Nestlé is going “forward to basics”, was the explanation that chair Paul Bulcke offered investors following the shock announcement on Thursday that Mark Schneider was stepping down as head of the world’s largest food company after eight years.
Schneider’s years at Nestlé were characterised by bold M&A and a focus on new and fast-growing categories such as coffee and petcare that made him popular with shareholders. But following a tricky 18 months and rumblings of dissatisfaction inside the maker of Nescafé coffee and KitKats, the board decided it was time for a cultural change.
The appointment of Laurent Freixe, who for almost 40 years has promoted Nestlé goods around the world, marks a return to the company’s tradition of choosing leaders from within its own ranks, said analysts and shareholders. Schneider’s 2017 appointment was only the second time the group had plumped for an outsider in its 158-year history.
Recent earnings misses and operational mishaps, including the botched integration of an IT system and a water purification scandal in France, have weighed on the share price, which has fallen around 15 per cent over the past 12 months.
Shares in the group fell 2.1 per cent to SFr87.58 in early trading on Friday, but have since recovered.
“Mark did a good job and all,” Bulcke told investors, as Schneider listened on after making a short statement, but he added that Laurent’s “38 years of in-the-trenches experience, and 16 years on the executive board” meant that he was “totally aligned with the strategy. There is permanent continuum. There is full buy in.”
Freixe, a Frenchman, is Nestlé’s executive vice-president and head of its Latin America business and will begin his new role on September 1, just 10 days after the announcement.
The move has caught investors off guard. Roseanna Ivory, investment manager at Nestlé shareholder Abrdn, said the timing and rapid handover was more of a surprise than the departure itself.
“Nestlé generally chooses from within its own ranks for the CEO role because it is important to keep deep Nestlé knowledge and experience within the C-suite,” she said.
Schneider, who was previously chief executive of German healthcare company Frenesius, was a finance executive more focused on capital allocation than brand marketing, analysts said.
“They made it clear that there was a cultural issue,” said Jefferies analyst David Hayes. “They were talking about the need to realign and motivate people, and made the point that Laurent has been a talent developer over the years.”
Bernstein analyst Bruno Monteyne said investors had raised concerns about Schneider’s management style, which he said can be abrasive. “In a company like Nestlé, with Schneider still a relative outsider versus many of the other operators, this could have led to an ‘us-versus-him’ atmosphere,” he said.
Jean-Philippe Bertschy, head of Swiss equity research at Vontobel, argued that while Schneider was a brilliant chief executive, a different kind of CEO was now needed during a period of higher consumer volatility.
He drew parallels to the departure of Danone chief executive Emmanuel Faber, another “finance guy”, who was replaced by Antoine de Saint-Affrique, another life-long marketeer like Freixe.
“There is little surprise that they chose Laurent, because he is the Nestlé ambassador, representing their culture and values over decades. He is the best choice for their current situation — stability is urgently needed within the organisation.”
Some executives at the company have been dissatisfied with the appointment of external candidates to senior roles, for example the choice of Anna Manz, former CFO of the London Stock exchange, as CFO.
Writing on LinkedIn last year, longtime Nestlé executive and current CFO of Chanel Philippe Blondiaux said appointing outsiders sent a “totally depressing message” to Nestlé talent.
One Nestlé executive commented: “When the world’s largest food company with 150+ year history, outsources it’s pilot and co-pilot both, it says everything that needs to be said!!!”
“Hopefully, soon the Top Management will realise how talented [they] are and will stop focusing on outside resources,” wrote another.
Nestlé declined to comment on the views of current and former employees or Schneider’s management style.
Investors now want the company’ to focus on top-line growth execution, to prove they can achieve their forecast for mid-single-digit sales growth. Many analysts have asked whether the new boss will reset the margin guidance.
After the group’s latest half-year earnings, the share price fell 6 per cent as the company cut its sales outlook for the year and analysts concluded that its midterm growth forecast had been too ambitious.
Freixe and Bulcke said on Friday that their focus would be to drive top-line growth through market share gains and strengthen trust in Nestlé by investing in key brands and innovations. Freixe added that M&A was not core to his strategy.
Monteyne said the subtext of Bulcke’s “forward to basics” mantra was that the company had become sidetracked. “Clearly, they don’t like saying they’re going ‘back to basics’,” he said.
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