Nestle's CEO, appointed a year ago, has been sacked over an office affair. This is a shock to the market

Swiss food concern Nestle has fired its CEO Laurent Freische for concealing a "romantic relationship" with a colleague. The company considered this relationship a violation of business ethics. The unexpected resignation of the CEO shocked investors and triggered a sell-off of Nestle shares.

Swiss giant Nestle has announced that it is dismissing CEO Laurent Freixchette "effective immediately" following an internal investigation. According to Nestle, the matter involved Freixet's hidden romantic relationship with a person working directly under him. This behavior of the head of the company violated the corporate code of business ethics. Philippe Navratil, who led its coffee business in Mexico and took over the Nespresso capsule division in July 2024, has been appointed as Nestle's new CEO.

According to the Financial Times, Nestle launched an investigation into Freische's personal relationship with a colleague back in the spring after several appeals through an internal complaints system called "Speak Up." In their letters, Nestle employees expressed concerns about potential conflicts of interest and displays of favoritism, the British newspaper reported, citing sources. At first, the company deemed the allegations unfounded. But the complaints continued, and Nestle's board of directors initiated a second investigation that confirmed the allegations, the FT said.

According to The Wall Street Journal's source, Nestle's new CEO Navratil is not going to deviate from Nestle's current strategy to optimize the food giant's business and make it more efficient. Since Freische's appointment in August 2024, Nestle management has been considering selling some unprofitable brands in the vitamins, minerals and supplements division, as well as some drinking water brands such as Perrier, the Journal reported.

Freische's resignation shocked the stock market, becoming another "negative" event for Nestle shares, CNBC reports. "When he took over as CEO a little over a year ago following the departure of Mark Schneider, we thought that as someone who had devoted his life to Nestle, he would restore the company's reputation for 'slightly boring predictability.' How wrong we were," the channel quotes RBC Capital Markets analyst James Edwards-Jones as saying.

Wall Street analysts also criticized such an abrupt CEO change. JPMorgan's Celine Pannuti pointed to the uncertainty created by the fact that the company responded to the results of the investigation as an emergency rather than appointing an interim head until it finds a successor. "We are disappointed that the new CEO is being forced to follow his predecessor's strategy at a time when the market is questioning its performance and Nestle's stock valuation is at historic lows," the WSJ quoted Pannuti as saying in a research note, "This new [leadership] change is likely to leave open the question of the company's medium-term course and constrain the investment outlook until Navratil presents his own plan.

In contrast, John Cox, head of European consumer equities at Kepler Cheuvreux, saw the succession as a positive signal: "The obvious upside is that they've appointed someone from within who has been with the company for 25 years and appears to have a good track record of executing strategy," he told CNBC. If someone from outside had been appointed, it could have led to a "global review" and a new strategy within 12 to 18 months, jeopardizing the current recovery plan, he said. Now, however, there is hope for "visible results as early as the third quarter," the analyst said.

Nestle shares collapsed more than 3% at the opening of trading in Zurich. Since reaching a peak of 127 Swiss francs in 2022, the company's capitalization has fallen more than 40%, the FT noted. During Freische's tenure as head of Nestle, its value has fallen by 17%, CNBC calculated.

Freische is not the first global corporation executive to come under scrutiny because of a personal relationship. In 2018, Intel CEO Brian Krzanich resigned for violating corporate policy over a relationship with a colleague. A year later, McDonald's fired its CEO Steve Easterbrook for having a romantic relationship with a female employee.

Nestle, which owns a large coffee and chocolate business, faces weakening consumer demand. U.S. duties had a negligible impact on the company's profitability in the first half of the year, but the negative effect of trade restrictions and rising raw material costs will increase in the rest of the year, Nestle Chief Financial Officer Anne Manz warned earlier this year.

However, the company has been plagued by problems for several years, partly of its own making, the WSJ emphasizes. For example, the failed IT integration of businesses in the Health Sciences division, which produces Nature's Bounty and Garden of Life supplements, led to supply disruptions that lasted several months.

This article was AI-translated and verified by a human editor