Norfolk Southern CEO change brings stability but governance questions linger, says analyst

By James Rogers

The railroad operator promotes CFO Mark George to replace fired CEO Alan Shaw

Norfolk Southern Corp.'s decision to replace fired Chief Executive Alan Shaw with Mark George, the railroad operator's executive vice president and chief financial officer, should bring management-level stability to the company - but questions about its board governance still linger, according to one analyst.

Norfolk Southern (NSC) fired Shaw over a relationship with another executive, the company announced late Wednesday, following an investigation into allegations of misconduct. Shaw violated company policies by engaging in a consensual relationship with the company's chief legal officer, Nabanita Nag, who has also been terminated, Norfolk Southern said.

George, who has served as the railroad operator's executive vice president and CFO since 2019, is the former global CFO of Otis Worldwide Corp. (OTIS) and Carrier Global Corp. (CARR).

Related: Norfolk Southern fires its CEO over relationship with another executive

"The NSC board's immediate promotion of Mark George to permanent CEO in the face of another controversy should lead to management-level stability, as long as [Chief Operating Officer] John Orr continues to operate a smooth railroad," Susquehanna Financial Group analyst Bascome Majors wrote in a note released Thursday. "Still, questions linger about what the directors knew and how long they knew it, and those answers could lead to a push for more board-level change this fall.

"Still, we believe any further push for change is about the board's governance, nor Mark George's qualifications for the CEO role," Majors added. "We're hopeful that the board's decisive action on permanent leadership and six-month COO John Orr's continued steady operating hand will help restore confidence of all stakeholders in NSC over the next 12-18 months (customers, labor, regulators, politicians, and investors)."

The analyst noted that the nomination window for board-level change is Oct. 21 to Nov. 20. Susquehanna maintained its neutral rating on Norfolk Southern.

Related: Norfolk Southern got more efficient in Q2 despite derailment settlement, shareholder fight

In its statement, Norfolk Southern said that the company's board made a unanimous decision to terminate Shaw for cause based on the findings of an ongoing investigation. Shaw's departure is unrelated to the company's performance, financial reporting and results of operations.

Norfolk Southern shares ended Thursday's session up 0.3%. The stock is up 7.7% in 2024, compared with the S&P 500 index's SPX gain of 17.3%.

Shaw, who joined Norfolk Southern in 1994 and was named CEO in May 2022, was thrust into the national spotlight in the wake of the February 2023 derailment of a train carrying hazardous materials on the outskirts of East Palestine, Ohio.

Related: Norfolk Southern agrees to settlement of more than $300 million with federal government over East Palestine, Ohio, derailment

Earlier this year, Shaw faced activist investor Ancora Holdings Group's attempt to gain control of Norfolk Southern, which resulted in three of its seven nominees gaining seats on the company's 13-member board. However, Norfolk Southern shareholders voted to elect 10 of the company's 13 director nominees at the annual shareholder meeting in May, including Shaw. Ancora had planned to replace Shaw.

Mike Murphy contributed to this report.

-James Rogers

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09-12-24 1801ET

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