A general view of the exterior of Norfolk Southern’s headquarters on April 1, 2023 in Atlanta, Georgia.
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Norfolk Southern is almost two months into a battle with activist investor Ancora, which is trying to shake up the railway’s board and oust chief executive Alan Shaw.
Now the company is targeting Norfolk Southern’s new chief operating officer, John Orr, for what the activist calls an “excessive” buyout package and a career marred by allegations of racial and sexual discrimination.
Last month, Norfolk Southern hired 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 criticisms and received praise from several Wall Street analysts.
In a letter to Norfolk Southern stockholders; on Friday, Ancora highlighted Orr’s past misconduct that raises questions about his hiring, even though the executive has overseen improvements to the railroad’s operations in his three weeks on the job.
Ancora documented both alleged and documented workplace misconduct by Orr dating back to his time as a mid-level executive at Canadian National. An appointee of the Canadian Arbitration Council documented allegations that Orr used verbally abusive language toward a female employee in the early 2000s.
The employee and another witness told the employment tribunal at the time that Orr regularly cursed and shouted at the worker and called her a “f—— b—-” and a “f—— moron. ” A witness told the arbitrator that, at one point, Orr told the clerk she was “so stupid it was embarrassing.”
The arbitrator found the allegations credible.
Ancora also pointed to a lawsuit filed in 2019 by a Black executive who described Orr’s treatment of employees and subordinates as “abysmal.” The lawsuit was filed against Canadian National, alleging racial discrimination.
Orr’s behavior was allegedly “so bad” that Canada National was forced to provide him with executive guidance, according to a 2020 filing in the lawsuit. Orr’s filing is sealed and the case was settled in 2022.
Before Orr’s announced hiring, Ancora drew attention to allegations about his behavior in emails to two Norfolk Southern board members obtained by CNBC.
Ancora said in its statement Friday that hiring Orr was a costly proposition that hurt shareholders. As part of the deal, Norfolk Southern said it would pay Orr’s former employer $25 million in cash and provide additional unspecified concessions for a major rail hub and route in the southern U.S. Norfolk Southern values that particular segment of the route at about 1% of income.
When it announced Orr’s hiring, Norfolk Southern did not disclose the initial impact of the concessions or the estimated negative impact in future years.
“Defective Case”
Norfolk Southern told CNBC in a statement that Ancora’s analysis of the track’s value — the Meridian Speedway deal — “is completely inaccurate and based on a flawed assumption,” since it assumes Norfolk Southern is giving up more revenue than ,what actually.
“As we previously stated, this revised agreement is in no way a subsequent 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 Jamie Boychuk, respectively. The activist said Norfolk Southern is falling dramatically short of its peers and has laid the blame at the feet of Shaw and the board.
As for Orr, Norfolk Southern said he has a “previous track record of improving performance while operating with safety and integrity.”
“Ancora’s attempt to malign John by settling claims against his former employer, one of which dates back more than 20 years, is nothing more than an attempt to distract from the facts about the extremely flawed their COO candidate, Jamie Boychuk,” a company spokesperson said. he told CNBC. “Mr. Orr and Mr. Boychuk and the reputation of the industry are simply not comparable.”
Jamie Boychuk and John Orr.
Courtesy: Longacre Square Partners and Norfolk Southern
Norfolk Southern’s meeting of shareholders is scheduled for May 9.
Ancora has won the support of other stakeholders in its fight against the company. Neuberger Berman, which owns a small position in Norfolk Southern, said Friday it would back Ancora’s shale, citing a “long history of mismanagement” of the railroad’s transformation efforts.
A settlement between the two sides appears unlikely, Gordon Haskett analyst Don Bilson said in a Friday note to clients. Shaw previously told CNBC that the company offered Ancora a “couple” of board seats in a settlement offer.
Ancora told CNBC that it has made repeated attempts to negotiate with the company, both directly and through consultants. Any settlement, from Ancora’s perspective, would depend on a board reshuffle and Shaw’s removal. The board has repeatedly expressed confidence in Shaw and has said it is not interested in a settlement that would lead to his departure.