Norfolk Southern Investors Reject Plan to Oust Its Management

Shareholders of Norfolk Southern, the beleaguered freight railroad, on Thursday voted down an attempt by an activist investment firm to remove the company’s chief executive and take control of its board.

But the activist, Ancora, a Cleveland firm, managed to secure a foothold at the company, after shareholders voted to place three of its directors onto Norfolk Southern’s 13-member board. Ancora had hoped to take control of the company’s leadership with an aim to cut costs and increase Norfolk Southern’s profits and stock price.

The result is a partial victory for Norfolk Southern’s executives, who had to defend themselves against criticisms of the company’s safety record and its lackluster 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 a virtual company annual meeting.

During the meeting, Alan Shaw, Norfolk Southern’s chief executive, said he looked forward to working with the new directors.

“Norfolk Southern persevered through several challenges over the last year,” he said. “We have met every challenge and never lost sight of where we are taking our powerful franchise.”

Over several weeks, Norfolk Southern and Ancora fought for shareholder support in a battle of bitter statements filled with railway minutiae.

Ancora argued that Norfolk Southern had lost its way and needed to deploy a set of practices aimed at constraining expenses and simplifying its 19,100-mile rail network. In response, Norfolk Southern said its financial performance was improving, and contended that it was building a railroad that would better weather economic ups and downs. During the coronavirus pandemic, freight railroads pared back so much that they struggled to meet customer demand when the economy rebounded.

The Ancora directors elected to the board are William Clyburn Jr., a former rail regulator, and Sameh Fahmy and Gilbert Lamphere, former railroad executives. Amy E. Miles, the chairwoman of the board and a Norfolk Southern nominee, was not re-elected.

In a statement, Frederick D. DiSanto, chief executive of Ancora, and James Chadwick, president of Ancora Alternatives, said they would “continue to hold Mr. Shaw to account 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 securities filings.

Norfolk Southern’s stock was down about 3 percent on Thursday morning after the shareholder vote. The final certified tally of the votes will be released next week, a Norfolk Southern spokesman said.

Ancora’s campaign ignited a debate over how freight railroads should be run. The investment firm preached the virtues of precision scheduled railroading, the term given to practices aimed at making railroads more profitable. In the past two decades, that approach has reduced costs and made railroads more efficient. Norfolk Southern has introduced elements of precision scheduled railroading.

But critics of the efficiency drive say it can cut too much rail capacity, making freight railroads unreliable for customers. They point to the performance of CSX, a rival of Norfolk Southern, which introduced precision scheduled railroading in 2017.

Speaking before the vote, Martin J. Oberman, the departing chairman of the Surface Transportation Board, the federal agency that oversees freight railways, said Ancora’s cuts might have left Norfolk Southern without the capacity to deal with an upswing in demand and unexpected disruptions.

Ancora had said it would carry out its proposed overhaul over three years to ensure that it was done well.

Norfolk Southern essentially acknowledged before the vote that it needed to keep becoming more efficient by appointing a chief operating officer in March with a strong reputation in the industry.

The company has not, however, given up on a plan that rests on finding new revenue — in part by winning business from trucking companies — and having enough rail capacity and employees available to quickly respond to increases in demand.

But Norfolk Southern must now show investors that it can make more money under its approach.

Sympathetic rail analysts said Norfolk Southern’s leaders might have struggled to achieve their financial goals because the East Palestine accident, which occurred in February 2023, temporarily hampered the railway’s 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 next month to release its final report on the derailment.

Tony Hatch, a longtime rail analyst who supports Mr. Shaw’s approach, said the vote gave management a respite. But he added: “They will be under watch. This is not a free pass. This could happen again.”

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