Shareholders of Norfolk Southern, the beleaguered freight railroad, on Thursday rejected an attempt by an activist investment firm to oust the company’s chief executive and take control of its management.
But activist Ancora, a Cleveland company, managed to secure a foothold at the company after shareholders voted to install three of its directors on Norfolk Southern’s 13-member board. Ancora had hoped to take control of the company’s management with the goal of cutting costs and boosting Norfolk Southern’s profits and stock price.
The result is a partial victory for Norfolk Southern executives, who have had to fend off criticism of the company’s safety record and poor financial performance. A company train carrying hazardous chemicals derailed last year in East Palestine, Ohio, forcing residents to evacuate.
The results of the shareholder vote, which were preliminary, were announced Thursday morning at the company’s virtual annual meeting.
During the meeting, Alan Shaw, CEO of Norfolk Southern, said he looked forward to working with the new directors.
“Norfolk Southern has persevered through several challenges over the past year,” he said. “We met all the challenges and never lost sight of where we were taking our powerhouse franchise.”
For several weeks, Norfolk Southern and Ancora have battled for shareholder support in a battle of bitter statements filled with railroad trivia.
Ancora argued that Norfolk Southern had gone off track and needed to implement a set of practices aimed at containing costs and streamlining its 19,100-mile rail network. In response, Norfolk Southern said its financial performance was improving and argued it was building a railroad that would better withstand economic ups and downs. During the coronavirus pandemic, freight railroads shrank so much that they struggled to meet customer demand when the economy recovered.
Ancora directors elected to the board of directors are William Clyburn Jr., a former railroad regulator, and Sameh Fahmy and Gilbert Lamphere, former railroad executives. Amy E. Miles, board chairwoman and Norfolk Southern nominee, was not re-elected.
In a statement, Frederick D. DiSanto, CEO of Ancora, and James Chadwick, president of Ancora Alternatives, said they “will continue to hold Mr. Shaw accountable and push for the appointment of a qualified operator.” Ancora held a 0.16 percent stake in Norfolk Southern at the end of 2023, according to a securities filing.
Shares of Norfolk Southern fell 2.5 percent on Thursday. The final tally of certified votes will be published next week, a South Norfolk spokesman said.
Ancora’s campaign sparked a debate about how freight railroads should be run. The investment firm preached the virtues of precision-scheduled railroads, a term used for practices aimed at making railroads more profitable. Over the past two decades, this approach has reduced costs and made railroads more efficient. Norfolk Southern introduced elements of precision rail travel.
But critics of the efficiency gains say it can reduce excess rail capacity, making freight rail unreliable for customers. They point to the performance of Norfolk Southern’s rival CSX, which introduced precision rail in 2017.
Speaking before the vote, Martin J. Oberman, the outgoing chairman of the Land Transportation Board, the federal agency that oversees freight railroads, said the Ancora cuts may have left Norfolk Southern without the capacity to handle increased demand and unexpected disruptions.
Ancora said it would carry out the proposed overhaul over three years to ensure it was done well.
Norfolk Southern essentially acknowledged before the vote that it must continue to become more efficient by appointing a chief operating officer in March with a strong industry reputation.
The company, however, has not given up on the plan, which relies on finding new revenue – in part by getting work from trucking companies – and having enough rail capacity and employees on hand to respond quickly to increased demand.
But Norfolk Southern must now show investors it can make more money with its approach.
Sympathetic railroad analysts said Norfolk Southern executives may have had trouble meeting their financial goals because the East Palestine accident, which occurred in February 2023, temporarily crippled the railroad and disrupted management.
Norfolk Southern is still under investigation by several federal and state agencies, including the National Transportation Safety Board, which is expected to release its final report on the jump next month.
Tony Hatch, a longtime rail analyst who supports Shaw’s approach, said the vote gave the board a breather. But he added: “He will be under supervision. This is not a free pass. This could happen again.”