A general view of the outside of the headquarters of Norfolk Southern on April 1, 2023 in Atlanta, Georgia.
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Norfolk Southern is sort of two months right into a battle with activist investor Ancora, which is attempting to shake up the railroad’s board and oust CEO Alan Shaw.
Now the firm is taking aim at Norfolk Southern’s recent operating chief John Orr over what the activist calls an “excessive” buyout package and a profession marred by allegations of racial and sexual discrimination.
Last month, Norfolk Southern hired Orr away from rival CPKC, paying tens of thousands and thousands of dollars to purchase him out of his contract. The move was widely seen as a response to Ancora’s operational criticisms and received praise from several Wall Street analysts.
In a letter to Norfolk Southern shareholders on Friday, Ancora highlighted past misconduct by Orr that raises questions on his hiring, at the same time as the chief has overseen improvements within the railroad’s operations in his three weeks on the job.
Ancora documented each alleged and substantiated workplace misconduct by Orr, dating back to his time as a mid-level executive at Canadian National. An appointee of the Canadian Arbitration Board substantiated allegations that Orr used verbally abusive language toward a female worker within the early 2000s.
The worker and one other witness told the employment tribunal on the time that Orr recurrently cursed and shouted at the worker, and called her a “f—— b—-” and a “f—— idiot.” A witness told the arbitrator that, in a single instance, Orr told the worker that she “was so f—— silly it was embarrassing.”
The arbitrator found the claims credible.
Ancora also flagged a lawsuit filed in 2019 by a Black executive, who described Orr’s treatment of employees and subordinates as “abysmal.” The suit was filed against Canadian National, alleging racial discrimination.
Orr’s behavior was allegedly “so bad” that Canadian National was forced to supply executive coaching for him, in line with a 2020 filing within the lawsuit. Orr’s deposition is sealed and the case was settled in 2022.
Prior to the announced hiring of Orr, Ancora drew attention to claims about his behavior in emails to 2 Norfolk Southern board members that CNBC obtained.
Ancora said in its statement on Friday that the hiring of Orr was a costly proposition that is harming shareholders. As a part of the agreement, Norfolk Southern said it might pay Orr’s prior employer $25 million in money and supply additional unspecified concessions for a key rail hub and route within the southern U.S. Norfolk Southern values that exact a part of the route at around 1% of its revenues.
When it announced Orr’s hiring, Norfolk Southern didn’t disclose the initial impact of the concessions or the estimated knock-on effects within the years to come back.
‘Flawed premise’
Norfolk Southern told CNBC in an announcement that Ancora’s evaluation of the worth of the route — the Meridian Speedway agreement — “is totally inaccurate and based on a flawed premise,” in that it assumes Norfolk Southern is forgoing more revenue than it actually is.
“As we previously stated, this revised agreement is under no circumstances a consequential concession,” the corporate said.
Ancora is searching for to oust Norfolk Southern’s Shaw together with Orr in favor of former UPS CEO Jim Barber and former CSX Executive Vice President Jamie Boychuk, respectively. The activist has said that Norfolk Southern is dramatically underperforming its peers, and has laid the blame on the feet of Shaw and the board.
Regarding Orr, Norfolk Southern said he has a “track record of improving performance while operating safely and with integrity.”
“Ancora’s try and malign John by dredging up claims against his former employer, certainly one of which is from over 20 years ago, is nothing greater than an try and distract from the facts about their deeply flawed COO candidate, Jamie Boychuk,” an organization spokesperson told CNBC. “Mr. Orr and Mr. Boychuk’s track records and industry reputations are simply not comparable.”
Jamie Boychuk and John Orr.
Courtesy: Longacre Square Partners and Norfolk Southern
In February 2023, a Norfolk Southern freight train derailed in East Palestine, Ohio, releasing toxic chemicals into the environment and prompting a political fight regarding railroad safety. Since then, the stock is roughly flat while the S&P 500 is up 26%.
Norfolk Southern’s shareholders meeting is scheduled for May 9.
Ancora has gained the backing of other stakeholders in its fight with the corporate. Neuberger Berman, which holds a small position in Norfolk Southern, said on Friday that it might support Ancora’s slate, citing a “history of poor governance that has long preceded” the railroad’s transformation efforts.
A settlement between the 2 sides appears unlikely, Gordon Haskett analyst Don Bilson said in a Friday note to clients. Shaw previously told CNBC that the corporate offered Ancora a “couple” of board seats in a settlement offer.
Ancora told CNBC that it’s made repeated attempts to settle with the corporate, each directly and thru advisors. Any settlement, from Ancora’s perspective, can be contingent on a board refresh and Shaw’s ouster. The board has repeatedly expressed confidence in Shaw and has said it is not keen on a settlement that might result in his departure.
