4/26/2024
Railroad CEO Isn't Ruthless Enough for Investors After Toxic Crash
Bloomberg (04/26/24) Sutherland, Brooke; Porter, Kiel
Norfolk Southern Corp.’s (NSC) chief executive officer was criticized by politicians as the epitome of everything wrong with the profit-obsessed railroad industry when a derailment caused a toxic disaster in East Palestine, Ohio, last year. Now, Ancora Holdings Group is waging an increasingly personal battle to fire the CEO — but not because it wants the railroad to spend more on safety initiatives. Instead, the investor is tagging him as a soft-touch marketing guy who’s overly deferential to workers and customers and unwilling to implement the operational changes necessary to compete in the notoriously cutthroat industry. Alan Shaw is a lifer at Norfolk, starting out in the finance department in 1994. But he came into the CEO job in 2022 — less than a year before the Ohio disaster — with a message of change. For more than a decade, the railroad industry has been governed by the gospel of the late executive Hunter Harrison: an efficiency strategy known as precision scheduled railroading that’s resulted in shrunken workforces and longer, more packed trains. Shaw argued railroads had become so focused on costs they had forgotten how to grow and were losing business to truckers — not to mention upsetting existing customers and employees. Workers love his message, as do regulators and shippers frustrated with years of poor rail service. But Ancora is betting that investors don’t — Norfolk’s shares are down about 7% in the past two years, including a sharp sell-off after the derailment, badly trailing the almost 10% gain for the benchmark S&P Road & Rail index. The fund wants to replace Shaw with Jim Barber, a former United Parcel Service Inc. executive, and also install Jamie Boychuk, a protege of Harrison’s who helped oversee CSX Corp.’s adoption of PSR tactics. Both Barber and Boychuk are known as hard-nosed operators with little interest in warm and fuzzy ideas like company culture. Ancora, which owns less than 0.5% of Norfolk shares, is also seeking to replace most of the board. The proxy vote is May 9. At least some shareholders endorse Ancora’s proposed overhaul: EdgePoint Investment Group Inc., which owns Norfolk shares worth about $1 billion, and Neuberger Berman Group, which owns a much smaller stake of less than 0.1%, have both backed the activist slate. The Brotherhood of Maintenance of Way Employes, a division of the Teamsters union, on Thursday backed Ancora's push for change, criticizing current management for "non-committal hedging on reasonable, needed changes" that would prevent future rail accidents. The group represents about 19% of Norfolk's unionized workforce. The railroad's other major unions have backed Norfolk's existing strategy, and with only a few weeks to go until the shareholder vote, Norfolk is holding firm on its support for Shaw in a sign the company thinks it can resist the activist engagement.
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