Union Pacific confirmed Sunday that CEO Lance Fritz will step down sometime this year amid pressure from a shareholder.
The CEO search became public after a request by UP shareholder Soroban Capital Partners, which had indicated that it wanted to move discussions about the CEO search to a public level, according to UP (NYSE: UNP). The board decided it was in the best interest of all shareholders to provide a public update on the succession process and the expected timing, the railroad said in the Sunday release.
Soroban said Sunday in a letter addressed to UP Lead Independent Director Michael McCarthy that the firm sought the departure of Fritz because Fritz had “lost the confidence of shareholders, employees, customers, and regulators.” The shareholder is asking for “a seasoned executive who has a proven track record of railroad operating excellence.”
“Key constituents have understandably lost confidence in Mr. Fritz’s ability to lead the Company. UNP’s total shareholder return has been the worst in the industry. Among all S&P 500 companies, UNP is rated by employees as the worst place to work and has the lowest employee CEO approval rating (ranked 500th out of 500 in both),” Soroban Managing Partner Eric Mandelblatt said. “The Company is not delivering on its commitment to customers, and the Surface Transportation Board (regulator) has singled out UNP as providing the worst service among the Class I railroads.”
UP says the search to replace Fritz actually began last year. Fritz and UP’s board engaged an outside consultant to address the issue in March 2022, and the board subsequently formed a task force in November that would be involved in the search.
UP’s board expects to name a successor who will assume the position sometime this year. UP said it is “seeking a CEO with a strong track record of success and expertise across safety, operational excellence, enhancing and driving customer service, innovation, employee culture and sustainability. The Board is focusing the process on highly-qualified candidates both within the industry and adjacent industries to identify a CEO capable of leading the Company for a long-term tenure.”
Fritz assumed the role of CEO of UP in February 2015, and since 2017, operating income has grown 27% while the return on invested capital grew 3.7%, according to UP.
Fritz’s tenure was marked by both unforeseen and anticipated challenges, most notably the COVID-19 pandemic and ensuing supply chain issues. UP had also gotten flak from the Surface Transportation Board for the railroad’s use of embargoes, while UP and other Class I railroads grappled with service issues and often contentious labor negotiations.
But UP also made advances in sustainability initiatives, such as testing higher biodiesel blends in its locomotives and investing in battery-electric locomotives.
“The Board is grateful to Lance for his unwavering leadership, dedication and oversight in driving our Company forward over the last eight years as CEO. Lance created an environment that has allowed Union Pacific to make a measurable impact with our customers, communities and employees alike,” McCarthy said in a statement. “He has capably led our company during a time of significant challenge and change, positioning Union Pacific to deliver long-term sustainable value for shareholders and customers. We are immensely grateful to have Lance’s continuing leadership and support and know he will ensure a smooth transition.”
Fritz responded: “It is my honor and privilege to serve this great company. I am proud of our team and all we have built together. I’ve always said that our fundamentals for long-term success are powered by our people — our best-in-class employees and the passion they have for our customers and communities. Union Pacific has embarked on a transformative journey that will result in stronger, more consistent service for our customers, with enhanced earnings 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 Union Pacific’s next leader to take the helm. I look forward to working with the Board as we identify our next CEO to lead the Company into the future.”
Should the new UP CEO assume the position this year, it would be the fourth CEO change among the Class I railroads within the past two years. CSX (NASDAQ: CSX) named former Ford executive Joe Hinrichs its CEO last September, CN (NYSE: CNI) installed oil and gas executive Tracy Robinson last February, and Norfolk Southern (NYSE: NSC) installed Alan Shaw as CEO last May. Shaw was previously NS’ chief marketing officer.
CN’s Robinson was named CEO because an activist investor sought to replace former CN CEO JJ Ruest after CN had unsuccessfully sought to acquire Kansas City Southern. KCS plans to merge with CN rival Canadian Pacific (NYSE: CP), and their merger is pending approval from STB.
Meanwhile, Katie Farmer became CEO of BNSF (NYSE: BRK.B) in January 2021.
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