Ancora vs. NS: Lessons learned — by Tony Hatch

On May 9, activists went down to their first proxy battle defeat after going 4-0-1 in the first five attempts this century. The wins were, in order: CSX, Canadian Pacific, CSX again, a tie at CN, and then most recently, Union Pacific.  

These fights have been entertaining, for sure — and profit-boosting, in most cases — but are also distractions, at best, and disruptions to shipper, labor and regulator relations, at worst.  

Norfolk Southern made for (on the surface, anyway) a compelling target. A proud tradition.  Starting a long-term strategic plan, shifting away from many shareholders primary focus (the OR) to resilience and growth through the cycle.  Doing so in a longer-than-expected freight recession. Then hammered by the East Palestine incident, which cost more than $1 billion, took out the mainline, heavily distracted management and damaged NS’ reputation. Yet, NS still emerged. Bloody, for sure. But on top. For now.

Herewith, some lessons learned, perhaps: 

For Activists: 

1. E. Hunter Harrison is still dead. You have to bring something demonstrably better — with apologies to the proposed Ancora team, they lacked an acknowledged superstar like Hunter — to the table. Unless, that is, the target is “broken.” One could argue CP, for example, was (and Pershing also had EHH). NS was not/is not. 

2. Understand the key stakeholders — in this case, shareholders — and their interests. 

3. Investors don’t care about safety issues unless it is considered systemic at the target. It wasn’t and it isn’t. I found the whole safety angle from the insurgents to be repellant, anyway, but that it also was a symptom of Ancora’s focus on non-voting stakeholders. 

4. Don’t offer giveaways (unknown amounts) to unions to win shareholder approval. Just consider that sentence. That’s borrowing from the future to try to win the present. It will be interesting to see the future NS and BMWE/BLET relations evolve, by the way. 

5. Don’t inflate resumes or use faulty accounting (the apples vs. oranges story, for instance, on terminal dwell, or handlings per car) — and don’t throw mud. So much mud. That served to invite investigations into their own (glass) house. 

For NS and other railways that could face activism in the future: 

6. Performance is important, of course. Ancora was right about not just the relative margin (OR) story, but most metrics and ultimately the biggest one for investors: the share price. 

7. But messaging is maybe even more so — witness the Q3/23 and Q4/13 (and even Q1/24) webcasts and their reaction. Part of the NS share underperformance can be attributed to not describing their journey well. My version of the Great Experiment is as much about messaging (the fight against the Cult of the OR) as anything. 

8. Defend the plan! (If you can’t, maybe that says something). Isn’t intermodal worthwhile? Of course it is. Is it measured best by OR? No, it is not. So how, then? 

9. The corollary — don’t imitate the attackers too much. The classic case was CP’s defense regarding OR reduction when the attackers had ... Hunter! The saddest example was CN’s late-in-the game cost cutting rather than explaining their OR differential (messaging!) and defending growth over (just) margin. Bringing back OR into the compensation plan, as NS did, is a retreat from The Great Experiment. 

10. Know that is just one battle won; it could be the blow that won the war, or the start of a long slog (D-Day or Stalingrad?). Ancora has stated it will be back — and the pressure will be on the surviving management team starting with the July Q2 webcast.  

So, there you have it — my advice, for what it’s worth. Defend the plan with a better, more coherent (and comprehensible) message about how to evaluate the NS Better Way (especially before the rising volume tide floats all shares) — what do we look for (service metrics, efficiency, share gains, ROIC)?  

Tony Hatch is an independent transportation analyst and consultant, and program consultant for Progressive Railroading’s RailTrends® conference. Email him at abh18@mindspring.com.