Union Pacific ranked ‘Worst Place to Work’ seeks new CEO – Sourcing Journal
Union Pacific decided to shed its top executives the same day an activist investor publicly urged the rail giant to oust the CEO after eight years in the role.
Lance Fritz, who has held the position of CEO at Union Pacific since February 2015, will leave the company at the end of 2023. He has come under attack in recent months for using service embargoes, which effectively slow the movement of goods. Union Pacific moves about 27 percent of US freight shipped by rail.
The Omaha, Neb.-based company said it had been looking for a new boss since March of last year, but its board decided to make a public statement after receiving a letter from Eric Mandelblatt, Soroban Capital’s managing partner.
The letter, addressed to Michael McCarthy, the board’s senior independent director, called on leadership to replace Fritz with an “experienced executive who has a proven track record of railroad operations.”
The Executive Board intends to appoint a successor later this year.
Union Pacific says its board wants a CEO with “a strong track record and expertise in safety, operational excellence, improving and nurturing customer service, innovation, people culture and sustainability.” But the board may not give in entirely to Soroban’s pleas, saying it is considering long-term CEO candidates in both the rail industry and related sectors.
Investors happy with the news sent Union Pacific shares up more than 10 percent in Monday trading.
Last March, the Union Pacific board engaged an outside consultant and subsequently formed a directors’ task force in November 2022, composed of each of the board chairs.
The railroad, which operates in 23 western states, had a strong 2022 by many reports, with corporate revenue up 14 percent to $24.9 billion on a record $7 billion in net income. But Soroban was quick to point out that during Fritz’s eight-year tenure, Union Pacific was the worst of the seven “Class I” railroad companies on metrics like safety, volume growth, revenue growth, cost management, EBIT growth, and total shareholder return.
In the letter, Mandelblatt cited Soroban’s dissatisfaction with Union Pacific’s “years of continued operational underperformance” and said that “current management is unable to deliver strong operational performance.”
Mandeblatt also attacked Fritz’ lead.
“Of any S&P 500 company, UNP is ranked as the worst place to work by employees and has the lowest employee approval rating as CEO (ranked 500thth of 500 in both),” Mandeblatt said. “The company is failing in its commitment to customers, and the Surface Transportation Board (an industry regulator) has ranked UNP as the worst service among Class I railroads.”
Mandelblatt said “acute operational issues remain at UNP” and stressed that the activist investor “sees an increased risk of permanent damage to the franchise if not addressed”.
In a press release announcing Fritz’s departure, Union Pacific touted some of the company’s financial accomplishments under Fritz since 2017, noting that net income was up 52 percent, operating income was up 27 percent, and operating income was down 3.7 percent Percentage points increased return on invested capital.
“It is my honor and privilege to serve this great company. I’m proud of our team and everything we’ve built together,” said Fritz, who also serves as the company’s chairman and president, in a statement. “I’ve always said that our foundations for long-term success are built on our people – our world-class people and the passion they have for our customers and communities. Union Pacific has embarked on a transformational journey that will result in stronger and more consistent service to our customers, with improved revenue growth and value creation for our shareholders. Union Pacific has been my home for 22 years and I am confident that now is the right time for the next Union Pacific leader to take the helm. I look forward to working with the board in finding our next CEO to lead the company into the future.”
Soroban owned an approximately $1.6 billion stake in Union Pacific, or approximately 1 percent of the company’s stock, at the time of writing Sunday.
“The Board is grateful to Lance for his unwavering leadership, dedication and oversight that has helped drive our company forward over the past eight years as CEO. Lance created an environment that has enabled Union Pacific to have a measurable impact on our customers, communities and employees alike,” McCarthy said in a statement. “He has competently led our company during a time of significant challenge and change, positioning Union Pacific to create long-term, sustainable value for shareholders and customers. We are very grateful for Lance’s continued guidance and support and know he will ensure a smooth transition.”
Last week, Union Pacific reached an agreement with two of its smaller unions over a hot topic: paid sick leave. The railroad allows these union members up to four paid sick days per year, as well as greater flexibility to use three personal days as sick days without prior notice and approval.
The agreements came shortly after another major US rail company, CSX, reached agreements with four unions to give workers the same benefits.
Paid sick leave and demanding working hours were of central importance for the approximately 115,000 railway employees in the state in their contractual dispute with the railway operators. Congress intervened in December 2022 to pass legislation that would force workers to accept the tentative agreements on the five-year contract, which runs until 2024.
Should Union Pacific’s new CEO assume the position in 2023, it would be the fourth CEO change at Class I railroads in two years. CN installed oil and gas executive Tracy Robinson last February, while Norfolk Southern appointed former chief marketing officer Alan Shaw as CEO last May. CSX appointed former Ford executive Joe Hinrichs to the executive post last September.
https://sourcingjournal.com/topics/logistics/union-pacific-ceo-lance-fritz-steps-down-activist-investor-soroban-railroad-rail-420404/ Union Pacific ranked ‘Worst Place to Work’ seeks new CEO – Sourcing Journal