Shareholders of Norfolk Southern, the embattled freight railroad, on Thursday rejected an attempt by an activist investment firm to oust the company’s chief executive and take control of its board.
But activist Ancora, a Cleveland company, managed to gain a foothold in the company, after shareholders voted to place three of its directors on Norfolk Southern’s 13-member board. Ancora hoped to take control of the company’s leadership with the goal of reducing costs and increasing Norfolk Southern’s profits and stock price.
The result is a partial victory for Norfolk Southern executives, who had to defend themselves against criticism over the company’s safety record and lackluster financial performance. A company train carrying dangerous 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 a virtual annual meeting of the company.
During the meeting, Alan Shaw, chief executive of Norfolk Southern, said he looked forward to working with the new directors.
“Norfolk Southern persevered through several challenges over the past year,” he said. “We have overcome every challenge and have never lost sight of where we are taking our powerful franchise.”
For several weeks, Norfolk Southern and Ancora fought for shareholder support in a battle of bitter statements filled with railroad minutiae.
Ancora argued that Norfolk Southern had lost its way and needed to implement a set of practices aimed at limiting expenses and simplifying its 19,100-mile rail network. In response, Norfolk Southern said its financial performance was improving and maintained that it was building a railroad that would better withstand economic ups and downs. During the coronavirus pandemic, freight railroads fell so far behind that they struggled to meet customer demand when the economy recovered.
Ancora directors elected to the board are William Clyburn Jr., a former railroad regulator, and Sameh Fahmy and Gilbert Lamphere, former railroad executives. Amy E. Miles, board president and Norfolk Southern candidate, was not re-elected.
In a statement, Frederick D. DiSanto, CEO of Ancora, and James Chadwick, president of Ancora Alternatives, said they would “continue to hold Mr. Shaw accountable and press for the appointment of a qualified operator.” Ancora had a 0.16 percent stake in Norfolk Southern as of the end of 2023, according to regulatory filings.
Norfolk Southern shares fell about 3 percent Thursday morning after the shareholder vote. The final certified vote count will be released next week, a Norfolk Southern spokesperson said.
Ancora’s campaign started a debate about how freight railways should work. The investment firm preached the virtues of precision scheduled railroading, a term given to practices aimed at making railroads more profitable. Over the past two decades, that approach has reduced costs and made railroads more efficient. Norfolk Southern has introduced elements of precision scheduled rail.
But critics of the efficiency campaign say it may reduce too much rail capacity, making freight railroads unreliable for customers. They point to the performance of CSX, a rival to Norfolk Southern, which introduced precision scheduled railroads in 2017.
Speaking before the vote, Martin J. Oberman, outgoing chairman of the Surface Transportation Board, the federal agency that oversees freight railroads, said Ancora’s cuts could have left Norfolk Southern without the capacity to cope with an increase in demand and unexpected disruptions.
Ancora had said it would carry out the proposed reform over three years to ensure it was done right.
Basically, Norfolk Southern acknowledged before the vote that it needed to continue to be more efficient by naming a chief operating officer with a strong reputation in the industry in March.
However, the company has not given up on a plan that relies on finding new revenue – in part by winning business from trucking companies – and having enough rail capacity and employees available to respond quickly to increases in demand.
But Norfolk Southern now must show investors that it can make more money with its approach.
Sympathetic railroad analysts said Norfolk Southern leaders may have had difficulty meeting their financial goals because the East Palestine accident, which occurred in February 2023, temporarily hampered railroad operations and distracted 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 derailment next month.
Tony Hatch, a veteran railroad analyst who supports Shaw’s approach, said the vote gave management some breathing room. But he added: “They will be under surveillance. This is not a free pass. “This could happen again.”