A general view of the exterior of Norfolk Southern's corporate headquarters on April 1, 2023 in Atlanta, Georgia.
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Norfolk South Nearly two months into the battle with activist investor Ancora, who is trying to change the railway's board of directors and oust CEO Alan Shaw.
The company is now targeting Norfolk Southern's new chief operating officer, John Orr, over what the activist calls an “excessive” buyout package and a career marred by allegations of racial and gender discrimination.
Last month, Norfolk Southern rented Orr away from rival CPKC, paying tens of millions of dollars to buy him out of his contract. The move was widely seen as a response to Ancora's operational criticism and received praise from many Wall Street analysts.
In a letter to Norfolk Southern shareholders on Friday, Ancora highlighted past misconduct by Orr that raises questions about his appointment, even as the CEO oversaw improvements in the railroad's operations during his three weeks on the job.
Ancora documented both alleged and proven workplace misconduct by Orr, dating back to his time as a mid-level executive at Canadian National. A Canadian Arbitration Board appointee substantiated allegations that Orr used verbally abusive language toward a female employee in the early 2000s.
The employee and another witness told an employment tribunal at the time that Orr regularly cursed and shouted at the employee, calling her a “f—— b—-” and a “stupid f——-.” The arbitrator testified that on one occasion, Orr told the employee that she “was so stupid it was embarrassing.”
The arbitrator found the allegations credible.
Ancora also reported on a lawsuit filed by a Black executive in 2019, who called Orr's treatment of employees and subordinates “abysmal.” The lawsuit was filed against the Canadian citizen alleging racial discrimination.
Orr's behavior was allegedly “so bad” that the Canadian national had to provide him with executive coaching, according to the 2020 lawsuit. Orr's affidavit was sealed and the case was settled in 2022.
Before Orr's appointment was announced, Ancora called attention to allegations regarding his behavior in emails directed to two Norfolk Southern board members that were obtained by CNBC.
Ancora said in its statement on Friday that hiring Orr was an expensive proposition that harmed shareholders. As part of the agreement, Norfolk Southern said it will pay Orr's former employer $25 million in cash and provide unspecified additional concessions for a major rail and road hub in the southern U.S. Norfolk Southern estimates this particular segment of road to be about 1% of its total needs. Revenues.
When it announced Orr's appointment, Norfolk Southern did not disclose the initial impact of the concessions or estimated indirect impacts in coming years.
'Flawed introduction'
Norfolk Southern told CNBC in a statement that Ancora's analysis of the value of the road — the Meridian Speedway Agreement — is “entirely inaccurate and based on a flawed premise,” as it assumes Norfolk Southern is giving up more revenue than it actually is.
“As previously stated, this amended agreement in no way constitutes a consequential concession,” the company said.
Ancora is seeking to oust Norfolk Southern's Shaw along with Orr in favor of former UPS CEO Jim Barber and former CSX Executive Vice President Jimmy Boychuk, respectively. The activist said Norfolk Southern had significantly underperformed its peers, and placed the blame on Shaw and the board.
Regarding Orr, Norfolk Southern said he has a “proven track record of improving performance while operating safely and with integrity.”
“Ancora’s attempt to discredit John by raising allegations against his former employer, one of them more than 20 years old, is nothing more than an attempt to distract from the facts regarding its deeply flawed COO candidate, Jimmy Boychuk,” a company spokesperson said. He told CNBC. “Mr. Orr and Mr. Boychuk's records and reputations in the industry are simply not comparable.”
Jimmy Boychuk and John Orr.
Courtesy: Longacre Square Partners and Norfolk Southern
In February 2023, a South Norfolk freight train derailed in East Palestine, Ohio, releasing toxic chemicals into the environment and sparking a political battle over rail safety. Since then, the stock has remained roughly flat while the S&P 500 has risen 26%.
Norfolk Southern's shareholders meeting is scheduled for May 9.
Ankura has won the support of other stakeholders in its battle with the company. Neuberger Berman, which holds a junior position at Norfolk Southern, said Friday it would support Ancora's listing, citing a “history of mismanagement that long preceded” the railroad's conversion efforts.
A settlement between the two sides seems unlikely, Gordon Haskett analyst Don Belson said in a Friday note to clients. Shaw previously told CNBC that the company offered Ancora “a couple” of board seats in the settlement offer.
Ankura told CNBC that it has made repeated attempts to settle with the company, either directly or through advisors. Any settlement, in Ancora's view, would be conditional on updating the board and removing Shaw. The board has repeatedly expressed confidence in Shaw and said it is not interested in reaching a settlement that would result in his departure.
