Influential proxy advisory firm Institutional Shareholder Services on Tuesday recommended so Norfolk South Shareholders are backing five of activist Ancora's seven board nominees, withholding their endorsement of CEO Jim Barber's pick but calling him “a credible candidate for director and CEO nonetheless.”
ISS's endorsement, included in a report seen by CNBC, comes one day after Glass Lewis endorsed most of the activist investor's slate of nominees. The endorsement also comes days after two unions came out in support of Ancora's proposed management team.
The Proxy Advisor recommended shareholders support the re-election of CEO Alan Shaw to the Board of Directors over Barber. But in a rebuke to NSC's current management, ISS said shareholders should not support current chairman Amy Miles.
Ancora is seeking to remove both current CEO Shaw and newly appointed Chief Operating Officer John Orr. Activist holds Shaw responsible for the NSC's historic poor performance compared to its peers and for the disastrous derailment in East Palestine, Ohio, just a few months into his term.
Glass Lewis, another influential proxy advisory firm, said shareholders should back Barber over Shaw in its recommendation on Monday. While neither endorsement suggests giving Ancora full control of the board, both provide the dissident with a clear mandate to implement change.
“Collectively, leading proxy advisory firms have sent a clear message about the need for significant, shareholder-driven change at Norfolk Southern,” Ancora CEO Frederick DeSanto and President Jim Chadwick said in a statement.
Investors, especially passive index fund giants like Vanguard and BlackRock, take proxy advisor recommendations into account when deciding how to vote their millions of shares. Norfolk Southern's three largest shareholders control more than 16% of outstanding shares.
ISS said in its report that it was clear “that the defector presented a balanced slate consisting of qualified candidates, and generally targeted suitable administration candidates.”
“ISS’s recommendation against Jim Barber is a clear indication that a change in management is not warranted,” the company said in a statement, adding that his election could cause an “unfavorable” dynamic on the board.
ISS recommends that shareholders support Ancora candidates William Clyburn, Sameh Fahmy, Gilbert Lamphere, Allison Landry, and John Kasich.
Proxy counsel said Norfolk Southern's governance problems were “most evident” in the board's failure to communicate with investors and prioritize their “best interests.”
“As chair of the board, Amy Miles arguably bears the greatest responsibility for this situation,” the ISS report said.
Norfolk Southern has taken steps to address investor concerns, including appointing Orr as chief operating officer and adding two new directors, former Sen. Heidi Heitkamp and former Delta CEO Richard Anderson. ISS endorsed Anderson's election but said shareholders should not support Heitkamp.
“There is no evidence to suggest that Heitkamp is in any way unqualified to serve, but dissident candidate John Kasich has similar organizational and administrative experience,” the ISS report said, noting the latter’s “proven ability” to advance the settlement.
Norfolk Southern took issue with some of ISS's reasoning in its statement Tuesday, arguing that endorsing Ancora's candidates was also a vote of confidence in Shaw's operating plan.
“ISS’s recommendation regarding Ancora’s nominees jeopardizes the election of Norfolk Southern’s board nominees who play a critical role in effective oversight of the company,” Norfolk Southern said.
