ISS supports most of Ancora’s nominees for the Norfolk Southern board

Influential proxy advisory firm ISS recommended on Tuesday that South Norfolk shareholders are backing five of activist Ancora’s seven board nominees, rejecting the endorsement of chief executive-elect Jim Barber but describing him as “a credible candidate for director and chief executive despite everything”.

The ISS approval, in a report reviewed by CNBC, comes a day after Glass Lewis approved most of the activist investor nominations and days after two unions came out in support of Ancora’s proposed management team.

The proxy recommended that shareholders support re-electing CEO Alan Shaw to the board over Barber, but in a rebuke of existing NSC management, he said shareholders should not support current board chair Amy Miles.

Ancora is seeking to oust both current CEO Shaw and newly appointed COO John Orr. The activist holds Shaw responsible for the NSC’s historic underperformance relative to its peers and the disastrous derailment in East Palestine, Ohio, just months into his tenure.

Glass Lewis, the other influential proxy advisory firm, said shareholders should back Barber over Shaw in its recommendation on Monday. While neither approval implied giving Ancora full control of the board, both gave the dissent a clear mandate to implement the change.

Investors, especially passive index fund giants like Vanguard and BlackRock, pay close attention to the recommendations of proxy advisers when deciding how to vote their millions of shares. Norfolk Southern’s three largest shareholders control more than 16 percent of the shares outstanding.

ISS said in its report that it was clear “that the dissident presented a balanced slate of qualified candidates and generally targeted the appropriate candidates for governance.”

ISS recommends that shareholders support Ancora nominees William Clyburn, Same Fahmy, Gilbert Lamphere, Alison Landry and John Kasich.

The proxy adviser said Norfolk Southern’s governance problems were “most evident” in the board’s failure to communicate with investors and prioritize their “best interests.”

“As chair of the board, Amy Miles probably bears the greatest responsibility for this state of affairs,” the ISS report said.

Norfolk Southern has taken steps to address investor concerns, including naming Orr as chief operating officer and adding two new directors, former Sen. Heidi Heitkamp and former Delta CEO Richard Anderson. ISS approved Anderson’s selection but said shareholders should not support Heitkamp.

“There is no evidence to suggest that Heitkamp is in any way unfit to serve, but dissident nominee John Kasich has comparable regulatory and administrative experience,” the ISS report said, citing the latter’s “proven ability” to encourages compromises.

WATCH: CNBC’s full interview with NSC CEO Shaw about the activist campaign