By Don Phillips
Washington Post Staff Writer
Monday, April 5, 1999; Page F12

Last winter, a bee somehow flew into a control tower at Norfolk Southern's huge rail yards in Irondale, Ala., stinging a worker. The attack produced little more than a swollen elbow.

In most companies, such an incident would hardly reach upper levels of management. But the bee sting was featured during several of the railroad's biweekly conference calls on safety, headed by Vice Chairman and Chief Operating Officer Stephen C. Tobias. The corporation ordered an investigation, which led to the location and destruction of a hive of the intruders. After all, the company reasoned, a bee sting could cause someone to stumble into a serious accident.

The incident illustrates Norfolk Southern's legendary attention to detail. The Norfolk-based railroad's management culture, almost a caricature of the combined gentlemanliness and discipline of Confederate generals, has propelled the railroad into the ranks of the country's most-admired companies. Its financial success is such that one wag dubbed its Norfolk headquarters building "the tower of money-colored glass."

The firm's unbending rule enforcement has produced a safety record so superior to other railroads' that some wonder whether the prestigious Harriman safety medal should simply be retired.

Still, everyone in Norfolk is worried these days.

Nervousness fills the air as Norfolk Southern and CSX Transportation prepare for Day One, the June 1 takeover of the Northeastern railroad Conrail by the two rival Southeastern-Midwestern railroads. Norfolk Southern will get 58 percent of Conrail's routes, including Norfolk Southern's first lines into the country's largest consumer market in New York and New Jersey.

For more than a decade, Norfolk Southern coveted Conrail, maintaining a cash reserve of more than $1 billion to take advantage of a buying opportunity. Several Norfolk Southern offers were rebuffed, either by the federal government, which created Conrail from the lines of bankrupt railroads, or by Conrail itself after it became a private company. In the end, Norfolk Southern won a share of the Philadelphia-based railroad in a bruising proxy battle with CSX, Conrail's partner of choice, which bid up Conrail's price to an astounding $10.2 billion.

"We continued in our hearts to believe that Conrail, or a significant part of Conrail, would be part of the Norfolk Southern system," Henry C. Wolf, vice chairman and chief financial officer, said in a recent interview. "We showed enormous discipline."

But now Norfolk Southern must produce on its promises. More immediately, it must answer the question on everyone's mind: Will the disciplined, detail-oriented approach that has worked for decades in the South succeed or fail in the Northeast where politicians, unions and shippers have different cultures?

"We recognize it is a different world," said Nancy S. Fleischman, the Norfolk Southern vice president coordinating dozens of planning and implementation teams. "We realize that accents make a difference."

The merger created the largest shared area in railroading, with both Norfolk Southern and CSX entitled to serve hundreds of square miles of industrial territory stretching from northern New Jersey to Philadelphia. Therefore, a new railroad will be born on Day One -- to be called Conrail -- that must serve two fiercely competitive railroads in Solomon-like fashion. Planning the new Conrail has proved complicated.

The stakes are enormous. If Norfolk Southern's plans work, a new burst of competition will envelop the only area of the country that has no real rail competition and could lead to lower freight rates. In the long run, both Norfolk Southern and CSX want to take thousands of trucks off north-south interstates along the East Coast. Among the new Norfolk Southern trains running from Day One will be intermodal trains to carry up to 275,000 truck trailers and containers a year on a New Jersey-Southeastern route that parallels truck-clogged Interstate 81 through the Shenandoah Valley.

But if they fail, and major industries suffer supply problems, it could invite congressional action. The split takes place under the continuing cloud of the Union Pacific's disastrous merger with Southern Pacific in 1996. Although the huge Western railroad's service problems appear headed for solution, Congress will soon consider legislation to reregulate an industry that gives credit for much of its success to deregulation in the 1980s.

No railroad as large as Conrail has ever been split apart before, and certainly not in an era when railroads are run as much by computer systems as on rails. The planning and preparation have been far more complicated than the railroads believed, with Day One repeatedly being postponed.

The company still has much to overcome, including Northeastern port officials who wondered whether Norfolk Southern would favor the port of Norfolk and Conrail workers who looked south with dread. After all, Conrail employees not only were losing a company that they had nursed to success from the dark days of Northeastern railroad bankruptcy, but they had heard plenty of stories about Norfolk Southern's employee discipline.

Interviews with customers, port officials and state transportation officials indicate that Norfolk Southern has done a good job of calming, though not eliminating, worries among them. But interviews with union officials and ordinary railroaders show that the company has a long way to go to win over Conrail's work force.

"I would be the first to recognize that there is a legend," said Norfolk Southern Chairman and Chief Executive Officer David R. Goode.

Goode's employee meetings have produced some interesting moments.

"I was talking to some people and it was apparent to me I wasn't getting quite as free a communication," said Goode, a former tax lawyer whose slow drawl and ready grin do not conjure up images of robber barons. "So I said at some point, 'Oh come on, tell me what are you guys worried about?' And one guy looked at me and said, 'the men in black suits.' And I said, 'Well, here I am.' He said, 'Oh no, not you. You seem like a good guy.' "

On the tracks, engineers, conductors, maintenance workers and others can do little more than wait for June 1, even as certain Norfolk Southern operating policies are gradually implemented.

"There's a lot of nervous people," said David H. Brickey, Michigan legislative director for the United Transportation Union. "They're really not sure. Their whole careers are at stake."

Brickey termed Norfolk Southern "very arrogant," and predicted that the company's labor relations efforts will fail. "Initially, the N-and-S will try to sugarcoat things," he said. "But once their management people find their way around the property, all hell will break loose."

"The only good thing I can say about them is they do maintain their track well and they have good equipment," Brickey added.

Donald Dunlevy, the union's legislative representative for Pennsylvania, said he has already noticed changes for the worse in some Conrail managers who will stay behind as Norfolk Southern employees, "a sort of Dr. Jekyll and Mr. Hyde. All of a sudden they're different people."

Dunlevy said he has advised employees to follow instructions and keep an open mind. But he said he wonders if a Norfolk Southern culture will fit with the in-your-face culture of Conrail. "When you're in management and you make a stupid decision, they're going to tell you about it around here," he said. "I don't know how that's going to play."

Small problems can raise hackles. One Conrail engineer privately related a story making the rounds: that a Norfolk Southern manager in Calumet Yard in Chicago told a Conrail crew that "when we take over, you will not have all that jewelry on." Norfolk Southern crew members may not wear wedding rings, chains or other jewelry on the job because it could get snagged on machinery and perhaps rip off a finger.

Almost every Conrail railroader interviewed mentioned that in his view Norfolk Southern has such a good safety record because it intimidates its employees into failing to report the injury or seek treatment. This is repeatedly denied by Norfolk Southern.

"People look at our safety program with sort of amazement that the numbers would be as good as they are," Goode said. "In a sense, the numbers are good enough that they create some skepticism."

These allegations led the Federal Railroad Administration to launch an investigation of the entire industry. The FRA found only two instances of employee harassment at Norfolk Southern, and the company dealt with the managers harshly, the FRA said. George Gavalla, associate FRA administrator for safety, said that among all railroads, Norfolk Southern was "far and away the best railroad in reporting to us any accident that might be reportable" under FRA rules.

But that probe, and a separate "cultural survey" of the nation's four largest railroads, produced some surprises about the culture of Norfolk Southern employees. Norfolk Southern ranked at the top of the big four in "employee attitude." But on their own, some employees apparently are reluctant to report injuries, the FRA's Gavalla said. Some of this reticence may be a perception that they will be harassed but some of it comes from peer pressure from other employees who do not want to "mess up" a good safety record and the internal recognition that goes to the safest groups of employees, he said.

"Safety is almost a cult at that railroad," Gavalla said, adding that employee safety meetings are like a "religious revival."

"Sometimes it is important to follow the rules in order to avoid incidents, and in that case I would not apologize for the necessity of a rule," Goode said. But he said the days of the top-down hierarchical management style are over, and no company can operate without the participation of all its employees.

"The important thing for us is to make sure that somehow the enterprise doesn't go beyond the edge to the point where something says you're getting performance at an unacceptable human cost," he said.

Norfolk Southern has done a much better job of convincing customers and politicians of its good intentions.

Early on, Norfolk Southern decided that former Conrail operating officers, and not Norfolk Southern people, would occupy almost all operating jobs on former Conrail lines on Day One and for some time after. So did CSX, resulting in a a scramble to attract Conrail managerial talent that one shipper said was "almost like the NFL draft."

At the same time, Norfolk Southern was careful not to ship off a team of Southern-accented Norfolk Southern officials to negotiate with shippers and governments. The company instead began by hiring Craig Lewis, a popular former Pennsylvania state senator, as its vice president for corporate affairs in Philadelphia -- a man quite familiar with the culture of the East.

"Give Norfolk Southern credit, they listen to Craig," said Terrance Foly, director of business development for the port of Philadelphia and Camden. Foly said Norfolk Southern officials made a major effort to understand their new territory. And Foly repeated a mantra that seemed to flow through conversations with many shippers and politicians: Norfolk Southern doesn't promise much, but it follows through.

"They keep their promises," Foly said. "When they make them, they keep them."

"They don't promise you something if they don't think they can do it," said John C. Magness, president of the Canton Railroad Co. in Baltimore. "Sometimes they say:, 'This piece of business doesn't work well. We wouldn't be good at it.' "

But Norfolk Southern's toughest territory isn't Pennsylvania or Maryland, but New York and New Jersey. And there the picture is muddier.

"I think they've found out to their dismay there were some problems lurking up here," said Donald H. Lotz, manager of the Intermodal Development Unit of the Port Commerce Department in New York. In particular, Norfolk Southern found tough competition for scarce track capacity by passenger and commuter authorities. "They've spent a lot of time getting to know the local politicians," he added. "I think they're pretty much up on those things now."

"They're smart people -- just as smart as everybody else," Lotz said. "So far what I've seen seems to be positive."

Recalling the Union Pacific debacle in the West, Norfolk Southern has been hiring more people than it might think it needs and has been pouring money into locomotives, cars and other capital improvements despite the drain from the Conrail debt burden. The railroad, unlike Union Pacific, also will have all its labor agreements in place and all computer information systems completed and tested before Day One.

"They learned some valuable but costly lessons from Union Pacific," said Edward H. Rastatter, director of policy at the National Industrial Transportation League, which represents the nation's major industrial shippers. "We've been impressed by the amount of planning that's gone into this. They're just a first-class railroad, and generally our shippers aren't worried about Norfolk Southern pulling this off."

Fleischman, the highest ranking female Norfolk Southern officer, said few people realize how much the railroad already has changed because of the months-long struggle to absorb the Conrail culture.

"In spite of the reputation Norfolk Southern has for being militaristic, we're also a company of very intelligent people and we're willing to learn from Conrail," Fleischman said.

Conrail officers were brought to Norfolk or to the company's South Carolina preserve, "The Forest," to discuss ways to make the transition less painful. All were assigned Norfolk Southern officers as mentors to help them learn the culture as well as such simple things as what phone numbers to call for ordering supplies.

"When you start new, you lose your network," said John Samuels, a Conrail manager who is now Norfolk Southern vice president for operations planning and budget. "People at Norfolk Southern have bent over backwards to help me."

Chief Financial Officer Wolf said it is important to spend time reassuring new employees. He said he has spent as much time with new employees from the finance department as they want.

"Norfolk Southern is the New York Yankees of the industry," Wolf said. "It has to pass through your mind, 'Am I going to be able to play for this team? Will I fit in? Will I enjoy being in the locker room with the rest of the team?'

"I think they're going to do very well."

The process of trying so hard to understand and cope with the Conrail culture had led to a sort of metamorphosis in Norfolk Southern's culture, Fleischman said.

"Culturally, the whole company is changing because of this," Fleischman said. "The whole company is learning a new way of doing things."

Norfolk Southern, she said, has always been "action-oriented," dealing with problems and operations on an ad-hoc basis. Conrail, on the other hand, is "process-oriented," setting up internal systems that have resulted in better service to customers.

"This has brought us a lot closer to where Conrail has been," she said.

But don't look for a slow-moving, tradition-bound company like Norfolk Southern to change too much or too rapidly, its officials caution.

"We usually say today is not the day for revolution," Goode said. "Today is the day to rededicate yourself to making the improvements that in an organized, methodical way will make the enterprise work well."

A Look at . . .

Norfolk Southern Corp.

Business: Norfolk Southern is a railroad company that now serves 20 states in the South and Midwest over 14,400 miles of track.

Headquarters: Norfolk

Founded: 1982 with the merger of the Southern Railway Co. and the Norfolk & Western Railway.

Chairman and chief executive: David R. Goode

Ticker symbol: NSC on the New York Stock Exchange

Employees: 24,300

Web address: www.nscorp.com

Other holdings: 58 percent of Conrail (to be merged into Norfolk Southern on June 1), Pocahontas Land Corp.

Norfolk Southern's record of consistently higher earnings began a dip in the second quarter of 1998 as expenses of the Conrail merger kicked in and revenue softened slightly.

Net income, in millions of dollars

1997

I 128

II 190

III 179

IV 224

1998

I 229

II 187

III 158

IV 160

Norfolk Southern's stock price rose initially after the Conrail merger was announced, but is now near a two-year low.

Source: Company reports, Bloomberg News