• The BMWED Teamsters said the railroad union would back activist Ancora and its seven director nominees in a proxy contest at Norfolk Southern.
• Winning labor support is key to both activist and management efforts to convince shareholders of their individual plans for the troubled railroad.
• Other unions had come out in support of management prior to the BMWED Teamsters' endorsement of Ancora, including one part of AFL-CIO.

Activist Ancora on Thursday won the support of the BMWED Teamsters in the investor's efforts to oust Norfolk Southern CEO Alan Shaw and a majority of the railroad's 13-person board.

The labor group said it would back the activist's seven director nominees over Norfolk Southern management, a significant endorsement in an industry unusually dependent on union support.

The support from the BMWED Teamsters, whose members build and maintain the track infrastructure that keeps Norfolk Southern trains moving, amounts to a sharp rebuke of Shaw and Norfolk Southern's board.

"The BMWED-IBT, after more than a year of non-committal hedging on reasonable, needed changes and untenable shakiness in management at Norfolk Southern, has determined that a change in leadership is needed for the freight rail carrier and its employees," BMWED Teamsters President Tony Cardwell said.

Labor support is now divided between management and activists. On April 16, the American Federation of Labor and Congress of Industrial Organizations wrote to Norfolk Southern shareholders and said it's supporting management over Ancora. The union said it was concerned that Ancora's plan would lead to understaffing, among other things.

"Together with our unions, we have made significant progress to create a safer, more productive railroad," Norfolk Southern said in a statement Thursday. "Unions representing 81% of our craft workers have publicly supported our strategy and raised concerns about the dangers of Ancora's plan."

Maintaining positive relationships with labor is crucial for prospective management, given that more than half of U.S. railroad employees belong to a union. The threat of a national railroad strike over paid sick days prompted presidential and congressional intervention in 2022, for example.

Norfolk Southern management has argued that Ancora's plan to implement precision railroading, or PSR, and streamline operations, would damage the railroad's relationship with customers, regulators, and labor groups. The Teamsters' backing would suggest that some union members think the opposite.

"At this juncture, seeing no path forward, we see no reason to support the current administration at Norfolk Southern," Cardwell said.

Norfolk Southern and Ancora have been locked in a proxy contest for several months. Ancora seeks to install former UPS Chief Operating Officer Jim Barber as CEO, with former CSX executive Jamie Boychuk as Barber's COO. Both executives are former union members, Boychuk noted Thursday.

"It's a tremendous vote of confidence to gain the support of the BMWED Teamsters—they are going to be a critical partner as we work to build a more efficient, safer, and sustainable railroad," Barber said in a press release. 

The activist has argued that Norfolk Southern has mishandled the fallout from a high-profile derailment in East Palestine, Ohio, and that the company's operating plan is unworkable. 

Norfolk Southern said it has full confidence in Shaw and his turnaround plan. The company has received the support of key regulators in Washington. It's also added two new directors and hired a new COO, John Orr, who is already driving service improvements, according to the company.

"We remain focused on responsibly improving our operational performance, employees' quality of life and working environment," the company said in its statement.

Much will hinge on which side the influential proxy advisors decide to back. The support of proxy advisors ISS and Glass Lewis will be key to institutional shareholders' decisions. 

Some have already come out in support of Ancora. Neuberger Berman, for example, is backing the activist and said that Norfolk Southern had a history of poor governance and that a boardroom change was needed.

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