NSC COO John Orr has history of abusive behavior, activist Ancora says

Norfolk South Activist investor Ancora has been fighting for almost two months, trying to shake up the railroad’s board of directors and oust CEO Alan Shaw.

The company is now going after Norfolk Southern’s new chief operating officer, John Orr, for what the activist calls an “excessive” buyout plan and a career marred by allegations of racial and gender discrimination.

Last month, Norfolk Southern hired Orr 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 criticism and received praise from several Wall Street analysts.

In a letter to Norfolk Southern shareholders Friday, Ancora highlighted Orr’s past misconduct that raises questions about his hiring, even though the executive oversaw improvements in the railroad’s operations during his three weeks on the job. .

Ancora documented alleged and substantiated misconduct by Orr, dating back to his time as a middle manager at Canadian National. An appointee of the Canadian Arbitration Council has substantiated 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 insulted and shouted at the employee, and called her a “f—— b——– ” and “f—— idiot.” A witness told the arbitrator that in one instance Orr told the employee she “was so stupid it was embarrassing.”

The arbitrator found the allegations credible.

Ancora also pointed to a 2019 lawsuit filed by a Black executive, who called Orr’s treatment of employees and subordinates “appalling.” The lawsuit was filed against Canadian National, alleging racial discrimination.

Orr’s behavior was allegedly “so bad” that Canadian National was forced to provide him with executive coaching, according to a 2020 filing in the lawsuit. Orr’s deposition 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 that CNBC obtained.

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 $25 million in cash to Orr’s former employer and provide unspecified additional concessions for a key rail hub and route in the southern states. -United. Norfolk Southern values ​​this particular portion of the road at approximately 1% of its value. income.

When it announced Orr’s hiring, Norfolk Southern did not disclose the initial impact of the concessions or the estimated impact in coming years.

Norfolk Southern told CNBC in a statement that Ancora’s analysis of the value of the route — the Meridian Speedway deal — “is completely inaccurate and based on a flawed premise,” in that it assumes that Norfolk Southern is giving up more revenue than it actually is.

“As we have previously indicated, this revised agreement in no way constitutes a consequential concession,” the company said.

Ancora is seeking to oust Shaw from Norfolk Southern with Orr in favor of former UPS CEO Jim Barber and former CSX executive vice president Jamie Boychuk, respectively. The activist said Norfolk Southern was significantly underperforming compared to its peers and placed the blame on Shaw and the board.

Regarding Orr, Norfolk Southern said he had “a track record of improving performance while operating safely and with integrity.”

“Ancora’s attempt to smear John by developing complaints against his former employer, one of which dates back more than 20 years, is nothing more than an attempt to distract from the facts regarding their deeply flawed COO candidate, Jamie Boychuk,” a company spokesperson said. told CNBC. “Mr. Orr’s and Mr. Boychuk’s backgrounds and reputations in the industry are simply not comparable.”

In February 2023, a Norfolk Southern freight train derailed in East Palestine, Ohio, releasing toxic chemicals into the environment and sparking a political fight over rail safety. Since then, the stock has been roughly flat while the S&P 500 is up 26%.

Norfolk Southern’s shareholder meeting is scheduled for May 9.

Ancora has gained support from other stakeholders in its fight against the company. Neuberger Berman, who holds a small position in Norfolk Southern, said Friday he would support Ancora’s slate, citing a “history of poor governance that long predated” the railroad’s transformation efforts.

A settlement between the two sides appears unlikely, Gordon Haskett analyst Don Bilson said in a note to clients Friday. Shaw previously told CNBC that the company offered Ancora “a few” board seats as part of a settlement offer.

Ancora told CNBC that she repeatedly tried to settle with the company, both directly and through advisors. Any settlement, in Ancora’s view, would depend on a renewal of the board and ousting Shaw. The board has repeatedly expressed confidence in Shaw and said it is not interested in a settlement that would lead to his departure.