OMAHA, Neb. (AP) — Union Pacific announced plans on Sunday to replace its CEO later this year after a hedge fund that owns a $1.6 billion stake in the railroad came out with concerns about his leadership.
So says the managing partner of Soroban Capital Partners, Eric Mandelblatt, in a letter that the Omaha, Nebraska-based railroad company had lagged behind its peers during Lance Fritz’s tenure over the past eight years and that a leadership change was overdue. The hedge fund has been privately pressuring Union Pacific to oust Fritz since at least last year.
“UNP (Union Pacific) has repeatedly and significantly failed to reach its potential under Mr. Fritz’s leadership,” Mandelblatt wrote. “UNP ranks worst in safety, volume growth, revenue growth, cost control, EBIT growth and total shareholder return. These are very disappointing results, despite the fact that UNP has the largest rail franchise in North America.”
Mandelblatt urged the railroads to hire former Chief Operations Officer Jim Vena, who helped overhaul Union Pacific’s operations several years ago. But the railway’s board said in a statement that since last year it has been working with a leadership consultant to identify the best internal and external candidates for the job.
Vena was brought to Union Pacific by Canadian National in 2019 to help change the railroad to a new business model that relies on fewer, longer trains and significantly fewer employees and locomotives to haul freight, but Vena left after less than two years in service .
Nearly all major US freight railroads have adopted that model since CSX first started using it in 2017 after being pressured by another hedge fund to make changes, though railroad unions have expressed concerns that this model of “precision planned railroads” has made the industry more risky because workers are spread so thinly after nearly a third of all railroad jobs have been eliminated in the past six years. The unions say these practices are causing incidents such as the Norfolk Southern fiery derailment in Ohio earlier this month more likely, but the railways have defended their safety record.
Michael McCarthy, UP’s chief independent board member, praised Fritz in a statement Sunday for helping to boost the railroad’s profits through the uncertain times of the pandemic — and through the challenges of last year’s acrimonious contract negotiations with its 12 unions.
“He has capably led our company through a time of great challenge and change, positioning Union Pacific to deliver long-term, sustainable value to shareholders and customers,” said McCarthy. “We are extremely grateful for Lance’s continued leadership and support and know he will ensure a smooth transition.”
The railroad posted a profit of $1.6 billion in the fourth quarter, but over the past year it has struggled at times to process all the shipments that companies have asked to deliver. Ordered controllers twice Union Pacific is delivering emergency shipments to livestock producer Foster Farms to ensure the company doesn’t run out of feed for the millions of chickens it raises.
The US Surface Transportation Board also held a special hearing in December to investigate how Union Pacific is placing short-term limits on shipments to try to clear congestion on its rail network, because the railroad has used that tactic far more than other major freight railroads.
Union Pacific has steadily improved its performance since last spring by hiring hundreds of additional employees to operate its trains.
Fritz said in a statement that he is honored to lead the railroad where he has worked for the past 22 years. He praised Union Pacific employees and praised the railroad’s performance without directly addressing the hedge fund’s criticisms.
“Union Pacific has embarked on a transformational journey that will result in stronger, more consistent service for our customers, with enhanced earnings growth and value creation for our shareholders,” said Fritz.
Union Pacific is one of the nation’s largest railroads with a network of 32,400 miles (52,000 kilometers) of track in 23 western states.
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