Norfolk Southern Shareholders Vote Thursday to Keep or Fire CEO

Norfolk Southern’s embattled chief is about to learn his fate.

The freight railroad’s shareholders have been voting in recent days to decide whether to keep Alan Shaw as CEO or back an activist investor’s efforts to overhaul management and take control of the company’s board. The polls will close at the end of a shareholder meeting Thursday that starts at 8.30 a.m. in Atlanta.

The activist investor, Ancora Holdings, has criticized Norfolk’s operational and financial performance as well as its handling of the train derailment that resulted in the release of toxic chemicals in a small Ohio town. Ancora is pushing for seven seats on the company’s 13-member board and has demanded the replacement of its chief executive and chief operating officer.

Shareholder advisory firms support changes to the board but are split when it comes to management. Glass Lewis supports replacing Shaw with Jim Barber, a former chief operating officer at United Parcel Service. Institutional Shareholder Service said Norfolk’s operational performance doesn’t suggest an overhaul in leadership is immediately required but supported five dissident board candidates.

“There is a clear case for change,” ISS said.

Norfolk and Ancora have different positions on how to implement precision scheduled railroading, or PSR, a strategy to boost profits by running trains more efficiently and reducing costs. Ancora is pushing for a more conventional application of PSR with a stated goal of reducing the operating ratio—the percentage of revenue consumed by operating costs—to 57%, while Norfolk prefers a structure with higher staffing levels to prevent service disruptions when demand picks up.

Federal regulators, the Surface Transportation Board and the Federal Railroad Administration have warned of increased scrutiny of Norfolk if operating changes result in safety incidents and shipping delays increase. “This is a proxy fight about the future of the rail industry,” said Shaw.

Earlier this month, STB Chairman Martin Oberman said that while it isn’t his position to recommend how shareholders should vote, it is his responsibility to call out threats to the national rail network, and that Ancora’s campaign should cause serious concerns to all rail stakeholders.

Shaw said that while Norfolk has made improvements in safety, it has fallen short in delivering productivity and efficiency. He said change in operations is needed, including redesigning the network and the yards to reduce congestion.

“We have repeatedly stated a desire to settle for minority change of the board and an orderly CEO transition, which appears inevitable at this point given fading confidence in Mr. Shaw,” Ancora said in a statement Monday.

New proxy voting rules now allow shareholders to vote for a mix of company and dissident nominees, a change from the previous rules that compelled shareholders to vote for one side’s entire slate of candidates.

ISS raised concerns about Norfolk’s decision last month to replace its chief operating officer with John Orr, the former chief transformation officer for Canadian Pacific Kansas City. To hire Orr and to address his noncompete agreement, Norfolk paid the rival freight railroad $25 million in cash and provided other considerations related to the Meridian Speedway, a rail line between Louisiana and Mississippi that the companies jointly operate.

Ancora has proposed Jamie Boychuk, a former executive vice president of operations at CSX, as operating chief. Norfolk will also have to compensate CSX to waive Boychuk’s noncompete.

In late April, two of the three largest railroad unions reversed course to say they support dissident board candidates as well as a CEO change in the proxy battle.

Leaders at the Brotherhood of Maintenance of Way Employes and the Brotherhood of Locomotive Engineers and Trainmen, which combined represent 41% of the union workforce at Norfolk, said Ancora has made commitments to improve working conditions for their members. The remaining 11 railroad unions have voiced their support for Shaw.

Write to Esther Fung at [email protected]