Investigation into Norfolk Southern board's inquiry into CEO's connection with chief legal officer.

• The company's board is examining whether CEO Shaw had an improper relationship with the legal officer.
• One of the board's primary points of contact and also the corporate secretary, Norfolk's top lawyer is Nabanita Nag.
• The board has also considered potential replacements for Shaw, who is predicted to resign, including CFO Mark George and COO John Orr.

The board is examining whether CEO Alan Shaw had an improper relationship with the company's top lawyer, which could lead to a leadership void at one of the country's largest railroads.

The probe was conducted less than two years after a toxic derailment in East Palestine, Ohio, and the same year activist investor Ancora launched a proxy battle at the $58 billion railroad.

The board has not previously focused on the executive who is the chief legal officer, Nabanita Nag. Nag joined the company in 2020 as general counsel and was promoted to senior vice president in 2022. She currently oversees a significant 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.

Some 20,000 people work at the railroad, many of whom are union members, and both labor leaders and top executives are unaware of the company's leadership plans.

"Scott Bunten, general chairman of Norfolk Southern's 4,600-member Brotherhood of Locomotive Engineers & Trainmen (BLET), stated that they are uncertain about who is running the train. They have heard rumors about misconduct in NS' executive suite, have seen a news release about an investigation by an external law firm, but have not received any memo or update."

As one of the board's primary conduits of information, Nag, alongside Shaw, has been instrumental in keeping the board informed. Recently, the board became aware of an alleged inappropriate relationship between the two, prompting them to act swiftly. Directors are currently discussing potential replacements for Shaw, who is expected to resign as CEO, according to a source familiar with the board's thinking.

On Tuesday, Bunten disclosed that he had attended meetings with senior management and that those executives were unclear about what was happening at Norfolk's top levels.

Shaw was expected to resign, according to people familiar with the matter, but Norfolk Southern said it wouldn't comment until the investigation's conclusion.

The board of the railroad faces a major challenge due to the alleged relationship between the chief executive and Nag, who is both the CEO and the corporate secretary, and who have the most interaction with the board.

Two leading CEO candidates

On Sunday evening, CNBC first reported the probe that was later confirmed by the board.

According to a source with knowledge of the board's planning, two of the leading internal candidates to replace Shaw are COO John Orr and CFO Mark George.

Orr has been at the company since March, and despite having a successful career, he has been tainted by accusations of misconduct made in legal proceedings that were resolved years ago. These accusations were resurfaced by Ancora during a proxy fight, and CNBC reported on them in April. Orr has denied any wrongdoing, and the company has described the claims as an attempt to malign him with old accusations.

Although less recognized in the railroading community, George gained recognition from some shareholders during the proxy fight for his honesty and control of the situation, as stated by a Norfolk Southern advisor. George started his career at Otis Elevator Company and advanced through the ranks in Hong Kong and the United States, as per his LinkedIn profile.

Other finance executives have attained the CEO position at American railroads, including Norfolk, where Shaw's predecessor, Jim Squires, served as CFO for 6 years.

Neither Orr nor George responded to requests for comment.

Financial cost of misconduct

If Shaw were to be fired or resign, he would join a growing number of CEOs whose careers were tarnished by accusations of inappropriate relationships. In 2019, McDonald's fired CEO Steve Easterbrook after an investigation found he had a romantic relationship with an employee. The SEC later fined Easterbrook and required him to repay $105 million in compensation. Easterbrook apologized for his behavior following the firing and clawback.

Bunten informed CNBC that Norfolk Southern's members, as well as the rest of the workforce, have been kept in the dark regarding current developments.