Laurent Freixe, the Nestlé veteran propelled a year ago to the position of chief executive, was doing the rounds with big investors last week trying to convince that he was on top of a turnaround at the down-on-its-luck food giant.
Appointed as a safe pair of hands, after his predecessor Mark Schneider’s sudden ousting following a slump in the group’s share price from its pandemic highs, Friexe had disappointed the market in late July when the group behind about 2,000 products, from Kit Kat to Nescafé coffee, posted a 0.4 per cent dip in sales volumes – or what it calls real internal growth (RIG) – in the second quarter.
The second Frenchman to lead the Swiss group in its 159-year history and his finance chief “struck a reassuring tone” at an analyst meeting last Friday, investment bank JP Morgan said in a note sent around to clients that afternoon.
He indicated the RIG decline had been driven by China and Nestlé’s health science unit, behind brands such as Nature’s Bounty vitamin gummies to constipation-fighting OptiFibre powder, and that the second quarter was likely to be the low point amid a refocusing on core brands and push on six big bets, including cold coffee, air fryer seasoning and gourmet cat food.
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Three days later, however, the 63-year-old was out of a job – dismissed for concealing an affair with a marketing executive, a direct report, whom he had promoted.
He’s not the first CEO to fall for a subordinate. But while boards of the past may have been willing to ignore such indiscretions (this one started with an anonymous tip through an internal whistleblower hotline), the world has changed in the wake of the #MeToo movement and a heightened investor focus on governance (the “g” part of environmental, social and governance).
Even consensual liaisons can lead to accusations of favouritism. If a relationship ends badly, a company could also be caught up in claims that the coworker was coerced – or retaliated against.
Freixe, who reportedly denied his relationship during an initial internal investigation, would have known the consequences of the truth emerging, having seen the fates of a number of fellow bosses in recent times.
Data analytics start-up Astronomer’s CEO, Andy Bryon, was forced to resign in July after being caught on camera in an embrace with his chief people officer Kristin Cabot at a Coldplay concert. US retailer Kohl fired Ashley Buchanan, its CEO of just over 100 days, in May after it emerged he failed to disclose a relationship with an outside vendor and that he had steered business her way.
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Kerry man Bernard Looney resigned two years ago this month as chief executive of oil big BP for not disclosing personal relationships with colleagues.
While shares in Nestlé fell as much as 2.3 per cent in Zurich on Tuesday as the market first digested news of Freixe’s exit, they subsequently rallied to end the week little changed.
Investors have given the board a pass for being able to assure them that it had a good handle on governance and succession planning. Rather than opt for an interim CEO like Astronomer, Kohl’s or BP, it immediately promoted Austria-born company-lifer Philipp Navratil, most recently head of its Nespresso unit, to the top job.
But with the stock down 34 per cent over the past three years – while its nearest peer Unilever, which has had its own issues in recent years, has added 22 per cent – analysts such as Tom Sykes at Deutsche Bank reckon the group needs to get back to volume sales growth of at least 2 per cent, albeit in an ongoing tough environment for consumers globally, for it to start to outperform the sector.
Caution among US consumers has been amplified recently by tariff concerns and Nestlé pushing through price rises pushed in the first half of the year, mainly to recoup a spike in coffee and cocoa, two of the main commodities it buys.
HSBC analyst Jeremy Fialko says Navratil will continue Freixe’s turnaround strategy, involving cutting costs, simplifying the organisation, innovation and ramping up marketing for six “big bets”.
However, many investors are likely to push for more fundamental change, such as slimming down its stable of 2,000 products – with some analysts even talking about the need for a potential break-up of the business.
There are rumblings elsewhere in the sector. On Tuesday, Kraft Heinz, the US company behind kitchen staples such as Philadelphia cheese and Heinz tomato ketchup, announced plans to split into two independent businesses a decade after it was created in a mega-merger.
The very same day, activist investor Elliott Management revealed it had build up a $4 billion (€3.4 billion) stake in PepsiCo and called for a turnaround plan at the drinks and snacks group, whose stock has also been in the doldrums in recent years.
Elsewhere, Unilever is hiving off its Magnum ice cream unit, which also owns Ben & Jerry’s, as a separately-listed company in the coming months – delivering on a strategy that activist investor Nelson Peltz had pushed for.
If Navratil fails to accelerate a turnaround at Nestlé, the company might also attract the attentions of a similar type of pesky investor.
