to elect 10 of the company’s director nominees, including Alan H. Shaw, NS president and CEO, and Claude Mongeau, former president and CEO of Canadian National Railway Company, among others.

And NS noted that director nominees whom were proposed by Ancora also were elected to the NS board, including: William Clyburn, Jr., former commissioner and vice-chairman of the U.S. Surface Transportation Board, Sameh Fahmy, former EVP of precision scheduled railroading at Kansas City Southern, and Gilbert Lamphere, chairman of MidRail Corporation and co-founder of MidSouth Rail Corporation.

The company added that upon finalization, each member of the 13-person board of directors will serve a one-year term that expires in 2025. It also said that these results are considered preliminary until final results are tabulated and certified by the independent Inspector of Elections, with final results to be reported in an 8-K form filed with the Securities and Exchange Commission.

“We appreciate the support of our shareholders and the valuable perspectives they have shared with us in the months leading up to our Annual Meeting,” said NS in a statement. “Our shareholders recognize that positive change is underway at Norfolk Southern. Moving forward, we will continue building on the significant progress Alan Shaw, John Orr, and the entire team have already achieved. Together, we are building a safer, more profitable railroad, closing the margin gap with our peers, and ultimately growing value for our shareholders. We welcome William Clyburn, Jr., Sameh Fahmy, and Gilbert Lamphere to our board. We will work constructively and collaboratively on behalf of our shareholders unlocking the full potential of our powerful franchise.”

As previously reported, tensions were running high in advance of today’s NS shareholder meeting, with Ancora maintaining that NS is not committed to fully implementing Precision Scheduled Railroading (PSR), created by the late CSX President and CEO E. Hunter Harrison, whom passed away in December 2017. 

PSR requires cargo to be ready when rail cars arrive for loading or risk being left behind, a practice that served both CP and CN well under his leadership, with both companies seeing multiple positive results in the form of lower operating ratios, improved service, record amounts of reinvestment into networks, as well as creating significant shareholder value.

To that end, Ancora said it was focused on what it views as a more efficient and effective leveraging of PSR, focusing on service, cost control, asset utilization, safety-first culture, and human capital. Addressing its proposed management team, the company said that the new team would pursue a balanced and safe strategy focused on improved safety, improved service, improved performance, stronger growth, and improved sustainability.

What’s more, on April 29, proxy advisory services company Glass Lewis threw its support behind Ancora’s proposed PSR implementation and its proposed slate of the NS Board of Directors, adding that Ancora “presented a compelling case” for a substantial overhaul of NS’s current leadership.

For the former, Glass Lewis cited how Ancora made the case that NS could gain roughly $800 million in savings by taking various actions, including: removing 450 locomotives, for a projected savings of $165 million; taking 35,000 freight cars offline, for a projected savings of $250 million; reducing fuel per gross ton mile to 0.95 gallons, for a savings of $200 million; and realizing efficiency gains from a network redesign, for a savings of $185 million), with these measures lowering NS’s operating ratio to 62%-to-63%, which would put it in line with the industry average of 62.6%.   

And for the latter, Ancora called for the removal of Shaw; Amy Miles, independent chair of the board (former CEO of Regal Entertainment Group); Mongeau; Jennifer Scanlon (current CEO of UL Solutions Inc., a leading global safety science organization, and former CEO of USG Corporation); and John Thompson (former senior executive and director at multiple customer-facing publicly traded companies, including Best Buy Co., Inc.).

Glass Lewis also said that Ancora’s choices of former UPS COO Jim Barber to replace Shaw as CEO and former CSX EVP of Operations Jamie Boychuk as COO to replace John Orr, whom recently came over to NS from CPKC, each have compelling credentials and track records.

Ancora had also garnered railroad union support from the Brotherhood of Locomotive Engineers and Trainmen (BLET), with the unions general chairs representing NS BLET members calling out NS’s Shaw for “backsliding” on the company’s recent earnings call. Which BLET said led to its three General Chairmen representing NS engineers and trainmen to have talks with Ancora about Ancora’s future vision for NS, should NS be successful in securing control of the NS board of directors.

BLET was not the first union to support Ancora. The Brotherhood of Maintenance of Way Employees Division of the International Brotherhood of Teamsters (BMWED-IBT) did the same, stating a change in leadership at NS is necessary.

TD Cowen analyst Jason Seidl wrote in a research note that with just three directors, Ancora only has a minority representation on the Board and will likely find it difficult to steer change in their desired direction.

“We believe the activist will continue to advocate for its CEO and COO candidates, but to little avail,” wrote Seidl. “We saw this pattern play out during Ancora's activist campaign at CHRW which also resulted in only two Board seats and the inability to place Jim Barber in the CEO role (we note that is the second time Ancora has failed to place him in a CEO role). Operating changes have already been put into motion at NSC with John Orr's appointment (early improvements in service metrics were discussed extensively on the 1Q earnings call). We expect NSC to remain committed to its '24 exit OR rate of 64%-65% and further convergence with peers beyond that as the Class I continues to reorient towards traditional PSR implementation.”