Norfolk Southern’s new leader faces challenges amid scandal and crisis

In a matter of days, Norfolk Southern disclosed it was investigating its chief executive officer for alleged misconduct, revealed preliminary findings about a C-suite relationship that violated the railroad’s policies and terminated the CEO and chief legal officer — rocking the company amid one of the most tumultuous times in its history.

This for a railroad already grappling with the fallout of a toxic derailment last year that, so far, has cost the Atlanta-based company more than $1.6 billion and as the company contends with a takeover effort from an activist investor.

That’s the predicament Mark George, who until now was the company’s chief financial officer, steps into as he takes on the CEO position at Norfolk Southern.

Alan Shaw became the very public face of Norfolk Southern after its fiery derailment in East Palestine, Ohio, in February 2023. He testified before Congress, appeared on television in a CNN town hall and tried to assure people near the disaster site and state and federal officials that the company would make things right.

Earlier this year, Shaw faced an activist investor group pushing for his ouster through a shareholder vote that allowed it to gain board seats — though not enough to orchestrate Shaw’s removal.

Credit: TNS

Ultimately, Shaw was terminated for cause Wednesday after preliminary findings from an “ongoing investigation” determined he violated company policies by engaging in a consensual relationship with the chief legal officer, according to the company.

George was appointed as president and CEO effective immediately, and named to the company’s board of directors.

“The Board has full confidence in Mark and his ability to continue delivering on our commitments to shareholders and other stakeholders,” Norfolk Southern Chairman Claude Mongeau said in a written statement.

In the role, George faces the weighty responsibility of continuing Norfolk Southern’s response to the East Palestine disaster, including legal challenges, safety reforms and response in the communities affected.

He also faces challenges overhauling the railroad’s operations and efficiency, and stabilizing its financial performance. As of the second quarter, Norfolk Southern recorded more than $1.6 billion in charges from the Ohio derailment.

Norfolk Southern will also grapple with rehabilitating its reputation. Even without the turmoil of the past year and a half, it’s a huge task operating a railroad the size of Norfolk Southern, which has about 20,000 employees, including about 3,300 at its headquarters in Midtown Atlanta.

Credit: Norfolk Southern Corporation

George said in a written statement that he looks forward to continuing to work with Chief Operating Officer John Orr and the rest of the company “as we further our progress on optimizing operations and serving our customers, while creating a safe and satisfying workplace and delivering enhanced value for our employees, customers, shareholders, and communities.”

On Thursday, Norfolk Southern said in a filing with the U.S. Securities and Exchange Commission that George will get a $1 million annual salary and annual incentives of $2.25 million prorated for this year, along with stock incentives currently valued at $4 million that vest in the future. Next year, he would be eligible for long-term incentives with an estimated value of $10 million.

Shaw, according to the company, is ineligible to get severance or outstanding stock awards because he was terminated for cause.

Messages left for Shaw were not immediately returned.

Shaw’s stunningly rapid downfall from the helm of Norfolk Southern came three days after the company said it had launched an investigation of alleged misconduct, on Sunday evening. CNBC, citing unnamed individuals with knowledge of the investigation, first reported the inquiry related to allegations of an inappropriate relationship at work.

Norfolk Southern said its board “acted swiftly to investigate as soon as it learned of these allegations and made an immediate, unanimous decision to terminate Shaw based on findings of that ongoing investigation.”

This is just the latest of the challenges Norfolk Southern has faced.

Shaw became CEO in May 2022. Just about nine months into the job, a Norfolk Southern train carrying hazardous materials derailed in the rural town of East Palestine. Shaw and the railroad have been under severe scrutiny ever since . Residents filed lawsuits and government agencies opened investigations into the incident.

Credit: AP

Shaw pledged repeatedly to “make things right” and the company committed tens of millions to various recovery efforts.

The railroad also entered into a more than $310 million settlement of federal investigations into the derailment, and $600 million settlement to resolve a consolidated class action lawsuit for which final court approval is still pending.

In the aftermath of the derailment, Shaw was targeted for removal from the CEO position by activist investor Ancora Holdings Group. Ancora tried to gain control of the railroad by replacing a majority of the company’s board members with plans to replace the CEO.

Orr’s appointment as COO came as part of management’s response to the Ancora campaign. Orr was previously the chief transformation officer at Canadian Pacific Kansas City.

Shaw survived that attempted shareholder revolt. But Ancora got three new board members elected to the railroad’s board in May.

Ancora’s president of its alternatives group, Jim Chadwick, pledged to continue his battle.

“We intend to keep on fighting,” Chadwick said during the May shareholders meeting.

“This was a referendum for change,” Chadwick said. “Our newly elected board candidates will work to repair the strained relationships at Norfolk Southern.”

Ultimately, Ancora got its wish to see Shaw gone.

Shaw’s dismissal is also the latest termination of a top executive accused of having an affair.

Last year, BP’s CEO Bernard Looney resigned after an investigation into relationships he had with co-workers.

Also last year, NBCUniversal CEO Jeff Shell left the company after an internal investigation, with Shell saying he had an inappropriate relationship with a woman in the company, NBC News reported.

McDonald’s CEO Steve Easterbrook was fired in 2019 for having a relationship with an employee in violation of company policy. In 2018, Intel CEO Brian Krzanich resigned after the company was informed he had a consensual relationship with another employee, in violation of the company’s non-fraternization policy.

Get all the news about the Atlanta Braves delivered each morning. Sign up for Braves Report.