Norfolk Southern shareholders are set to vote Thursday morning on whether to support an activist investor’s bid to take over the railroad’s board and replace management.
Ancora Holdings has gained significant support during the campaign from major investors like EdgePoint Investment Group, two major rail unions, and some customers. However, the rest of rail labor, several key regulators, and a number of other customers have backed the current management.
The outcome of the vote will determine the future direction of Norfolk Southern, which has been under scrutiny since the disastrous February 2023 derailment in East Palestine, Ohio. If all seven of Ancora’s nominees are elected, they will have the votes needed to move forward with their plan to fire CEO Alan Shaw and overhaul the railroad’s operations. If only some of their board candidates are supported, Ancora won’t be able to make sweeping changes immediately.
The main point of contention between the railroad and Ancora is whether Shaw’s strategy of keeping more workers on hand during a downturn to be ready for an eventual rebound is the best way to run Norfolk Southern and whether he is the best person to lead the railroad.
Ancora’s CEO candidate, Jim Barber, a former UPS chief operating officer, believes that keeping more workers on hand during slower times is wasteful. Ancora wants to implement the industry standard Precision Scheduled Railroading, which aims to minimize the number of workers, locomotives, and railcars a railroad needs. This approach relies on running fewer, longer trains on a tighter schedule and switching cars between trains less often to streamline operations.
In contrast, Shaw argues that running the railroad too lean would jeopardize the improvements in safety and service Norfolk Southern has seen since the derailment. Rail unions have expressed concerns that Precision Scheduled Railroading has made the industry more dangerous and derailments more likely due to rushed inspections and potentially neglected preventative maintenance.
If Ancora succeeds in getting all seven of its nominees elected, it will have the power to fire Shaw and his new chief operating officer, John Orr, who was hired in March after paying another railroad $25 million for permission. Ancora plans to install Barber as CEO and hire former CSX railroad operations chief Jaimie Boychuk as Norfolk Southern’s chief operating officer.
Ancora has projected that it will be able to cut more than $800 million in expenses in the first year and another $275 million by the end of three years, without resorting to layoffs but instead using attrition to eliminate about 1,500 jobs over time. Norfolk Southern, on the other hand, has said its own plan to make the railroad more efficient would generate about $400 million in cost savings over two years and improve its profit margin.
If Ancora doesn’t get all of its directors elected, the investors will likely still be able to put more pressure on Shaw to deliver results. The outcome of Thursday’s vote will have significant implications for the future of Norfolk Southern and the broader rail industry.