May 20, 2024
Norfolk Southern’s CEO will be under more pressure to improve profits after the railroad’s shareholders voted Thursday to elect three of the board members an activist investor nominated, but he won’t be fired right away.
Ancora Holdings had nominated seven directors as part of a bid to take control of the railroad’s board and overhaul its operations. The key support Ancora picked up from other investors, two major rail unions and proxy advisory firms wasn’t enough to persuade shareholders to elect their entire slate. Ancora's Jim Chadwick blamed passive investors for failing to support the investors' nominees.
Norfolk Southern CEO Alan Shaw had argued that Ancora’s plan would cut the railroad too deep and jeopardize the improvements in safety and service Norfolk Southern has seen since its disastrous February 2023 derailment in East Palestine, Ohio.
Shaw’s plan calls for keeping more workers on hand during a downturn to make sure the railroad is prepared to handle the eventual rebound in shipments once the economy recovers and continuing to invest in safety improvements to prevent derailments. He received the backing of the rest of rail labor, several key regulators and a number of the railroad’s customers.
Ancora had argued that Norfolk Southern should implement the industry standard Precision Scheduled Railroading operating model that is designed to minimize the number of workers, locomotives and railcars a railroad needs.
The Precision Scheduled Railroad operating model relies on running fewer, longer trains on a tighter schedule and switching cars between trains less often to streamline operations. Shaw had argued that running the railroad too lean would jeopardize the improvements in safety and service Norfolk Southern has seen since its disastrous February 2023 derailment in East Palestine, Ohio.
Rail unions have said they believe Precision Scheduled Railroading has made the industry more dangerous and derailments more likely because inspections are so rushed and preventative maintenance may be neglected.
For now, Shaw and the chief operating officer he just hired in March, John Orr, will have more time to prove their strategy will work. But if they don’t bring Norfolk Southern’s profit margins in line with the rest of the industry their jobs could still be in jeopardy.
Ancora wanted to hire former UPS Chief Operating Officer Jim Barber to be the railroad’s next CEO and former CSX railroad operating chief Jaimie Boychuk as the chief operating officer.
The investors had projected their plan would cut more than $800 million in expenses in the first year and another $275 million by the end of three years. Ancora said they didn’t plan layoffs, but wanted to use attrition to eliminate about 1,500 jobs over time.
Norfolk Southern has said it’s own plan to make the railroad more efficient would generate about $400 million in cost savings over two years and improve its profit margin. But analysts have said its profits might still lag behind the other major freight railroads because they are all working to get more efficient too.
