Norfolk Southern CEO Alan Shaw testifies before the Senate Environment and Public Works Committee hearing on protecting public health and the environment following the Norfolk Southern train derailment and chemical spill in East Palestine in Washington, Ohio, USA, March 9, 2023- year.
Aaron Schwartz | Xinhua News Agency | Getty Images
Norfolk Southern’s The board is investigating whether CEO Alan Shaw had an inappropriate relationship with the company’s top lawyer, according to several people with direct knowledge of the board’s thinking, which could create a leadership vacuum at one of the nation’s largest railroads.
The investigation comes less than two years after a toxic derailment in East Palestine, Ohio, and the same year activist investor Ancora launched a proxy fight over the $58 billion railroad.
CNBC previously revealed that Shaw was under investigation for an affair, but the board’s focus on another executive, chief legal officer Nabanita Nag, was not detailed. Nag joined the company as a general counsel in 2020 before being promoted to senior vice president in 2022 and promoted again just a few months later. He oversees a significant portion of Norfolk’s operations, including government relations, communications and compliance.
Shaw and Nag did not return text messages or calls seeking comment. Shares fell about 2% on the news.
Meanwhile, labor leaders and senior executives are in the dark about the company’s leadership plans. About 20,000 employees work in the railway, most of whom belong to the trade union.
“We’re not sure who was driving this train,” said Scott Bunten, general chairman of Norfolk Southern’s 4,600-member Brotherhood of Locomotive Engineers and Trainers, or BLET. “We’ve heard rumors of shenanigans in NS’s c-suite. We’ve seen the news release about the outside law firm’s investigation. We haven’t received any memos or any updates.”
As the corporate secretary, Nag, along with Shaw, is one of the board’s key communicators. The board became aware of an inappropriate relationship between the two in recent days and moved quickly to respond, people previously familiar with the matter told CNBC. Directors are discussing who could replace Shaw, who is expected to step down as CEO, according to another person familiar with the board’s thinking.
Bunten said he was in meetings with senior management on Tuesday and said those executives did not know exactly what was going on at the highest levels of Norfolk.
Norfolk Southern said it would not comment until the investigation is complete. The Wall Street Journal previously reported that Shaw would resign, citing people familiar with the matter.
The railway’s board faces a significant challenge: the alleged link involves Nag, who is the executive director and the company’s corporate secretary – the two executives most in touch with the board.
Two leading CEO candidates
The board approved the investigation Sunday evening.
Since then, two of the main 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 with the company since March, joining as the company pulled out all the stops to protect Shaw’s business from Ankoran’s attack. He has had a long and successful career, but was tarnished by abuse allegations after the lawsuit was settled and was removed by Ancora during a proxy battle, CNBC reported in April. Orr has denied wrongdoing, and the company has dismissed the allegations as an attempt to “glorify” Orr with accusations that are years old.
George is less well-known in the railroad community, but his candor and handling of the situation won the admiration of some shareholders during the proxy fight, a Norfolk Southern consultant said. He started his career at Otis Elevator Company and rose through the ranks in Hong Kong and the United States, according to his LinkedIn profile.
Atypically, other financial executives have risen to the top job at American railroads, including Norfolk. Shaw’s predecessor as CEO, Jim Squires, was the railroad’s CFO for six years.
Neither Orr nor George responded to requests for comment.
Financial value of security
If Shaw were fired or resigned, he would join a long list of CEOs whose careers have been marred by allegations of inappropriate relationships. In 2019, McDonald’s announced it had fired CEO Steve Easterbrook after a board investigation revealed he had an affair with an employee. The SEC later fined Easterbrook and ordered it to pay $105 million in restitution. Easterbrook apologized for his behavior after the shooting and retreat.
“Our members at Norfolk Southern, along with the rest of the workforce, were kept in the dark about what was going on,” Bunten told CNBC.
