Norfolk Southern CEO Alan Shaw testifies at a hearing before the Senate Environment and Public Works Committee on protecting public health and the environment in the wake of the Norfolk Southern train derailment and chemical release in East Palestine, Ohio in Washington, D.C., the United States, March 9, 2023.
Aaron Schwartz | Xinhua News Agency | Getty Images
Norfolk Southern’s board is investigating whether CEO Alan Shaw had an inappropriate relationship with the company’s top-ranking lawyer, according to several people with direct knowledge of the board’s thinking, which could create a leadership vacuum at one of the country’s largest railroads.
The probe comes less than two years after a toxic derailment in East Palestine, Ohio, and the same year activist investor Ancora mounted a proxy fight at the $58 billion railroad.
The board’s focus on that other executive, chief legal officer Nabanita Nag, has not previously been detailed. Nag joined the company in 2020 as general counsel before being promoted to senior vice president in 2022 and elevated again just a few months later. She oversees a sizable portion of Norfolk’s operations — including government relations, communications and compliance.
Shaw and Nag did not return text messages and calls requesting comment.
Shares slipped about 2% on the news.
Meanwhile, labor leaders and top executives are in the dark about the company’s leadership plans. The railroad employs some 20,000 people, many of whom belong to a union.
“We’re not sure who is running this train,” said Scott Bunten, general chairman of Norfolk Southern’s 4,600-member Brotherhood of Locomotive Engineers & Trainmen, or BLET. “We’ve heard the rumors about shenanigans in NS’ c-suite. We’ve seen a news release about an investigation by an outside law firm. We haven’t received a memo or any update.”
As corporate secretary, Nag is one of the board’s primary conduits of information, alongside Shaw. The board became aware of an alleged inappropriate relationship between the two in recent days, and moved rapidly to respond, people familiar with the matter previously told Tech Zone Daily. Directors are discussing who could replace Shaw, who is expected to resign as CEO, according to another person familiar with the board’s thinking.
Bunten said he had been in meetings with senior management on Tuesday and that those executives were not clear on what was transpiring at Norfolk’s highest levels.
Norfolk Southern said it won’t comment until the conclusion of the probe. The Wall Street Journal earlier reported that Shaw was expected to resign, citing people familiar with the matter.
The railroad’s board is presented with a significant challenge: the alleged relationship involves the chief executive and Nag, who is also the company’s corporate secretary — the two executives which have the most contact with the board.
Two leading CEO candidates
The board confirmed the probe, first reported by Tech Zone Daily, on Sunday evening.
Since then, two of the leading internal candidates to replace Shaw are COO John Orr and CFO Mark George, according to another person with knowledge of the board’s planning.
Orr has been at the company since March, joining as the company pulled out all the stops to protect Shaw’s job from Ancora’s onslaught. He has a long and successful career, but has been blemished by accusations of misconduct made in since resolved legal proceedings and dredged up by Ancora during the proxy fight, Tech Zone Daily reported in April. Orr has denied wrongdoing and the company described those claims as an attempt to “malign” Orr with years-old accusations.
George is less known in the railroading community but earned admiration from some shareholders during the proxy fight for his candor and command of the situation, said one Norfolk Southern advisor. He began his career at Otis Elevator Company, rising through the ranks in Hong Kong and the United States, according to his LinkedIn profile.
While atypical, other finance executives have risen to the top job at American railroads — including at Norfolk. Shaw’s predecessor as CEO, Jim Squires, was the railroad’s CFO for 6 years.
Neither Orr nor George responded to requests for comment.
Financial cost of misconduct
Were Shaw to be fired or step down, he would join a long list of CEOs whose careers were marred by allegations of inappropriate relationships. In 2019, McDonald’s announced it had fired CEO Steve Easterbrook after a board investigation revealed he had a relationship with an employee. The SEC later fined Easterbrook and required him to return $105 million in compensation. Easterbrook apologized for his behavior in the wake of the firing and clawback.
“Our members at Norfolk Southern, along with the rest of the workforce, have been kept in the dark about what’s happening,” Bunten told Tech Zone Daily.