Questions Whether the Board is Serving at
the Pleasure of CEO Alan Shaw – Rather Than the Other Way
Around
Recommends the Board Abandon its Apparent
Efforts to Poison the Well with Employees, Customers, Regulators
and Other Key Stakeholders
Urges the Board to Join the Investor Group
in Running a Contest Centered on Facts, Ideas and Value Creation
Plans
Ohio-based Ancora Holdings Group, LLC, its affiliates and the
other participants in its solicitation (collectively, the “Investor
Group” or “we”), who collectively own a large equity stake in
Norfolk Southern Corporation (NYSE: NSC) (“Norfolk Southern” or the
“Company”), today issued an open letter to the Company’s Chair, Amy
Miles.
As a reminder, the Investor Group recently announced the
nomination of eight highly qualified, independent candidates for
election to the Company’s Board of Directors (the “Board”) at the
2024 Annual Meeting of Shareholders (the “Annual Meeting”). In
addition, the Investor Group announced it has identified a proposed
management team that includes transportation network leader Jim
Barber, Jr. as Chief Executive Officer and lifelong railroad
operator Jamie Boychuk as Chief Operating Officer. Learn more at
www.MoveNSCForward.com.
***
March 1, 2024
Norfolk Southern Corp. Attn: Amy Miles, Chair of the Board of
Directors 650 W. Peachtree Street NW Atlanta, Georgia 30308
Dear Amy,
Prior to publicly disclosing our slate of director candidates
and proposed management team, the Investor Group spent more than
two months privately providing you and your fellow directors with
data and facts that demonstrated the urgent need for meaningful
change at Norfolk Southern. We made clear that your current CEO has
presided over industry-worst operating results, sustained share
price underperformance and an ineffective and tone-deaf response to
the preventable derailment in East Palestine, Ohio. We also exposed
the impractical elements of management’s go-forward strategy and
spotlighted persistent issues with respect to safety, as evidenced
by this year’s new derailments and the recent death of an engineer.
As these points were raised, we offered viable solutions in the
form of exceptional people with a strategic vision for delivering
better service, enhanced safety, improved growth and stronger value
creation. We even offered to settle for minority representation on
the Board in the event the Company initiated an orderly management
change.
Although we were initially disappointed with the Board’s
dismissiveness, the Company’s recently filed proxy statement and
ongoing low-road smear campaign against us have clarified a great
deal. It appears that the Board is serving at the pleasure of CEO
Alan Shaw – rather than the other way around. But with each passing
day of disruptive fear mongering and transparently manufactured
attacks on our people, we contend that current leadership is simply
sealing its fate with the shareholders to whom it owes fiduciary
duties. Norfolk Southern’s owners, who appear to share our view
that a railroad should be pro-labor, safe and value-generating all
at once, recognize the playbook being run.
We ask that the Board reflect on the points below before
continuing to spend Norfolk Southern’s money, time and reputational
currency on a scorched-earth campaign that will forever be
associated with the incumbent directors.
I. Shareholders are confounded by the Board’s decision to
award Mr. Shaw a raise for 2023.
It is astonishing to us that the Board would reward Mr. Shaw
with a 37% increase in the value of compensation to a total of
$13.4 million for a year in which the Company’s customers,
employees, shareholders and community partners all suffered.1 This
figure includes more than $10 million in stock and option awards,
which were granted to Mr. Shaw even though he missed all six annual
incentive targets pertaining to financial performance, customer
service and safety.2 To add insult to injury, Mr. Shaw appears to
be a major beneficiary of the “East Palestine Adjustment” that
increased Performance Stock Unit payout percentages from 56% to
96.3% of target.3
We challenge the Board’s determination that it had to adjust
executive compensation in 2023 to “retain key talent.”4 We do not
see how the Board could have actually viewed Mr. Shaw as a flight
risk. In addition to being a more than 30-year insider at Norfolk
Southern, he was a relatively new, unproven CEO off to an extremely
rocky start. The fact that this decision was made suggests
concerning deference to management and a lack of respect for
shareholders and stakeholders.
While we recognize policymakers will not determine the outcome
of the vote at the Annual Meeting, we are nonetheless surprised
that the Board made a compensation decision that is a direct
affront to President Joe Biden’s recent comments about greed and a
lack of accountability at Norfolk Southern.5 There are numerous
examples of boards of directors taking the responsible step of
reducing – not raising – executive pay following disasters. In
situations we deem comparable to the East Palestine derailment,
like BP p.l.c.’s 2010 oil spill and The Boeing Company’s 737 MAX
accidents, boards of directors typically terminate or hold the CEO
accountable. To the contrary, Norfolk Southern’s Board instead
rewarded its CEO with a massive pay raise, elevating his
compensation to more than 100x that of the median employee.6
II. Shareholders are concerned the Board is pursuing a
scorched-earth campaign that involves poisoning the well with key
stakeholders of the railroad.
Norfolk Southern is a beacon of American commerce due to its
exceptional employees, strong customer base and storied brand. This
is one of the primary reasons why we were able to attract director
candidates and proposed executives who have achieved tremendous
success over the course of their careers in the public and private
sectors. Amongst this collection of high-integrity individuals,
there is a unanimous view that neither side should go into the
gutter during an election contest. There was an assumption that the
Company’s Board, which includes highly respected individuals like
Admiral Philip Davidson (retired) and Thomas C. Kelleher, would
share our view.
Unfortunately, you have not responded to our prior private
letter that encouraged Norfolk Southern to avoid poisoning the well
with valued stakeholders. You have also failed to address our
concerns about the manner in which Norfolk Southern appears to be
sending private planes to Washington, D.C. and misrepresenting our
views to regulators. You, as Chair, and Mr. Shaw, as CEO, are no
doubt aware that our published materials
reveal no emphasis on cost cutting, headcount reductions or
short-sighted tactics. To the contrary, our slate and
proposed management team have repeatedly committed to pursuing
stronger growth and implementing a network strategy that will
leverage Norfolk Southern’s existing assets. We find it extremely
disingenuous for the Company to miscast our intentions, especially
since Mr. Shaw stated during 4Q23 earnings that Norfolk Southern’s
“cost structure is too high.”7 For the avoidance of doubt, our
network strategy accounts for responsible cost management and the
principles of scheduled railroading – just like Mr. Shaw’s
resilience strategy, as can be seen in numerous public
statements.
When it comes to safety, you and Mr. Shaw are also undoubtedly
aware of what we have committed to. Our proposed CEO, Jim Barber,
believes the health and safety of the Company’s constituencies is
the bedrock of long-term success. Our proposed COO, Jamie Boychuk,
helped CSX dramatically improve customer service and go roughly
two-and-a-half years without any work-related fatalities. They
firmly believe that the health and safety of Norfolk Southern’s
people and communities are the highest priorities. Mr. Barber plans
to leverage his background overseeing nationwide networks to bring
new risk management technologies and initiatives to Norfolk
Southern. He and Mr. Boychuk have a shared vision for employee-led
safety committees and establishing programs that reward and
spotlight worker contributions to the Company’s harm reduction
agenda. Our slate and proposed management team know a better-run
Norfolk Southern will have the financial power to invest more in
safety and service, while enabling employees to benefit from the
prosperity of the railroad.
The more you direct your agents and surrogates to publicize
inaccurate information about the Investor Group, the more it looks
like incumbent leadership has no track record or viable plans of
its own to run on.
III. Shareholders want an election contest to be defined by
facts and ideas.
Please recognize that Norfolk Southern’s shareholders, who seem
to have no appetite for campaigns built on incessant smears, are
the ones who will ultimately determine which slate is elected at
the Annual Meeting. Please know that we are going to run a contest
defined by a transparent articulation of facts and ideas. This
means we are going to be publicly critical of leadership’s business
mistakes when they can be cited and documented. This also means we
are going to be candid about our slate’s transition plan and
strategy, including their components and targets.
To avoid destabilizing the Company more than it already has been
over the past 12 months, we urge you to reduce your reliance on
advisors and shadow games in favor of starting to run a high-road
contest focused on track records and plans. And, to the extent you
want to reengage with us about a settlement framework that accounts
for Board refreshment and orderly management changes, we are here
to have private conversations. Either way, you and your fellow
directors owe it to Norfolk Southern and all of its stakeholders to
run a campaign befitting of this great organization.
Sincerely,
Jim Chadwick, on behalf of the Investor Group
***
About Ancora
Founded in 2003, Ancora Holdings Group, LLC offers integrated
investment advisory, wealth management, retirement plan services
and insurance solutions to individuals and institutions across the
United States. The firm is a long-term supporter of union labor and
has a history of working with union groups and public pension plans
to deliver long-term value. Ancora’s comprehensive service offering
is complemented by a dedicated team that has the breadth of
expertise and operational structure of a global institution, with
the responsiveness and flexibility of a boutique firm. For more
information about Ancora, please visit https://ancora.net.
Advisors
Cadwalader, Wickersham & Taft LLP is serving as legal
advisor, with Longacre Square Partners LLC serving as
communications and strategy advisor and D.F. King & Co., Inc.
serving as proxy solicitor.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING
STATEMENTS
The information herein contains “forward-looking statements.”
Specific forward-looking statements can be identified by the fact
that they do not relate strictly to historical or current facts and
include, without limitation, words such as “may,” “will,”
“expects,” “believes,” “anticipates,” “plans,” “estimates,”
“projects,” “potential,” “targets,” “forecasts,” “seeks,” “could,”
“should” or the negative of such terms or other variations on such
terms or comparable terminology. Similarly, statements that
describe our objectives, plans or goals are forward-looking.
Forward-looking statements are subject to various risks and
uncertainties and assumptions. There can be no assurance that any
idea or assumption herein is, or will be proven, correct. If one or
more of the risks or uncertainties materialize, or if the
underlying assumptions of Ancora (defined below) or any of the
other participants in the proxy solicitation described herein prove
to be incorrect, the actual results may vary materially from
outcomes indicated by these statements. Accordingly,
forward-looking statements should not be regarded as a
representation by Ancora that the future plans, estimates or
expectations contemplated will ever be achieved. You should not
rely upon forward-looking statements as a prediction of actual
results and actual results may vary materially from what is
expressed in or indicated by the forward-looking statements. Except
to the extent required by applicable law, neither Ancora nor any
participant will undertake and specifically declines any obligation
to disclose the results of any revisions that may be made to any
projected results or forward-looking statements herein to reflect
events or circumstances after the date of such projected results or
statements or to reflect the occurrence of anticipated or
unanticipated events. Certain statements and information included
herein have been sourced from third parties. Ancora does not make
any representations regarding the accuracy, completeness or
timeliness of such third party statements or information. Except as
may be expressly set forth herein, permission to cite such
statements or information has neither been sought nor obtained from
such third parties. Any such statements or information should not
be viewed as an indication of support from such third parties for
the views expressed herein.
CERTAIN INFORMATION CONCERNING THE PARTICIPANTS
Ancora Alternatives LLC (“Ancora Alternatives”) and the other
Participants (as defined below) intend to file a preliminary proxy
statement and accompanying BLUE universal proxy card (the “Proxy
Statement”) with the Securities and Exchange Commission (the “SEC”)
to be used to solicit proxies for, among other matters, the
election of its slate of director nominees at the 2024 annual
meeting of shareholders (the “2024 Annual Meeting”) of Norfolk
Southern Corporation, a Virginia corporation (“Norfolk Southern” or
the “Corporation”). The participants in the proxy solicitation are
currently anticipated to be Ancora Catalyst Institutional, LP
(“Ancora”), Ancora Merlin Institutional, LP, (“Ancora Merlin
Institutional”), Ancora Merlin, LP (“Ancora Merlin”), Ancora
Catalyst, LP (“Ancora Catalyst”), Ancora Bellator Fund, LP (“Ancora
Bellator”), Ancora Impact Fund LP Series AA (“Ancora Impact AA”)
and Ancora Impact Fund LP Series BB (“Ancora Impact BB”) (each of
which is a series fund within Ancora Impact Fund LP) (Ancora,
Ancora Merlin Institutional, Ancora Merlin, Ancora Catalyst, Ancora
Bellator, Ancora Impact AA and Ancora Impact BB, collectively, the
“Ancora Funds”), Ancora Advisors, LLC (“Ancora Advisors”), The
Ancora Group LLC (“Ancora Group”), Ancora Family Wealth Advisors,
LLC (“Ancora Family Wealth”), Inverness Holdings LLC (“Inverness
Holdings”), Ancora Alternatives, Ancora Holdings Group, LLC
(“Ancora Holdings”) and Frederick DiSanto (collectively, the
“Ancora Parties”); and Betsy Atkins, James Barber, Jr., William
Clyburn, Jr., Nelda Connors, Sameh Fahmy, John Kasich, Gilbert
Lamphere and Allison Landry (the “Ancora Nominees” and,
collectively with the Ancora Parties, the “Participants”).
Ancora Alternatives, as the general partner and investment
manager of each of the Ancora Funds and as the investment manager
of the Ancora Alternatives separately managed accounts (each, an
“SMA”) may be deemed to beneficially own in the aggregate 913,180
shares of Common Stock (of which 830,380 shares of Common Stock are
directly and beneficially owned by the Ancora Funds, including the
123,500 shares of Common Stock underlying 1,235 American call
options held directly and beneficially in aggregate by the Ancora
Funds, and of which 82,800 shares of Common Stock are held
indirectly and beneficially by the Ancora Alternatives SMAs).
Ancora Advisors, as the investment advisor to the SMA of Ancora
Advisors, may be deemed to beneficially own all of the 270 shares
of Common Stock held in the Ancora Advisors SMA. Ancora Group, as
the sole member of Ancora Advisors, may be deemed to beneficially
own all of the 270 shares of Common Stock held in the Ancora
Advisors SMA. Ancora Family Wealth, as the investment advisor to
the Ancora Family Wealth SMAs, may be deemed to beneficially own
all of the 9,847.28 shares of Common Stock held in the Ancora
Family Wealth SMAs. Inverness Holdings, as the sole member of
Ancora Family Wealth, may be deemed to beneficially own all of the
9,847.28 shares of Common Stock held in the Ancora Family Wealth
SMAs. Ancora, as the sole member of each of Ancora Alternatives,
Ancora Group and Inverness Holdings, may be deemed to beneficially
own in the aggregate 923,297.28 shares of Common Stock held by the
Ancora Funds (including the 123,500 shares of Common Stock
underlying 1,235 American call options), the Ancora Alternatives
SMAs, the Ancora Advisors SMA and the Ancora Family Wealth SMAs.
Mr. DiSanto, as the Chairman and Chief Executive Officer of Ancora,
may be deemed to beneficially own in the aggregate 923,297.28
shares of Common Stock held by the Ancora Funds (including the
123,500 shares of Common Stock underlying 1,235 American call
options), the Ancora Alternatives SMAs, the Ancora Advisors SMA and
the Ancora Family Wealth SMAs. The Ancora Parties beneficially own
923,297.28 shares of Common Stock in the aggregate (including the
123,500 shares of Common Stock underlying 1,235 American call
options). Gilbert Lamphere owns 1,200 shares of Common Stock and
Sameh Fahmy owns 3,000 shares of Common Stock.
IMPORTANT INFORMATION AND WHERE TO FIND IT
Ancora strongly advises all shareholders of Norfolk Southern to
read the preliminary proxy statement, any amendments or supplements
to such proxy statement, the definitive proxy statement, and other
proxy materials filed by Ancora as they become available because
they will contain important information. Such proxy materials will
be available at no charge on the SEC’s website at www.sec.gov. In
addition, the participants in this proxy solicitation will provide
copies of the proxy statement without charge, when available, upon
request. Requests for copies should be directed to the
participants’ proxy solicitor.
____________________________ 1 Page 87 of the Company’s
preliminary proxy statement. 2 Page 77 of the Company’s preliminary
proxy statement. 3 Page 73 of the Company’s preliminary proxy
statement. 4 Page 60 of the Company’s preliminary proxy statement.
5 At a February 16 press conference in East Palestine, Ohio,
President Joe Biden commented: “Let me be clear: While there are
acts of God, this was an act of greed that was 100 percent
preventable. Let me say it again: an act of greed that was 100
percent preventable. We were pushing railroads to take more
precautions, to deal with braking, to deal with a whole range of
things that were not dealt with. Norfolk Southern failed its
responsibility. You know, multimillion-dollar railroad
companies transporting toxic chemicals have responsibility to do it
safely. And, again, Norfolk Southern failed.” 6 Page 102 of the
Company’s preliminary proxy statement. 7 Mr. Shaw’s commentary
during Norfolk Southern’s January 26 4Q23 earnings call: “…it's
clear that our cost structure is too high for our revenue base
entering 2024.”
View source
version on businesswire.com: https://www.businesswire.com/news/home/20240301762577/en/
Longacre Square Partners Greg Marose / Charlotte Kiaie,
646-386-0091 MoveNSCForward@longacresquare.com
D.F. King & Co., Inc. Edward McCarthy 212-493-6952
MoveNSCForward@dfking.com
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