By Dean Seal

Norfolk Southern's chief executive has been endorsed by Institutional Shareholder Services, though the proxy firm is also throwing its support behind five dissident directors in a simmering proxy battle for the railroad's board.

ISS issued a report on Tuesday recommending that shareholders vote for eight of Norfolk Southern's proposed 13-director slate at the company's annual shareholder meeting next week, including Chief Executive Alan Shaw, who has been the target of Ancora Holdings' ire in its bid to overhaul the railroad's current leadership.

The recommendation doesn't extend to current Chair Amy Miles or four other Norfolk Southern director nominees. ISS is advising investors to instead vote for five of Ancora's seven proposed candidates, suggesting that the proxy contest at hand isn't "an all-or-nothing affair."

"Questions about the management and direction of the company would be best answered by a reconfigured board with more extensive and balanced industry expertise," the proxy firm said.

A group of investors led by Ancora has amassed a collective $1 billion stake in Norfolk Southern and launched a proxy fight earlier this year, saying the railroad under current management has been operating inefficiently and failing to meet financial targets.

Norfolk Southern is standing behind the performance of its leadership and has nominated 13 directors for its board, including two new faces--Richard Anderson, former chief executive of Amtrak and Delta Air Lines, and Mary Kathryn "Heidi" Heitkamp, a former U.S. senator.

ISS has endorsed Shaw, Anderson and six other sitting directors floated by Norfolk Southern, along with five of Ancora's picks, including former Ohio Gov. John Kasich and Sameh Fahmy, a former executive at railroad Kansas City Southern.

The firm said Ancora hadn't established that a change to the majority of the board is immediately necessary, but had still presented a "reasonable path forward,"

"It would therefore be justifiable for shareholders who have already lost faith in the current management team to support the entire dissident slate," ISS said.

The firm also noted that it isn't supporting dissident nominee James Barber, who is also Ancora's pick to replace Shaw, but does consider him to be "a credible director and CEO." ISS said adding him to the board at this point "risks creating a dynamic that could delay the board's ability to reach a needed compromise."

The Atlanta-based Norfolk Southern said it disagreed with ISS's decision to back the dissident nominees. Ancora's leadership said the recommendation, along with one from fellow proxy firm Glass Lewis earlier this week, demonstrates the need for "significant, shareholder-driven change" at the railroad.

Earlier this week, TD Cowen analysts said a recommendation from ISS could have considerable influence over the proxy fight. An endorsement of Ancora's slate "could make it much more difficult for current management to win the shareholder vote next week," the analysts said.

ISS's recommendation comes one day after Glass Lewis, another influential proxy advisory firm, endorsed six of Ancora's seven proposed board nominees.

Glass Lewis said Monday that Ancora had presented "a compelling case" for changing Norfolk Southern's current leadership. The firm was also swayed by Ancora getting the support of two major railroad unions, raising questions about whether current management would be able to improve its relationship with the railroad's workforce.

Two of the three largest railroad unions, which represent 41% of Norfolk Southern's union workforce, withdrew their support for Norfolk Southern's director slate last week and are now backing Ancora's proposed slate.

Glass Lewis also flagged Norfolk Southern's decision last month to replace its chief operating officer with John Orr, the former chief transformation officer for Canadian Pacific Kansas City. To hire Orr away, Norfolk Southern must pay the rival freight railroad $25 million in cash and offer considerations related to the Meridian Speedway that the companies jointly operate.

Cleveland-Cliffs, one of Norfolk Southern's largest customers, is also publicly backing Ancora's proposed director slate.

Write to Dean Seal at

(END) Dow Jones Newswires

04-30-24 1403ET