Fix Amtrak? Fix its Board first

Amtrak Board Chair Anthony Coscia.

Apparently, only as a fortunate consequence of the partial federal government shutdown, the U.S. Senate returned to the Administration its three proposed appointees to Amtrak’s Board of Directors. Rather than an outright rejection, a fair question would be: Does the U.S. Senate operate in such a bubble that it acts like the House of Romanov that everything is fine with Amtrak? Is the Senate in such bi-partisan denial that it does not see Amtrak as a failing State-Owned Enterprise (SOE)?

Frankly, given the obvious growing financial and political exigency over Amtrak’s future, there is no better time to embrace Chicago mayor Rahm Emanuel’s axiom developed from his experience on Capitol Hill: “You never let a serious crisis go to waste. And what I mean is that it’s an opportunity to do things you think you could not do before.” Conducting research for a comprehensive forthcoming article, “Repeal and Replace Amtrak’s Board of Directors,” I have concluded that a serious detriment to Amtrak’s lack of acceptable accountability and transparency can be explained by the Board’s persistent whiffing of its stewardship.

We have recently learned how corporate governance is paralyzed when a Board of Directors evidences its ineffectiveness, as witnessed at Wells Fargo and General Electric. However, worse than that scenario has been the deliberate intent to persistently betray the public stakeholders of Amtrak by loading up its Board over the years with disinterested, unqualified individuals, save for their savvy Washington contacts (with the exception of Yvonne Brathwaite Burke of California, who served but one term).

With respect to Amtrak’s depth of problems, such as acceptably defining and fulfilling its mission, ignoring incriminating OIG and GAO reports, and misleading Congress on operational costs (allocations) and issues (PTC), the continuity of such Old Guard actions cannot forever be swept under the carpet. In reference to the statement in “Duck Soup” by Chico Marx (disguised as Groucho), “Who are you going to believe, me or your own eyes?” I would answer yes to both. Consequently, Amtrak will not be sustainable, whether through federal appropriations, state payments, or just perceived as a viable mode of transportation, if it cannot get its own house in order.

It is incumbent upon the Senate to act now to reject all three nominations to Amtrak’s Board by the Trump Administration, as the time is long past to reward people based upon “crony capitalism.” The Senate should advise the Administration that going forward, the requirements for appointees to Amtrak’s Board must be sacrosanct and in parallel to how most of today’s corporate boards are aligned, based upon qualifications, credentials, competencies and skills. In essence, the current three proposed appointees to Amtrak’s Board do not fulfill these expectations:

• Leon Westmoreland (Georgia): Twelve years in Congress; voted twice against funding Amtrak; currently Washington consultant.
• Joe Gruters (Florida): CPA; two years in Florida House; now in Florida Senate; Chair Florida Republican Party.
• Rick Dearborn (Oklahoma): Director of Congressional relations for The Heritage Foundation (a strident critic of funding passenger rail); Executive Director of the Trump Presidential Transition Team; Deputy White House Chief of Staff; currently partner at The Cypress Group LLC (a Washington consultancy); Senior Policy Advisor at Adams & Reese.

For the Senate not to refuse these candidates, and for the Administration to adamantly stand by them, would suggest a potential perfidious plan to insert these three candidates to work with the current Board Chair, Anthony Coscia, to defund the National Network and divert that appropriation to further subsidize the Northeast Corridor. (How many more former train stations can be converted into spaghetti houses?) Indeed, the background of these proposed appointees should be a “dog whistle” of the potential for weaponizing Amtrak’s Board to kill it off internally, and ensuring the Administration maintains “clean hands.”

The Senate need not merely shrug its shoulders, as we were warned long ago of what to look for in diagnosing why a Board is unable to function to the detriment of its stakeholders (governmental and public). In his September 2002 article in the Harvard Business Review, Jeffrey Sonnenfeld pointed out:

“It is impossible for a board to monitor performance and oversee a company if complete, timely information isn’t available to the board. The responsibility of the board to insist that it receive adequate information.

“Another sign that trust is lacking is when board members begin to develop back channels to line managers within the company. This can occur because the CEO hasn’t provided sufficient, timely information, but it can also happen because board members are excessively political and are pursuing agendas they don’t want the CEO to know about.

“Other revelations may include board members’ distrust of outside auditors, internal company reports, or management’s competence.

“Board accountability is a tricky problem for CEOs, as a 2002 survey by the Yale School of Management and the Gallup Organization underscores. In that survey, fully 25% of CEOs claim that their board members do not appreciate the complexity of the businesses they oversee.”

Instead, the Senate must lean in with enthusiasm to learn just how Amtrak is so fundamentally flawed; to acknowledge how the empirical evidence clearly points to a systemically dysfunctional and sclerotic Board invested in defending its status quo, including overt personal political regional favoritism.

Consequently, adding the current three appointees to this Board will only be a harbinger of worse things to come. The Senate needs to “get under the hood” to see why this Board punches far below its weight. The answers will be obvious. For Amtrak to acceptably function as a state-owned enterprise within its growing complex ecosystem of politics, appropriations, labor, etc., requires a definitively different make-up of its Board by securing those members with the appropriate talent and experience.

Acknowledging the reality of proven credentials and competencies currently absent but desperately required, just as ballast stabilizes a ship, will give Amtrak the requisite proficiency and capacity to continuously operate successfully, whether a SOE or publicly traded firm.

Therefore, by hitting the pause button now, the Senate must request that Amtrak Board nominees possess the following individual qualifications so sorely lacking on the current Board. From my experience as a board member in industry, and my intimate assessment of Amtrak, this includes for future Board members:

• Railroad Operations: Class I experience; risk/compliance (monitor legal/regulations); best business practices; asset utilization.
• Legal: labor law; labor relations; safety; HR (workforce planning, employee/industrial relations); compliance; risk management; governance.
• Purchasing: vendor negotiations and engagements.
• Marketing: branding; segmentation; positioning.
• Strategy and Planning: future direction; asset utilization; assessing strategic opportunities and threats/developing effective strategies.
• Food and Beverage: menu planning; first class and coach services providing professional service to engage and up-sell passengers to build revenues; training and supplying bartenders with sufficient kits, mixers, condiments; focus on passengers/revenues.
• Communications/PR: media and employee; maintain positive congressional relations.
• Travel:industry experience re: personal/leisure, business and group/charter.
• Finance/Accounting: assess financial viability and route performance; effective use of resources; accountability, including acceptable GAAP and cost allocation accounting.
• IT: information technology; e-commerce; digital marketing.

Frankly, the lack of this requisite industry experience explains why Amtrak’s Board cannot “square the circle” and rests its laurels on its negligent, repetitive compulsion dogma over the years.

To prove this point, refer to the Railway Age article of Jan. 7 2019, “Short line operator and rail service provider R.J. Corman Railroad Group appointed two longtime Class I railroad executives to its Board of Directors.” Note how Corman’s Group President and CEO, Ed Quinn, stated, “With their expertise and proven leadership in the rail industry, Mr. Evans and Mr. Graham will have many positive impacts on R. J. Corman …” Notice how this respected short line operator did not seek to appoint to its Board an individual from the trucking industry or any other belligerent personality. Even still in the throes of stabilizing the company, GE stated how it would retain a headhunter to find new directors “with expertise in aviation, power, healthcare and digital manufacturing.” No mention of Washington pals there, either.

When it comes to having “fresh eyes” on Amtrak’s Board, I refer to an interesting article on “Why Diversity Matters: Women on Board of Directors” (Harvard School of Public Health, 07/21/16), as I see how relevant this concept is for Amtrak, specifically: “There are several reasons that companies with more diverse boards perform better. One is that diverse boards often better mirror customer and client bases. Having a diverse board can help you better-understand purchasing and usage decisions, particularly as studies have found that women drive 70-80% of purchasing in the United States. Without women on your board, you are missing a valuable opportunity to bring in voices that represent this broad swath of potential and actual customers and clients.” 

With this information, suffice to say we must be aware of the totally unacceptable approach of sticking on Amtrak’s Board political appointees who cannot significantly contribute. Accordingly, the Senate must adopt a version of its “blue slip” used to reject judiciary appointments to encompass the egregious proposed appointees to SOE Boards who bring no substance to the business.

Certainly, the Senate should agree that instead of threatening the operational and financial competence of Amtrak, a more appropriate appointment for such overt political favors would be on the American Battle Monuments Commission, which would include worldwide travel to visit 24 cemeteries. In respect to the Senate’s key responsibility to provide advice and consent to the President, there must be a mandate for a “blue slip” approach to stop the appointment of the three candidates to Amtrak’s Board.

Given the pathetic history of Amtrak’s failed leadership since 2005, when the Board turned on David Gunn, who can honestly say they are satisfied with the direction and management of Amtrak since then, let alone how dismayed we are at the incapacity of a Board so uninvolved and disinterested, with no remorse for Amtrak’s stagnant direction?

This is like being with General William Westmoreland, who declared in 1967 how he could see “the light at the end of the tunnel” in Vietnam, when in reality, there was no tunnel. As we should have learned, Amtrak Board issues are far more predominant than management issues, and we cannot fix management until we fix the Board.

M. E. Singer is an observer and commentator on the passenger rail industry, identifying shortfalls and growth opportunities. He is currently Principal at Marketing Rail Ltd. in Chicago, a consultancy to achieve passenger rail customer experience and product branding. Singer has prior corporate experience in turnaround operations management, marketing, and mergers and acquisitions in the health care field.