(The Virginian-Pilot posted the following story by Carolyn Shapiro on its website on May 9.)
NEW ORLEANS — Corporate responsibility dominated discussion Thursday at the Norfolk Southern Corp. annual meeting here, with shareholders also expressing concern with company stock performance.
As a sign of how corporate governance has moved centerstage, a proposal aimed at making the board more accountable to shareholders narrowly lost, as 51.4 percent of the votes and proxies opposed it. Hugh L. Sawyer Jr., a shareholder and Norfolk Southern engineer who represents the Brotherhood of Locomotive Engineers Division 316 in Atlanta, proposed to declassify directors’ staggered terms so that each comes up for election annually.
The change, opposed by the company, would have added “to the confidence of shareholders that their interests are in the forefront,” Sawyer said during the meeting. Sawyer said afterward that the closeness of the vote encouraged him to continue his efforts.
In his presentation of the company’s economic health, Chairman and Chief Executive Officer David R. Goode stressed the importance of sound governance in an era of corporate accounting scandals. He cited the board’s assessment of Norfolk Southern’s annual performance, its commitment to directors’ independence — only Goode comes from inside the company — and officers’ accuracy in reporting results.
“And I stand behind our numbers,” Goode said. “We have a history of integrity, and we’re committed to maintaining a clean record.”
Recent cases of accounting fraud involving Enron Corp., WorldCom Inc. and HealthSouth Corp., among others, have put the spotlight on the financial integrity and leadership of major U.S. corporations.
Joseph P. Horgan, a corporate affairs analyst for the International Brotherhood of Teamsters who attended the meeting in support of the engineers and with a proxy held by investment consulting firm Marco Consulting Group, credited Norfolk Southern for improving the diversity of its board. Still, he asked about having worker representation.
Goode replied that the board has and will continue to consider that. “To this point, we do not deem that to be a good idea for the corporation,” he said.
After the meeting, Horgan said he would like further explanation. The Teamsters have large investments in various pension funds and watch corporate governance closely, he said.
Many companies’ boards come from a select group — often chosen from related industries or political connections — and are re-elected with rare opposition or outside nominations, Horgan said. Indeed, all three Norfolk Southern directors up for re-election Thursday received more than 90 percent of the shares voted, and none of their seats was contested.
Horgan said long-term investors would like to see directors “who are representing people not from the same country club.” Ideas generated by people with different backgrounds can only benefit a company, he said.
Robert E. Hord, a Richmond stockholder who said he has attended annual meetings for decades, said he would like to see Norfolk Southern improve its operating ratio, measured by a company’s expenses as a percentage of its earnings. With a ratio of 81.5 percent in 2002, Hord said he has seen little curtailment on the cost side.
“I’m disappointed in all of them,” Hord said of the railroad’s expense levels, “for the reason that I don’t know why they get it as high as they get it.”
Higher revenues should help improve the ratio, Goode said. In March, Norfolk Southern recorded its highest revenue month, he said. Rail carloads in April climbed almost 3 percent, a sign of a possible economic upturn.
Goode championed Norfolk Southern stock as one of the better performers in the Standard & Poor’s index.
But the stock price, which closed Thursday down 31 cents at $20.97, was the subject of disappointment among some shareholders. It has never recovered fully from highs above $30 per share since Norfolk Southern purchased half of the Conrail line in 1999.
That caused Sawyer to question the 55 percent increase in Goode’s combined salary, bonuses and compensation last year. Sawyer said a $100 investment in Norfolk Southern stock three years ago is worth $105 today, a 5 percent increase, according to a Business Week magazine survey of executive compensation and company performance. Sawyer’s annual salary, by comparison, has remained steady at about $60,000, including bonuses, for several years.
Goode said the board’s compensation committee keeps close watch on company performance and general corporate standards. “My compensation is by no means at the top of corporate America or even our industry,” he said.
“My hope is that we will all have a better year and that will be reflected in returns for everyone,” he said.
Horgan also asked Goode if the company would consider reporting its stock options as expenses. Federal accounting standards allow Norfolk Southern to account for stock options granted as employee compensation by including them in the total number of outstanding shares, thus diluting earnings over a larger number of shares, Henry C. Wolf, Norfolk Southern’s chief financial officer, explained after the meeting.
Goode said the board and officers had discussed changes in stock-option accounting but had made no decisions.