Activist Ankura wins three seats on the Norfolk Southern board but will not oust the chief executive

Shareholders of Norfolk Southern, the beleaguered freight railroad, voted Thursday against an attempt by an activist investment firm to oust the company's CEO and take control of its board.

But activist Ancora, a Cleveland company, was able to secure a foothold in the company, after shareholders voted to appoint three of its directors to Norfolk Southern's 13-member board. Ancora hoped to gain control of the company's leadership with the goal of cutting costs and increasing Norfolk Southern's profits and stock prices.

The result was a partial victory for Norfolk Southern executives, who had to defend themselves against criticism of the company's safety record and lackluster financial performance. A company train carrying hazardous chemicals derailed last year in East Palestine, Ohio, forcing residents to evacuate.

The results of the shareholder vote, which are preliminary, were announced Thursday morning at the company's virtual annual meeting.

During the meeting, Norfolk Southern CEO Alan Shaw said he looked forward to working with the new directors.

“Norfolk South has persevered through many challenges over the past year. We have met every challenge and never lost sight of where we will take our strong franchise,” he said.

For several weeks, Norfolk Southern and Ancora battled for shareholder support in a battle of bitter statements peppered with railroad details.

Ancora argued that Norfolk Southern had lost its way and needed to deploy a set of practices aimed at constraining expenses and simplifying the 19,100-mile rail network. In response, Norfolk Southern said its financial performance was improving, and asserted that it was building a railroad that would better withstand economic fluctuations. During the coronavirus pandemic, rail freight lines shrunk so much that they struggled to meet customer demand when the economy rebounded.

Ancora's directors elected to the board are: William Claiborne, Jr., a former railroad regulator; Sameh Fahmy and Gilbert Lamphere, former railway executives. Amy E. Miles, board president and Norfolk Southern candidate, was not re-elected.

In a statement, Frederick D. said: DeSanto, Ankura's chief executive, and James Chadwick, president of Ankura Alternative, said they would “continue to hold Mr. Shaw accountable and push for the appointment of a qualified operator.” Ancora owned a 0.16 percent stake in Norfolk Southern at the end of 2023, according to securities filings.

Norfolk Southern stock fell 3 percent Thursday morning after a shareholder vote. A Norfolk Southern spokesman said the final certified tally of votes would be released next week.

The Ancora campaign ignited debate over how rail freight lines should be managed. The investment firm preached the virtues of scheduled precision railways, the term given to practices aimed at making railways more profitable. In the past two decades, this approach has reduced costs and made railways more efficient. Norfolk Southern introduced elements of finely scheduled railways.

But critics of the efficiency drive say it could cut too much rail capacity, making freight rail lines unreliable for customers, pointing to the performance of Norfolk Southern's rival CSX, which introduced strictly scheduled rail in 2017.

Speaking before the vote, Martin J. Opperman, the outgoing head of the Surface Transportation Board, the federal agency that oversees rail freight lines, said Ancora's cuts may have left Norfolk Southern without the ability to handle a surge in demand and unexpected disruptions.

Ancora said it would implement the proposed comprehensive reform over three years to ensure it is implemented well.

Norfolk Southern essentially acknowledged before the vote that it needed to continue to become more efficient by hiring a chief operating officer in March with a strong reputation in the industry.

However, the company has not abandoned a plan that relies on finding new revenue — in part by winning business from trucking companies — and having enough rail capacity and staff available to quickly respond to increases in demand.

But Norfolk Southern must now prove to investors that it can make more money with its approach.

Sympathetic railroad analysts said Norfolk Southern's leaders may have struggled to meet their financial goals because the East Palestine accident, which occurred in February 2023, temporarily hampered railroad operations and scattered management.

Norfolk South remains under investigation by several federal and state agencies, including the National Transportation Safety Board, which is expected next month to issue its final report on the derailment.

Tony Hatch, a longtime rail analyst who supports Mr. Shaw's approach, said the vote gives the administration a break. But he added: “They will be under surveillance.” This is not a free pass. “This could happen again.”