THE VIRGINIAN-PILOT
Copyright (c) 1997, Landmark Communications, Inc.
DATE: Sunday, February 2, 1997 TAG: 9701310009
SECTION: COMMENTARY PAGE: J4 EDITION: FINAL
TYPE: Editorial
LENGTH: 69 lines
Economist A. A. Berle pointed out in the 1930s that power in America's great corporations had shifted from their entrepreneurial founders, who customarily owned or controlled most of the companies' stock, to the managers who succeeded them.
Managers still control public corporations, and aggrieved shareholders are often at the mercy of managers who treat the companies that employ them as private preserves, feathering their nests at investors' expense.
So the successful rebellion by Conrail shareholders against the top management of their giant railroad is one for the history books.
Conrail was fashioned from bankrupt Northeastern railroads a couple of decades ago. Since railroads are essential to the U.S. economy, Congress stepped in to keep the trains running. Washington's intervention led to the creation of Conrail, which today is a privately operated railroad is the principal Northeastern provider of rail service for shippers.
When Richmond-based CSX Corporation and Philadelphia-based Conrail announced last year that CSX would buy Conrail, the two carriers' management teams could reasonably expect Conrail's shareholders to ratify the deal - which was a cushy one for the managers of both railroads; Conrail's top-management team would remain in place, reaping more rewards than now.
But Norfolk-based Norfolk Southern, which had long sought Conrail, offered Conrail shareholders a better deal, in cold cash, than CSX had offered. Conrail's management said it would stick with CSX - that Norfolk Southern could keep its money. A CSX-Conrail coupling would be better for the company, Conrail's executives assured everyone.
But two-thirds of Conrail shareholders, including one-third of Conrail employees holding stock, didn't buy management's line. They liked Norfolk Southern's offer and seemingly resented the attempt by Conrail's poobahs to ram its deal with CSX down their throats.
Norfolk Southern has waged its campaign for Conrail on the shareholder front, where it has won a scored a thumping triumph, and in the courts, where it has won one round, lost two (at least, for now). Norfolk Southern points out that acceptance by Conrail of its all-cash $115-a-share buyout offer would enhance competition among railroads in the East, which would benefit shippers. After a Norfolk Southern buyout, almost twice as many cities would be served by two railroads than after a CSX buyout.
That would be a highly desirable situation. Pitting railroads against each other for shippers' business is in the public interest, as well as the shippers'.
Linda Morgan, chairman of the federal Surface Transportation Board, which oversees railroads, says her agency wants to promote rail-service competition, too - that it will not approve any arrangement that establishes a Northeastern railroad monopoly. Morgan told the heads of the railroads that the agency wants a negotiated settlement.
So Norfolk Southern, CSX and Conrail will soon meet to talk about striking a bargain that would benefit themselves and be acceptable to the Surface Transportation Board because of its benefits to shippers and the economy.
Coming to terms would be far better than a protracted, costly war in the courts and for shareholders' favor. When elephants fight, the grass is trampled. Norfolk Southern, shut out by CSX and Conrail, was open to bargaining before Linda Morgan told the boys to work things out among themselves.
The stakes couldn't be higher. Two mammoth carriers, the Union Pacific and the Burlington Northern and Santa Fe, are the main providers of rail service west of the Mississippi. The Surface Transportation Board seemingly seeks a similar design in the East, with the expanded network of short-line railroads, such as the Eastern Shore and the Chesapeake and Albemarle railroads, serving markets the mammoths cannot serve profitably.
Hampton Roads, the shippers nationwide and federal regulators all reason to hope for a bargain that gives Norfolk Southern a piece of the action. That augers well for the eventual outcome.