Nestle Chairman Faces Career-Defining Test On Cusp Of Retirement

After nearly half a century at Nestlé SA and months away from his retirement, Chairman Paul Bulcke is arguably facing the greatest challenge of his career: regaining investor trust after the firing of his chief executive officer.

When the board elevated Nestlé veteran Laurent Freixe to CEO last year, Bulcke described him as the “perfect fit” to steer the maker of KitKats and Nespresso capsules through turbulent markets and revive growth.

Now Freixe is gone after allegedly hiding a romantic relationship with a subordinate, Nestlé’s shares are wallowing near an eight-year low, and Bulcke is facing scrutiny for the management upheaval at a group long renowned for its stability.

The scandal “raises issues of accountability and judgment for the chair and the board of Nestlé,” said Christopher Rossbach, chief investment officer of J. Stern & Co. His firm will seek clarity from Bulcke and his designated successor — former Inditex SA CEO Pablo Isla — on “how this situation happened and what measures they will undertake to ensure that it does not happen again,” Rossbach said.

Freixe’s abrupt departure extends a period of turmoil at the top of Nestlé that began a year ago with the surprise ouster of Mark Schneider, who was pushed out after nearly eight years as CEO. At the time, Freixe was seen as a safe pair of hands who would restore Nestlé’s traditional strengths after Schneider — a rare outsider in the top job — had taken the company in new directions.

Instead, it resulted in perhaps the highest-profile board spat in Switzerland since then-Credit Suisse Chairman Urs Rohner ousted CEO Tidjane Thiam about five years ago amid a spying scandal. More worryingly, the fallout threatens to delay a long-awaited revamp that Freixe had just begun at the foodmaker.

Concerns over Freixe first arose in May through Nestlé’s internal “speak up” system, and via a letter that was forwarded to Bulcke.

The allegations suggested the CEO was in a romantic relationship with a direct subordinate, and had shown improper favoritism, said Anna Manz, Nestlé’s chief financial officer, speaking at the Barclays Global Consumer Staples Conference in Boston on Wednesday.

An internal investigation overseen by the board lasted until early summer, but was unable to substantiate the claims. Freixe also made a personal statement at that point, denying the allegations, Manz said.

As further concerns arose through the whistleblowing channel and doubts persisted, the board began a second probe around the start of August overseen by Bulcke and Isla — currently lead independent director — alongside outside counsel at law firm Bär & Karrer.

This second review ultimately confirmed the allegations, which Freixe, 63, continued to deny until the end, according to Nestlé. He was dismissed without an exit package.

Nestlé shares slumped as much as 3.6% on the day after the announcement, but have since erased those losses. They’re down 14% in the past 12 months, and over the summer touched the lowest level since December 2016.

Freixe confirmed to Bloomberg via LinkedIn that his phone was seized on Monday without notice or opportunity to secure his communication tools. He didn’t comment further.

On Wednesday, he directed a LinkedIn post to his successor, Philipp Navratil, and Nestlé’s 270,000 staff, wishing them well. Stephanie Hart, Nestlé’s chief operating officer, replied on the platform, thanking Freixe and saying it was a pleasure working with him over the years.

Bulcke, 70, described Freixe’s ouster as “a necessary decision,” in line with Nestlé’s values and governance. The chairman wasn’t available for an interview.

Media speculation that Bulcke sought to shield Freixe during the initial probe was false, a Nestlé spokesperson said.

“The chairman would have been in a tough place, but from an external perspective it seems the issue has been handled in a timely manner,” said Ketan Patel, a fund manager at the family office Whitefriars. “Regardless, the chair will have his position under pressure.”

Bulcke oversaw the selection of both Schneider and Freixe — a key responsibility as chairman — and is now working with his third CEO, Navratil, a 49-year-old Nestlé insider who most recently ran the Nespresso business. For a company that had only three CEOs between 1981 and 2016, the latest leadership turnover has unsettled investors.

Bulcke has been a fixture at Nestlé since 1979, serving in numerous management roles and as CEO for almost nine years before becoming chairman in 2017. Nestlé’s stock climbed about 44% under Bulcke’s tenure as CEO, but has declined about 1% since he became chairman. Some of Nestlé’s recent struggles trace back to his strategic decisions.

As CEO, Bulcke was instrumental in Nestlé’s push into new areas, such as skin health, followed closely by Schneider’s drive to bulk up the health science unit with acquisitions. These ultimately proved unwelcome distractions as Nestlé’s core food business lost market share during the Covid pandemic and the historic inflation surge that followed.

The world’s largest food company was fined over the treatment of its mineral waters after it last year acknowledged the use of charcoal and UV filtering — illegal in France for mineral waters that are supposed to be natural. Freixe had separated the waters unit and said he was seeking an outside partner for the business.

Yet it’s Freixe’s departure under a cloud just a year into the CEO job that threatens to tarnish Bulcke’s tenure.

“The loss of two CEOs and a chairman in a year is of historic proportions for Nestlé,” said Ingo Speich, head of sustainability and corporate governance at Deka Investment. “Nestlé needs to focus on the urgently necessary restructuring. The pressure on the board to turn things around is high.”