In the end, Ancora got its man.
In a stunning turn of events that could not have been foreseen when Alan Shaw, then the CEO of Norfolk Southern (NYSE: NSC), swatted away a proxy battle by Ancora Holdings in May to have him removed from his job, Shaw is now gone anyway.
He was felled soon after the launch of an investigation of a personal relationship with the company’s chief legal officer, Nabanita C. Nag.
And according to an explosive piece in The Wall Street Journal, it was Ancora that spurred the investigation that was disclosed to the public on Sunday but which had at least proceeded far enough by Wednesday that Shaw and Nag were both dismissed. They leave the company without severance.
In an 8-K filing with the Securities and Exchange Commission disclosing the dismissals, Norfolk Southern said of the pair: “The conduct was not related to and does not impact the Company’s strategy, financial performance, technology and market operations, reporting or internal controls.”
Activist investor Ancora may have fallen short in ousting Shaw, but it did place three members on the Norfolk Southern board of directors. That gave them a seat at the table to push for the investigation.
The Wall Street Journal article reveals that the relationship between Shaw and Nag – which is said to have lasted three years – had been widely rumored if not accepted fact. The pair often stayed at hotels separate from other executives when traveling, the article said, “and when they touched down in a new city, Shaw and Nag would often get in a car together, while other Norfolk employees hopped into a separate passenger van.”
Norfolk Southern, in an email to FreightWaves, said it had no further comment on the recent developments regarding Shaw beyond two recent press releases: one announcing the investigation and the other announcing the CEO’s departure.
The investigation is ongoing.
Plenty of questions for the railroad
And that fact, according to Bascome Majors at Susquehanna International, means there are still going to be plenty of questions to be answered.
Shaw’s seat as CEO was taken by CFO Mark George. He is not considered an interim CEO.
Making George the permanent CEO, according to a report issued by Majors, is “in our view the best option for NSC’s board to immediately restore stability. That said, this path to CEO change raises yet another set of governance questions for NSC’s board of directors (what did they know, how long did they know it, why didn’t they take action earlier), and depending on the outcome of the ongoing third party investigation we still see some chance of a push for more change at the board level when the nomination window re-opens this October.”
George’s replacement as CFO is Jason A. Zampi, who had been senior vice president and treasurer. Unlike George, Zampi for now at least does have the “acting” modifier on his title.
New CEO is not an interim
The terms of George’s employment – salary and bonus, laid out in the 8-K – suggest to Majors that the board plans on him sticking around. Majors said the financial package “suggest[s] a firm but not ironclad commitment to him as NSC’s leader.” It includes a long-term incentive grant in 2025 of $10 million if certain targets are met.
One of Shaw’s last moves in trying to defend against the Ancora proxy battle was to hire John Orr as COO. Orr was brought over from Canadian Pacific Kansas City (NYSE: CP) after the two Class 1 railroads reached an agreement that Ancora widely rejected. It involved a payment of $25 million to CPKC and changes in the structure of the CPKC-NS joint venture governing the Meridian Speedway between Louisiana and Mississippi, with NS coming in for particularly heavy criticism.
“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),” Majors said in his report.
The transportation research team at Merrill Lynch led by Ken Hoexter expressed a similar sentiment. “We believe the appointment of Mr. George and advancement of COO Orr’s operational overhaul, will continue NS’ progress in Precision Scheduled Railroading,” Merrill wrote.
At Wells Fargo, the transportation team led by Christian Wetherbee said Orr had been “executing effectively and that remains a key underpinning of our bullish view. And while Mark George is well known by the street, some investors may be concerned that a more comprehensive CEO search was not undertaken.”
But Wells Fargo added that it “believes his appointment likely confirms the current strategic direction, which is constructive.”
The implementation of precision scheduled railroading at Norfolk Southern was another point of contention between Ancora and Shaw. Both sides supported PSR but had different definitions of what it constituted. The broad definition, according to Union Pacific, boils down to a system where “velocity and train length are still important to railroads, but now, the focus on moving cars takes precedence.” But NS and Ancora didn’t agree on how it was being implemented at Norfolk Southern.
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