Activist Investor Ancora on its case for a new CEO, board at Norfolk Southern

Joining me now, Jim Chadwick, the President of Ancora Alternatives and Jim Barber, Ancora’s CEO pick to replace the current CEO at Norfolk Southern and the former CEO of UPS. It’s great to sit down with you both. Thanks for being with me. You just met right around the corner with investors and shareholders as this proxy contest continues to unfold here. So Jim Chadwick, I will start with you message to those investors and shareholders here today and why they should vote in your favor. I think as we said throughout the campaign that you know and Cora this is something that has been personal to us. I think it’s you know people know us from activism and and making investments like this, but this is different. I think there’s a connection with us being a Cleveland manager East Palestine derailment and we covered we’ve probably been one of the most active managers investing in a logistics space as a whole. And so when when I look at this situation and and the opportunities here to drive change and I look at what’s happened with other rail investments in the past particularly what we saw at at at Canadian Pacific with with Persian Square and what Mantle Rigid did it done at CSXI. Think for investors and the way we looked at it originally too is this is a compelling opportunity for really a a unique opportunity to drive significant shareholder value. But it does require significant change just as those examples did. And so this is not something where you’re going to drive that level of change by actually putting two people on the board. You’re going to need significant change in the boardroom and and obviously you’re going to need it at the at the senior levels of management and and starts with the CEO and we think we have arguably that the, the best available CEO in the transportation industry and somebody that we’ve, we’ve known and have a great deal of respect for. And then our CEO candidate Jamie Boychuk who is in our opinion one of the best rail operators in the world. Yeah. And of course, so much of this focuses around implementation, greater implementation of precision scheduled railroading, PSR to that point. Why are you the best person to be running Norfolk Southern? I mean, you’re former COO of UPS, you know, freight, you know, logistics, but you’re not a railroader. You don’t, you haven’t had that experience with PSR. Yeah, I I think, Morgan, what I would say to that is logistics is what we do for a living. And if you’re UPS or if you’re at the rails or anywhere else, it’s about moving something from point A to point B. It’s taking care of customers, it’s having great service, running efficient networks. It’s, it’s making sure you’re delivering for the communities you’re in, you’re the shareholders and everything. And so it’s about efficiency in the middle. And that’s the key for us here is that Norfolk’s a great brand. It’s a a vital part of the economy in this country. It’s just not performing in our view as it should be. And therefore the shareholders are going to have a vote on that soon enough, right. Based upon this, we plan to put PSR in. It will make it much more efficient. We put the numbers out this morning and this week so everybody could see them. I’m very confident. Jamie’s a great partner to go in to do this with me and I’m anxious to take Norfolk, Norfolk from where they are in the industry today to the top. Yeah. And and just to keep going with that train of thought here, I mean Jamie Boychuk talking just earlier today about the PSR plan and the specifics of it, outlining the strategy to get to a sub 60% operating ratio where operating ratio we know lower is always better over the course of 18 months. I mean that’s that represents 1000 basis points of reduction from where Norfolk Southern currently is for Q1 at 69.9%. It raises the question, how do you get there, how do you get there that quickly and how do you do it with completely disrupting the railroads freight flows and sacrificing safety? I can do it. So it all comes down to putting the most effective efficient network balanced into play here. It’s by the way UPS runs APSR network in my opinion. So our scheduled network we ran across across the globe. You have to be very efficient at it. You have to be balanced. You have to be fluid and out of that drives great service and great safety at the same time. So the the economics that we’re putting forth here, the 1st $800 million of that Morgan comes straight out of the implementation of PSR. It’s fuel, it’s locomotives, it’s handling cars less. It’s the fuel efficiency and it’s what it’s miles that move out 800 million of the 1st 1.1 billion come out of there. Then you move into some a couple of pieces of growth and then you move into making sure your your workforce is efficiently placed in the network and all of a sudden you get to a 60 OR and one thing to point out we we’re also getting there without without addressing headcount. So I think that’s important to know is that the 1st 18 months of our plan where we get you know these first significant increases here in profitability is not done through laying people off of furloughing employees. In fact, we don’t, we don’t find any in in in that period of time, but you’re doing it through attrition. We know turnover rate tends to be very high, high churn rate when it comes to the railroad industry. So it’s about you’re still reducing workforce. Yeah, well it, yeah, we’re going to let attrition workforce, right. So it’s about 7 to 8% in the industry. We plan to reinvest about half of that. In other words, put the right people in the right places at the right time to run this railroad going forward and just let the natural attrition of the business work for us financially and then turn it into a growth machine. That’s what we plan to do. Norfolk Southern has just implemented their own COO, John Orr, what they’re calling PSR two point O. It’s not enough. You’re saying we don’t believe in that is even a thing. I I I think part of the problem with that is you know they’ve gone through all these iterations of strategy changes over a short period of time that you know with with Alan Shaw, CEO had three CE OS already it’s just Co OS working for Alan which is really unprecedented. So in really basically almost two years you have a person who’s changed out his team repeatedly, changed his model repeatedly and now and runs and basically positioned the company to run a model which is called resilience railroading as Alan’s defined it. That is actually in conflict with PSR. One is about sweating assets which is PSR, the traditional PSR. The other is carrying excess assets, excess people waiting for the recovery in the macro environment to to change that, to pick up with volume. But ultimately if you’re running both at the same time, you know they’re, they’re incompatible. And so we don’t view what they’re doing as as credible. And and I think when we’ve outlined, I think it’s really important what people understand is with Jamie Boychuk, he has done it before. So when people say question whether our numbers are realistic, whether we can hit it, it’s been done. He did it. He generated as the COO at CSX, he generated the lowest operating ratio in the history of the US Eastern Railroad. Now, how do you do this, though without sacrificing safety? And I ask that you mentioned East Palestine, even as we’ve seen that situation continue to play out here at Norfolk Southern. Just looking at the federal railroad data last year, highest decrease in mainline derailments of any of the Class 1 railroads and #2 for mainline derailments overall last year. I mean, clearly there’s a focus there for better or worse, right or wrong. Alan Shaw has sort of become the figurehead of this push towards greater safety has been the guy going down and testifying in Congress. How do you continue to build upon that and prove if you look, if you look at what PSR really is, it’s about running a closed network that runs the same way every day. It’s the same thing as UPS does. And the issue is that when you do that, you become very reliable and you automatically become safer. Right now Norfolk Southern switches a car twice as much every day as as CXX and it’s the same effective business. So what that tends to do is you put more work in, you have more risk in the moves and you actually kind of need to tighten that up and make it more efficient. They have made some gains, no question about that. You also have to take severity into account when you look at safety and you have to make sure it’s cultural and the employees are with you and they own safety and we’ve got to make sure we get that done. We’ve seen arguably an unprecedented amount of commentary from regulators and stakeholders about concerns about this proxy fight and about a new team coming into place here, whether it’s the heads of the FRA, the STB. You’ve seen some union leaders, even the Mayor of East Palestine has made some comments that seem to be tilting in support of current Norfolk Southern management. Your reaction to that and have you been engaging with some of these different folks? Let me start with the regulators and then if you want to touch on labor. I I think when you look at the campaign when it started this really started back in November that was when the nominee window closed on December 1st. So as we started engaging the board was in December and and went through obviously to public in February, February 20th. But during that period of time, what the company spent a lot of time on was spending money on lobbyists to effectively work the regulators into a frenzy, work labour into a frenzy. And that’s what you saw. And so I think initially you saw a lot coming out of the regulator regulators, whether it’s the STB, the FRADOT. And then I think what happened on on March 20th was the company who was, you know, effectively using all these different parties to as as as a mouthpiece effectively over our concerns was suddenly went out and hired APSR guy, right. So John Orr, So they bring in a guy who runs PSR. And until what we saw just the other day from the AFLCIO, it’s just been complete silence. Now on that front ’cause it, it it is, they have a very difficult time explaining themselves saying, oh, you know, these are these PSR guys. That’s, you know, that’s the boogeyman in the industry. But oh, we went out and hired 1. And so, look, I think that conflict exists on their side, you know, and ultimately for us, you know, we believe that, you know, the relationships both with labour and with the regulators is critical. And we have offered to meet with, with the STB. We actually have, There’s a public letter that’s posted on their website. So it’s something we wanted to get past ISS in glass, Lewis. We wanted to come up with our plan. And now that it’s all out there, I think we’ll be doing that here shortly. I’ll just touch on labor for a second. Look, I started as a U PS: driver back in the 80s. I still get a union retirement check from the Teamsters still today. They don’t know us yet in the rail industry. They don’t know me yet. They don’t know my background, but I know them and and you have to create a relationship and a working environment but they believe you and you trust you. I want the same thing for the employees represent whatever job I’m in. Your job is to make believers that you’re after the same thing they want earn trust in the union heads and they’ll support you and you go in together. And that’s what I I can’t, I can’t do that yet because I’m not in there. But if we win this campaign, we’ll go do that to the front line. Final question for you, what does success look like? I know you have seven board nominees which would be the majority of the board looking to change the management, but it could go a variety of ways here. So how are you gaming it out and what are the lessons learned from some of your previous proxy fights including at other freight and logistics companies like Chapter Robinson. That’s a good example because that that probably is one of the primary lessons learned is when you’re in a situation where you’re trying to drive change at the top. And so when I mentioned those rail activist examples of of of Canadian Pacific and CSX that was involving change at the CEO position whenever you’re trying to change out the CEO and that’s what’s required to drive ultimate value in the company, it requires a greater amount of change and support on the board. We’ve seen in the case of Ch Robinson even when you have phenomenal people as potential candidates to run those companies. If the board is not, if you don’t have the, the, the, the really the numbers on the board to make that happen, a board that is prone to making bad decisions will continue to make bad decisions. And see, this board here in Norfolk Southern has shown over and over again just as they did here with this Meridian Speedway arrangement for John Orr that they are concerned about themselves and entrenchment. And ultimately I think if shareholders want a plan and want a team that’s going to execute and and really win that, you know, look there’s a lot of versions of success. I mean, but I think the message around around the seven, the vote for seven is ultimately that’s how we control our own fate and and we have a plan and we believe we’re going to execute it. All right, gentlemen, appreciate the time and the insights as we continue to see this process evolve here over the next couple days, next couple weeks. Jim Chadwick and Jim Barber. Thank you. Appreciate it.