Norfolk Southern activist wins three seats on railway board but has been unable to sack the chief executive

Shares of Norfolk Southern fell more than 5% on the news in Thursday morning trading.

The railroad’s board fought hard to stave off Ancora’s biggest demand: Shaw’s dismissal. Ankora had rejected previous settlement offers that did not include his ouster. Shareholders did not elect Jim Barber, Ancora’s CEO, but the activist made clear during the annual meeting and in a statement afterward that he would continue to push for a leadership change.

The board win is a major milestone for Ancora, a $10 billion Ohio investment firm that launched a practice just 10 years ago and has notched a series of small pre-election victories at Norfolk Southern. It caps an impressive campaign that has seen the activist win unexpected support from unions, clients and, perhaps most importantly, Glass Lewis and ISS, the agency’s influential consulting firms.

Jim Chadwick and Frederick DeSanto of Ancora said in a statement that the results showed the activist had brought about “significant change” in railroading. The statement also noted that they believe Shaw received a “resounding vote of no confidence based on the preliminary voting results.”

“We will work constructively and collaboratively on behalf of our shareholders to unleash the full potential of our strong franchise,” Norfolk Southern said in a statement, adding that it welcomed the arrival of three new directors.

While Shaw’s dismissal was Ancora’s most pressing demand, the activist company made broader accusations of failed governance and asserted that the company’s proposed operating approach was counterproductive.

The activist had argued that Norfolk Southern should adopt a model known as precision schedule rail, or PSR, which has generated eye-popping returns for shareholders of other railroads. However, critics said this model leaves railroads ill-equipped to handle increases in demand.

Norfolk Southern had initially argued against the PSR in favor of the proposed resiliency model, which would keep rail and automobile crews ready to handle those periodic surges in demand.

But the company suddenly changed course during the battle, hiring a well-known PSR operator as chief operating officer and implementing some of those exact principles.

Government officials, who had previously expressed support for Norfolk over Ancora, were momentarily silenced by the reversal. Labor groups representing about 40% of Norfolk’s union employees switched their support to Ancora, and major client Cleveland Cliffs supported Ancora’s selections and proposed plan.

The defector also received support from acting advisers Glass Lewis and ISS. ISS recommended that shareholders support five of Ancora’s seven selections, but did not recommend that Ancora’s CEO be elected to the Board of Directors. Glass Lewis endorsed six of Ancora’s candidates. Both said change was needed on railways.

“Given our lack of a standstill agreement and a clear mandate from a critical mass of shareholders, we will continue to hold Mr.