Railroad Workers Were Ready to Strike. Now They’re Fighting to Save Their CEO.

Ancora Holdings has proposed naming Jim Barber, former UPS chief operating officer, to succeed Alan Shaw.
Ancora Holdings has proposed naming Jim Barber, former UPS chief operating officer, to succeed Alan Shaw.

Summary

An activist investor seeks to oust Norfolk Southern’s top leaders, but labor groups are rallying amid concerns about potential cost cuts.

Union workers in recent years have threatened to strike against Norfolk Southern and sparred with management over pay and safety practices. Now, workers are defending the freight railroad as an activist investor seeks to oust its leadership.

Labor groups representing Norfolk conductors, locomotive engineers, machinists and other workers have made public comments in support of Chief Executive Alan Shaw as he comes under pressure from activist Ancora Holdings. The groups account for over half of the railroad’s unionized workforce.

Unions don’t typically take sides in corporate proxy battles—it is the shareholders who vote for directors and investor proposals. But union leaders said they are speaking up because their members have seen an improvement in safety and morale under Shaw and worry that a management shake-up will reverse these gains.

Ancora said it launched a proxy fight to overhaul Norfolk’s board and C-suite because the railroad has inefficient operations and failed to meet financial targets. It also said Norfolk should undertake scheduled railroading with more rigor, and that it mismanaged the aftermath of the Ohio train derailment last year that released toxic chemicals into the surrounding water and land, triggering a massive cleanup effort. Ancora reiterated its call for new leadership after three Norfolk trains were involved in a derailment Saturday in Pennsylvania.

Norfolk has defended its efforts to improve the company, especially after the February 2023 derailment. Ancora’s proposed overhaul would be “highly disruptive to our operations, our workers, and the North American supply chain," the company said.

“Ancora’s plan will decimate the railroad all over again," said Scott Bunten, a Roanoke, Va.-based union official and locomotive engineer who has worked for Norfolk for 19 years. The Brotherhood of Locomotive Engineers and Trainmen plans to vote its hundreds of thousands of shares in Norfolk in support of the company’s board nominees, a union official said.

Ancora has proposed replacing Shaw with Jim Barber, former chief operating officer at United Parcel Service. It would also replace operations chief Paul Duncan with Jamie Boychuk, who served in a similar role at rival CSX. Shaw took the helm at the Atlanta-based railroad in May 2022.

“We talk about cost-cutting, we talk about the opportunity to grow the business, to get the right economics, on the right network strategy," said Barber in an interview. “If and when the growth comes back the right way, then jobs should grow."

Other shareholders have raised concerns about Norfolk’s performance. Among major railroads, its shares declined by the largest percentage last year and some operating metrics show that it has been less efficient than its peers. Norfolk’s shares, which traded below $200 last year, have climbed above $250 since The Wall Street Journal reported earlier this year that an activist was proposing changes.

Norfolk and the Cleveland-based hedge fund are drumming up support for their respective board nominees ahead of the company’s annual meeting, which typically is in May.

A potential return to precision scheduled railroading, or PSR, has rankled union workers and regulators, who have also criticized Ancora’s approach. It was around 2017 when major freight railroads started implementing PSR as a strategy to boost profits by running trains more efficiently and reducing costs.

Activist investors pressured the railroads to adopt PSR, which boosted shareholder returns, but rail service suffered and crews complained about worsening working conditions and increased fatigue. Norfolk’s employment declined 32% between the end of 2018, when it introduced PSR, and 2021.

“It’s the same old corporate strategy that has been hanging around and we’ve been pushing back for years," said Martin Oberman, chairman of the Surface Transportation Board, the economic regulator of major freight railroads. “For Ancora to condemn the management, it shows a lack of understanding of moving freight around the country."

Barber said he recognizes that there is a stigma to PSR, and he welcomes the opportunity to sit down with union leaders and explain the plan. Ancora isn’t emphasizing cost cutting or head-count reductions in its presentations to investors, a spokesman said.

Ancora has pushed for executive and board changes at other freight companies, including C.H. Robinson Worldwide and trucker Forward Air. Last year, Ancora pushed for Barber to be chief executive at C.H. Robinson, but that role went to someone else.

Leaders of the Federal Railroad Administration and STB have warned of increased scrutiny of Norfolk if safety incidents and shipping delays increase after potential operating changes. Regulators were deluged with complaints from shippers about delays and trip cancellations as a result of thin staffing levels during the Covid-19 pandemic. The railroads have since stepped up hiring efforts and boosted staffing levels from their pandemic lows.

Train crews at Norfolk said they appreciate having more colleagues in the past year as it has helped with scheduling and proper rest days. They also said there is a less antagonistic working environment with managers, which helps with retention.

“In the past, it was more, ‘you did this, you’re in trouble,’" said Matt Tyler, a licensed conductor and locomotive engineer based in Altoona, Pa., adding there is now a more collaborative approach.

This time last year, another activist investor targeted Union Pacific, looking to replace the chief executive with Jim Vena, a well-known railroader with ties to the late Hunter Harrison, who is seen as the father of precision scheduled railroading. The unions didn’t publicly defend Union Pacific’s then-CEO against Soroban Capital Partners. Vena took over Union Pacific in August.

Write to Esther Fung at esther.fung@wsj.com

Catch all the Corporate news and Updates on Live Mint. Download The Mint News App to get Daily Market Updates & Live Business News.
more

topics

MINT SPECIALS

Switch to the Mint app for fast and personalized news - Get App