Norfolk Southern CEO Alan Shaw faced tough questioning from financial analysts on Wednesday, the morning after an activist investor group went public with a proposal to replace board members and management at the Atlanta-based railroad.
Shaw spoke during a presentation at a conference and explained efforts to improve the company’s financial performance. On Tuesday, Ohio-based investment firm Ancora Holdings Group announced a proposal to oust Shaw.
“Our board is intently focused on holding management accountable to executing that unique strategy that we laid out, in my first couple months as CEO of Norfolk Southern,” said Shaw, who took the helm of the railroad in May 2022. He pledged to increase productivity and operating margins, and said there’s “opportunity to shed a lot of costs” by operating a faster network.
Ancora announced plans to nominate a slate of potential board members and propose that former UPS executive Jim Barber take over as CEO of Norfolk Southern. Ancora also proposed replacing the railroad’s chief operating officer with a former CSX executive.
Norfolk Southern has faced harsh scrutiny since the derailment of its train carrying hazardous materials in East Palestine, Ohio, more than a year ago. The Feb. 3, 2023, wreck has prompted lawsuits from residents, businesses and shareholders and caused the company to tally more than $1 billion in expenses for its response.
The railroad reported last month that its 2023 net income was down 44% compared with 2022, and announced a plan to cut management staff by 7%.
But over the last year especially, Norfolk Southern has also been under pressure to invest in safety improvements.
President Joe Biden visited East Palestine last week, more than a year after the derailment. “While there are acts of God, this was an act of greed that was 100% preventable,” he said.
“Norfolk Southern failed its responsibility. You know, multi-billion-dollar railroad companies transporting toxic chemicals have a responsibility to do it safely. And again, Norfolk Southern failed,” Biden said.
Shaw told analysts Wednesday: “Last year, we overcame a lot. We had a lot of headwinds. And despite those headwinds, and despite the specific actions that we took to protect Norfolk Southern and our shareholders over the long term, we improved safety. We improved service. ...and we started growing again.”
Shaw acknowledged that when he took over as CEO, “Our service was not good in 2022. We had to invest in improving service, and I invested in improving safety.”
“We were doing really, really well,” Shaw said. Then, “East Palestine occurred. We had to take actions to protect long-term shareholder interests, and we really focused on further enhancements to safety.”
Now, he said, “I’m committed to delivering top-tier earnings and revenue growth with industry-competitive markets.”
Ancora argued Norfolk Southern is underperforming compared with competitor CSX. Shaw faced questioning on whether the company’s management team is up to the task of improving operations.
“We had significant headwinds that we had to overcome last year,” Shaw said. The company had operational disruptions from the East Palestine derailment and technology outages. Shaw said the railroad’s service recovered.
“I’m willing to make change and I’ve refreshed the entire leadership team and operations in like, the last 14 months,” he said. “I will continue to look for the best talent both inside Norfolk Southern, inside the industry — outside of industry as well.”
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