News & Reviews News Wire Norfolk Southern calls activist plans a slash-and-burn strategy that would require furloughs

Norfolk Southern calls activist plans a slash-and-burn strategy that would require furloughs

By Bill Stephens | April 2, 2024

Ancora Holdings’ initial 60% operating ratio target would require up to 2,000 furloughs, NS said in a letter to shareholders today

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Norfolk Southern AC44C6M No. 4693 sports rail labor union logos on its long hood. Rail labor leaders are backing the railroad in its proxy battle with Ancora Holdings. NS

ATLANTA – Norfolk Southern today urged shareholders to back its board and management team in its proxy battle, saying that the plans touted by activist investor Ancora Holdings amount to a “slash and burn” strategy that would hurt service and safety.

Ancora wants to gain control of the NS board and name former UPS executive Jim Barber Jr. as CEO and former CSX operations boss Jamie Boychuk as chief operating officer. Absent a settlement, NS shareholders will determine the matter at the railroad’s May 9 annual meeting.

In a 12-page letter to shareholders, NS took aim at Ancora’s plan to reduce the railroad’s operating ratio to 60% within 14 months.

NS said the cost-cutting necessary to reach the operating ratio target would require the furlough of 1,500 to 2,000 employees, which would “compromise and reverse our safety improvements” and result in increased regulatory scrutiny from both the Surface Transportation Board and the Federal Railroad Administration.

Ancora’s “reckless approach,” NS said, would lead to poor service, missed growth opportunities, and damaged customer relationships.

“It is not surprising to us that Jim Barber would endorse these targets, as he has never been a CEO, has no railroad experience, and doesn’t know enough about our industry to see the risks of Ancora’s slash-and-burn timetable,” NS said.

NS said Shaw’s long-term strategy – which reduces the emphasis on the operating ratio over the short term and relies on not furloughing train crews during downturns – will “capture outsized gains during an economic upcycle.”

NS said Shaw is a “proven, decisive leader, and the right CEO to take Norfolk Southern forward. John Orr’s appointment as COO will accelerate our operational improvements.”

Norfolk Southern Chief Operating Officer John Orr. CPKC

Orr, a former Canadian Pacific Kansas City and Canadian National official, was named chief operating officer on March 20. NS’s letter to shareholders sought to burnish Orr’s Precision Scheduled Railroading credentials.

NS touted the Orr-led effort to turn around CPKC’s Mexico operations last year, as well as the operations, productivity, and safety improvements Kansas City Southern made while Orr was its chief operating officer.

“John is a firm believer in our strategy and, in the nearly two weeks since his appointment, has spent time in the field assessing our network firsthand and identifying key operational priorities,” NS said.

At NS, Orr has initiated a safety blitz to reinforce best practices, assembled a task force and war room in the railroad’s Network Operations Center, and completed a heat map that identifies bottlenecks that are draining resources.

Orr has identified two major hump yards as “high performance terminals where he has line of sight to 33% improvement in dwell time in the next 60 days.” NS did not identify the yards.

Ancora has been critical of Norfolk Southern’s lagging operational and financial performance, as well as the railroad’s response to the disastrous Feb. 3, 2023, hazardous materials derailment in East Palestine, Ohio.

NS said it remains open to compromise with Ancora, and said it has offered settlements on multiple occasions that included “significant board representation.” But the Cleveland-based activist investor has rejected those offers, insisting that Shaw must be replaced.

11 thoughts on “Norfolk Southern calls activist plans a slash-and-burn strategy that would require furloughs

  1. Ancora Holdings only has $4B USD in its portfolio. NS is worth $56B in market cap. But Ancora has a large holding in a Vanguard Group fund which does own 8.2% of NS.

    Institutional Investment firms own 72% of NS, where 24% is own by individual investors, which is significant.

    No Hedge funds own a percentage of NS outright, but use their voting power through investments in funds like Vanguard of which they do own a percentage of.

    Honestly Ancora is a noisy fly in the room compared to the size of NS. I don’t think $1B USD should buy you board control. They would do better buying a casino on the strip and host KC & the Sunshine Band.

  2. I’ve been a long term investor and I like Shaw’s long term strategy. Not happy with Orr. Voting against Ancora. If Ancora wins, how long should I wait until I dump my stock?

  3. I believe the headcount reduction is a Feature, not a Bug.

    How else to a 60% OR, in the time indicated?

  4. Ancora compromise? Impossible because they want their cake and eat it too. What really needs to happen is for the railroads to buy-out or takeover Ancora and see what happens then. As one person used to say on a long running public TV drama, “Fight fire with fire… that;s what my mother used to always say…” And they are right. Its the only thing these short focused pocket stuffer’s recognize…

  5. Ancora and present Norfolk Southern management are both PSR accolades. Is there REALLY that much substantive difference between the unsmiling Boychuk and the ear-to-ear grin of Orr? Of course not! The differences are only marginal.

    The perverse incentives of executive compensation paid out as stock, which is pushed by Wall Street and sanctioned by the federal government insures short-termism. More will be spent on stock buybacks (financed with debt) than total CapEx and it dwarfs capacity and technology investments. The rot in late stage capitalism is endemic; everything is like East Palestine and Boeing.

    1. Yes, Boychuk was fired from his job. I’d say that was more than a marginal difference…

  6. Someone needs to make a Country Western song with the main focal point around the words Operating Ratio…you know, about a cowboy who loses everything, and then magically gets it all back by singing it backwards…

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