Insights From Bid To Oust Norfolk Southern’s CEO And Board

The aggressive effort by Ancora comes one year after the Ohio derailment—and holds lessons for all boards.

Whenever a shareholder group attempts to oust a company’s CEO and board, there are likely some issues relating to corporate governance that other companies can learn from. Ancora Holdings Group’s recent announcement of a slate of candidates to replace the CEO, COO and eight-member board of directors of Norfolk Southern Corporation is an indication of the type of actions shareholders are willing to take when corporate leadership and financial underperformance at companies they’ve invested in appear lacking.

In a press release, Ancora sharply criticized Norfolk Southern’s current management and board, stating that the company “has suffered for years due to its Board’s poor decisions with regard to the company’s leadership, safety priorities and strategy. Since the board announced its appointment of Alan Shaw as Chief Executive Officer, Norfolk Southern’s status as the worst Class I railroad has been solidified by leadership delivering industry-worst operating results, sustained share price underperformance and a tone-deaf response to the devastating East Palestine, Ohio derailment.” The activist investor even released a presentation detailing its criticism of Norfolk’s current leadership and outlining a strategy to create more sustainable growth.

Since August of 2022, Norfolk Southern’s stock price has bounced up and down between a high of just over $261 per share and a low of a bit more than $184 a share. Much of the up and down movement of the stock was due to the fallout from the East Palestine, Ohio train derailment and toxic chemical spill that has created uncertainty over how lawsuits and regulatory scrutiny related to the situation will ultimately be resolved.

This aggressive effort by Ancora to remove the Norfolk Southern CEO and board members comes one year after the derailment. Corporate board members might want to consider:

The time boards have to respond to a crisis is very limited. Ancora seems to be sending the message that a crisis that can damage the company’s reputation and its ability to increase its customer base must be dealt with quickly and efficiently. They charge that the company leadership should be removed for its poor response to the Ohio train derailment. Corporate boards must react faster than ever to address challenging situations that can affect shareholder confidence. Activist investors often use a slow or “ineffective” response to crisis situations to paint boards as “incompetent.” Norfolk Southern’s board has been portrayed as having allowed a crisis to remain unresolved for one year without detailing potential solutions to the problem. Now they will have to work hard to change that characterization while they also work on mitigating potential damage from lawsuits, regulatory scrutiny, and negative press.

Greater effort to understand shareholder expectations may be needed. Engaging with the largest shareholders to make sure expectations are in alignment is critical. Do shareholders and the board agree on what level of performance is acceptable? Only meaningful conversations will resolve any differences. Does the board take accountability if performance levels are not met? Agreeing that performance can be improved and engaging in discussions with shareholders to explore how to improve outcomes can help the board and management team build investor confidence. Ideally such discussions should happen BEFORE shareholders ask for the removal of board members and the CEO. It appears that Norfolk Southern leadership wasn’t clear on what Ancora felt was acceptable performance. 

Shareholders are more sensitive to how board composition affects decision-making. Board composition may need to match the broad expectations of shareholders and stakeholders – not just the desires of the board and management team. If activists can make a case that the current board is lacking specific expertise that could improve productivity and performance, directors currently on the board might be at risk of losing their positions. Ancora produced a slate of director candidates with extensive experience in governance, finance, transportation, legislative and regulatory affairs, and strategic transformations. If boards are not open to adding members that have experience they lack, activist investors will highlight that lack of experience as a reason oust some or all members. 

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