Norfolk Southern, are they for real? (Are we for real?)
The recent train derailment in Ohio of a Norfolk Southern train has me thinking. As this accident relates to our social order, there is just so many paths, perspectives and questions one can dive into. I almost could not decide what direction to address it all from.
We have the capitalism/free market angle. Is this disaster an example of market failure? Is this government failure? Does this disprove the “too much government” argument? You know, that Reagan’s 9 scariest words. Is this voter failure? Voters not actually doing the work to become an informed citizen? Is it a Republican thing? Is it a Democratic Party thing? Too much money in politics? Does this prove Sam Alito wrong regarding money influencing government? Is this a case for the Build Back Better legislation. Unions? Wall Street? What is the question, the path that leads me to a broader understanding of this moment leading to a more perfect union.
Can we look at this disaster and learn something a bit more about our sociopolitical condition? Can we learn something about our collective self. Or are we to just stop at: We need better brakes on trains. Thus, my question: Are they for real?
I settled on the question of what is the purpose of a corporation? The canned answer is to make money. Let me just make clear, I do not agree with this at all. But it led me to looking for the corporate charter of Norfolk Southern to find what they listed as their reason for existing. Corporations used to have to justify their existence. I looked up Virginia’s government site, but they did not have the document online that I was looking for. More precisely, their document for article of incorporation did not require the same information that RI’s requires. When one files to create a corporation in RI, one specifically has to state what the purpose of the corporation will be. I was hoping to find a simple answer.
Norfolk Southern has all sorts of corporate information at their web site. What interested me is their “Thoroughbred Code of Ethics”.
In light of their recent experiences, you might be stimulated by their “Vision and Values” section. Their vision: Be the safest, most customer-focused, and successful transportation company in the world. Some sarcastic remark is appropriate here, but…(fill in the blank). As you do, note their statement regarding their “thoroughbred” code: Our Code of Ethics (Code) demonstrates how we should act each day to follow our core values…By following our Code and living our values, we can fulfill our vision together.
Now I’m focused on my thought about this moment in our social order. Does a corporation have to own the words they speak? Is it real or is it just a mask put on for the public’s comfort. Senator Romney said corporations are people too, my friend. If so, then these words are the description of the person known as Norfolk Southern Corporation. We hold people to their word. Is this not the basis of the concept: rule of law and not men? Of course, if corporations are not people, then they are a legal entity which exists at our discretion. We created this species if human and genus if only a legal creation. Either way, we’re God in their spiritual world. But are we even real about it all?
I could not find exactly what I was looking for, but I did find their 2022 yearly report filed with the SEC. As labeled: Fiscal year ending December 31, 2022.
This document is their legal statement. It’s not a mask or at least it should not be considered as such.
Part I, Item 1A immediately caught my eye. Risk Factors.
“The risks set forth in the following risk factors could have a material adverse effect on our financial position, results of operations, or liquidity in a particular year or quarter, and could cause those results to differ materially from those expressed or implied in our forward-looking statements. The information set forth in this Item 1A “Risk Factors” should be read in conjunction with the rest of the information included in this annual report, including Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Item 8 “Financial Statements and Supplementary Data.”
There is no doubt that Norfolk Southern is aware of the risks they face with such a statement. Or is this just legal boiler plate? A statement to fall back on if the money does not flow as they lead one to believe. Every statement is completely related to the flow of money. The concern is only about the flow of money. I guess this is an appropriate perspective to view their risks. Though, what about the risk to their reputation?
Here are the subsections which I find most pertinent to in this discussion.
REGULATORY AND LEGISLATIVE RISKS
Governmental legislation, regulation, and Executive Orders over commercial, operational, tax, safety, security, or cybersecurity matters could negatively affect us, our customers, the rail industry or the markets we serve.
Our inability to comply with the requirements of existing or updated laws, regulations, or Executive Orders that govern our operations or the rail industry, including but not limited to those pertaining to commercial, operational, tax, safety, security, or cybersecurity matters, could have a material adverse effect on our financial position, results of operations or liquidity.
Federal and state environmental laws and regulations could negatively impact us and our operations. Our operations are subject to extensive federal and state environmental laws and regulations…The risk of incurring environmental liability, for acts and omissions, past, present, and future, is inherent in the railroad business. Our inability to comply with the extensive federal and state environmental laws and regulations to which we are subject could result in significant liabilities or otherwise adversely impact our operations.
As a common carrier by rail, we must offer to transport hazardous materials, regardless of risk. Transportation of certain hazardous materials could create catastrophic losses in terms of personal injury and property (including environmental) damage and compromise critical parts of our rail network.
Capacity constraints could negatively impact our service and operating efficiency. We have experienced and may again experience capacity constraints on our rail network related to employee or equipment shortages…Changes in workforce demographics, training requirements, and availability of qualified personnel, particularly for engineers and conductors, have negatively impacted and may again negatively impact our ability to meet short-term demand for rail service.
We may be subject to various claims and lawsuits that could result in significant expenditures. The nature of our business exposes us to the potential for various claims and litigation related to labor and employment, personal injury, commercial disputes, freight loss and other property damage, and other matters.
A catastrophic rail accident, whether on our lines or another carrier’s, involving any or all of release of hazardous materials, freight loss, property damage, personal injury, and environmental liability could compromise critical parts of our rail network.
HUMAN CAPITAL RISKS
Failure to attract and retain key executive officers, or skilled professional or technical employees could adversely impact our business and operations. Our success depends on our ability to attract and retain skilled employees, including a sufficient number of craft employees to enable us to efficiently conduct our operations.
Difficulties in recruiting and retaining skilled employees, including train and engine workers, key executives, and other skilled professional and technical employees; the unexpected loss of such individuals; and/or our inability to successfully transition key roles could each have a material adverse effect on our business and operations.
Every one of these listed risks are found in the derailment disaster in Ohio. Every one of these risks are listed as something that could affect their bottom line and thus their shareholders.
I have to qualify my impression of how they have presented these risks. They did not present them as something that was within their ability to minimize and even eliminate. They are presented as line items that will cost them and thus shareholders if they choose to address them. There is nothing in these statements that imply they are proactive. Simply, it is a list of potential fate. That is my impression.
Note the use of the phrase: Our inability to comply with… Why would they not be able to comply?
I’ll continue this but do read the links. What are we seeing here? Is what we are seeing here traits of character that we are seeing elsewhere?
Are they for real?
If you compare this to the SEC filings of most major corporations, you will see that this is all boilerplate legal language that has developed over the past 150+ years in a largely successful to protect corporations from facing the consequences of their actions, or inactions. The idea of “limited liability” taken as far as possible by smart and, often, well-intentioned people.
As such, it really is a mask, though I personally agree it should not be so.
Accordingly, I think the most interesting question you raise is “Are we for real”?
Self-delusion is rampant. Denial is not just a river in Egypt. Who/what can cure our species of this glaring fault in our “intelligence”?
Perhaps AI will be useful in that regard. If we’re willing to learn.
There is a risk they will not be able to comply with regulations. It is a very low risk IMO. The legislative process and regulatory procedures are the appropriate place to voice their objections or reservations. If the rule had not been repealed they would have had a decade to equip their hazardous material cars with new brakes.
If their vision “Be the safest” was not just self-serving claptrap, they should have welcomed a regulation that “forced” them to do what they wanted to do.
I suppose it is naive to think that part of the job of management is managing risks.
February 17, 2023
Norfolk Southern’s Profits and Accident Rates Rose in Recent Years
Safety experts say a focus on financial returns may be partly to blame for derailments and accidents like the one in Ohio.
By Peter Eavis and Mark Walker
Last month, as Norfolk Southern, one of the largest railroads in North America, reported record operating profits, Alan H. Shaw, its chief executive, told shareholders that the company’s service was “at the best it’s been in more than two years.”
About a week later, one of the company’s freight trains derailed in East Palestine, Ohio, forcing a controlled burn of toxic chemicals and the evacuation of hundreds of residents. Another Norfolk Southern train came off the rails near Detroit on Thursday.
The accidents were a stark reminder that, even as freight railroad companies have become much more profitable in recent years, accidents, some serious, still regularly occur on the 140,000 miles of track that make up their networks.
The rate of accidents on Norfolk Southern’s railway increased in each of the last four years, according to a recent company presentation. The record has worsened as executives at Norfolk Southern and other railroads have been telling investors on Wall Street that they can bolster their profit margins by keeping a lid on costs. At the same time, railway companies have lobbied against new rules aimed at making trains safer.
Norfolk Southern, which earned more than $3 billion last year, invested close to $2 billion in its railways and operations, up a third from 2021. But over the past five years, it paid shareholders nearly $18 billion through stock buybacks and dividends — twice as much as the amount it invested in its railways and operations. Other large railways have paid out billions to their shareholders, too, and their shares have done better than the wider stock market over the last decade.
“For years, the railroads have fought all kinds of basic safety regulations — modern braking systems, stronger tank cars for explosive materials, even information about what’s on trains passing through communities — based on an argument that it simply costs too much to protect our lives, health, and our air and water,” said Kristen Boyles, a managing attorney at Earthjustice, an environmental group. “It’s disgusting to find out that at the same time these companies have been making massive shareholder payments.” …
There were over 8,000 derailments in the United States in 2022; over 4,000 derailments involving rail shipments of hazardous materials. A number of other countries evidently do not ship PVC, but rather ship the chemicals used to make PVC.