An office romance at Nestlé cost the chief executive his job. Now it’s giving way to an overhaul at the food-and-drink maker under new boss Philipp Navratil .
The Nescafé and Purina maker fired Laurent Freixe in September after an investigation found an undisclosed relationship broke its code of conduct. Tensions from the affair had distracted Nestlé’s upper management for much of Freixe’s 12 months in charge, according to people familiar with the matter, and tore a chunk out of its top ranks.
The affair also put a spotlight on Nestlé’s culture and drew attention to the Swiss company’s struggle to make its 2,000-plus brands relevant at a time of changing consumer tastes, inflation and trade tensions.
Now, new CEO Navratil is tasked with a turnaround. The 49-year-old immediately laid out plans in October to cut 16,000 jobs and to tie pay more tightly to performance—moves that analysts saw as a strike at the company’s sometimes cozy practices.
Navratil said his approach would be to bypass nostalgia and consider any brand for disposal.
In recent meetings with investors, Navratil has acknowledged the 159-year-old company needs to change to adapt to shifting habits. He has also said he wants to invest more than his predecessors in developing new blockbusters.
Investors said Nestlé is overdue a shake-up and should also sharpen its governance after two chaotic CEO changes in a year. The company’s share price is down more than 20% over the past five years. Rivals specializing in fewer products or sectors, meanwhile, often outperformed.
“In every crisis there is opportunity. Nestlé has been in a crisis of governance,” said Christopher Rossbach, chief investment officer of longtime Nestlé shareholder J. Stern & Co.
Navratil, a Swiss-Austrian mountain-sports enthusiast, has been at Nestlé since 2001 but rose from outside an old guard that dominated the company’s leadership this century. Overseeing him now as chairman is Pablo Isla , a former CEO of Zara owner Inditex , who took over from Paul Bulcke in October. It was a rare appointment from outside company ranks.
“Trust has been eroded with some of the events we have seen recently. Some of our making,” Navratil said in a recent podcast for employees.
He said it was good that he and Isla were starting from scratch. “We can question everything.”
The affair
The CEO before Navratil, Freixe, also took over suddenly. Freixe’s predecessor was ousted for being the wrong cultural fit , after growth during his seven-year tenure fizzled out. Bulcke, Nestlé’s chairman at the time, said Freixe understood Nestlé’s values.
A main rival for the top job was Nestlé’s leader in the U.S., Steve Presley , a Floridian who had first run a Virginia beverage factory. The consolation prize was a larger role for Presley. He took over a team Freixe had been managing from Switzerland as head of Latin America, combining the regions.
Freixe’s downfall started when he recommended promoting a marketing executive from his old team to a job under Presley, people familiar with the matter said. Colleagues began to suspect Freixe’s support for the executive, a woman who had joined Nestlé as a management trainee 20 years earlier, was more than professional.
Presley favored other candidates for the role, a prominent assignment covering almost all of Nestlé’s marketing in the U.S., Canada and Latin America. But he promoted the marketing executive at Freixe’s request, catching the attention of other senior managers because of her relative inexperience.
In the team shuffle, a colleague discovered that someone had boosted the marketing executive’s pay, a person familiar with the matter said. It was a surprise to Presley, her new boss. Another person familiar with the matter said the marketing executive’s pay had been too low for the job and was adjusted.
Presley and other members of his team suspected the marketing executive was briefing Freixe about their meetings, according to a person familiar with the matter. After a session on how their division could up its game, Presley got a call from Freixe, complaining that Presley was trying to create a subculture within Nestlé.
In April, Freixe summoned Presley to headquarters. They agreed their relationship had broken down, and Presley should resign. Nestlé in a press release said Presley would leave in five days, after nearly 30 years.
Freixe temporarily took over Presley’s job, making him the marketing executive’s boss again. In May, Nestlé received anonymous complaints alleging improper favoritism.
An internal investigation didn’t substantiate the claims, Nestlé said in late July. But a law firm conducted a second probe when complaints kept coming, and Freixe was fired without pay in September. Nestlé said Freixe broke its code of conduct by not disclosing the relationship with a direct report. The company hasn’t said how it confirmed the relationship.
Bulcke left earlier than planned in October, after being criticized publicly by some investors over Freixe’s short tenure. Bulcke said at the time that it was the right moment to step aside. He was named honorary chairman.
New generation
The same day Nestlé’s board fired Freixe, Sept. 1, it met several candidates to replace him. Navratil, then head of Nespresso, was already seen as a potential leader, having added billions in sales from new drinks and a partnership with Starbucks while in charge of coffee brands.
Navratil later told analysts he’d pitched himself as an insider who could see the company like an outsider, having spent 16 years in Latin America running Nestlé operations.
In a bid to boost competitiveness, he has said he wants to scrap company dogma and the practice of “not taking decisions because we don’t take decisions.”
Navratil has said the company’s core businesses—including coffee and pet food—remain strong with potential to grow, but indicated some brands could go. Product lines like KitKat, Nespresso and Purina pet food rake in billions of dollars of sales a year, but Nestlé also owns a raft of smaller earners such as Hot Pockets and vitamins.
Navratil is set to flesh out how he plans to reinvigorate the company at an investor day in February.
Nestlé has already flagged that its water division, including Perrier and Sanpellegrino, is looking for an investment partner, and that some vitamin brands could be sold. Blue Bottle coffee shops may be on the chopping block too, according to analysts.
One potential big move could be to sell chunks or even the entirety of the $50 billion stake that Nestlé holds in L’Oréal , which some investors want to see cashed out.
In the recent private meetings, some analysts urged Navratil to turn over the top managers he’d leapfrogged to take the top job.
In an interview with Switzerland’s Finanz und Wirtschaft published last week, Navratil said Freixe’s departure was a shock within the company. “But I’m looking ahead, and I don’t believe we have a culture problem,” he said.
Nestlé watchers said the new CEO and chairman represent a step forward, after fiefs built up over the years around an elite cadre of managers.
“It’s a good thing there is new leadership,” said Rossbach, the investor at J. Stern. “Nestlé has too often been a college of cardinals.”
Write to Margot Patrick at margot.patrick@wsj.com and Joe Wallace at joe.wallace@wsj.com
