Last week, Nestlé, the $244 billion food conglomerate behind some of the world’s most beloved candy and coffee brands, announced that its CEO, Laurent Freixe, had been dismissed for violating the company code of conduct after just one year on the job.
An investigation had confirmed reports that he was having an inappropriate relationship with a direct report, the company said. Nestlé, a category laggard whose share price has been slipping, had already installed a new CEO, Philipp Navratil, an internal hire who previously led the company’s Nespresso business. The subtext of the press release was clear: Nothing to see here.
Despite the lack of kiss cams and celebrity hijinks, however, the story has continued to hold people’s attention, prompting conversations about the ethical nuances of consensual office romances, changing norms for how companies handle them, and the standards for personal behavior that CEOs are held to.
Here are some takeaways from Nestlé’s CEO ouster:
The consequences for an improper romance can be severe
Boards have less tolerance now for CEO misconduct, like office romances, compared to 20 or 30 years ago, and are generally moving quickly to replace problematic leaders. The exits following a scandal like this can be far more punitive than when leaders are removed for performance issues, often with “golden parachutes.” As my colleague Eva Roytburg reported, Freixe left Nestlé without any pay package.
The shift toward tough enforcement is partly due to concerns about perceptions of the company. “The scrutiny is both internal and external,” says Schloetzer, adding that it goes beyond shareholders. “It’s boards, it’s peers in the C suite, it’s people one level below the C suite. Everybody has a heightened sense of what’s the right thing to do, and the leash for not doing the right thing has become shorter and shorter.”
The devil is in the details of disclosure
Nestlé’s news release said the ex-CEO was being dismissed not just for having a relationship, but for having an undisclosed relationship. (Freixe was reportedly investigated twice and denied the affair during the first inquiry.)
So would he have been safe if he had come clean?
Probably not, as a chief executive. Most companies have a zero-tolerance policy for CEOs dating employees because no matter where they are on the org chart, the power imbalance is too great for there not to be questions about the CEO’s decision-making and ethics. “I mean, human resources and the board would have to go through some pretty serious mitigation to assuage concerns of favoritism or retaliation or harassment,” says Jason Schloetzer, associate professor at Georgetown University’s McDonough School of Business.
That said, work has always been and is still a common place for people to meet (even if it’s no longer the starting point for one in five relationships, as it was in the latter part of last century). For executives who aren’t CEOs, disclosure of a relationship can sometimes address the problem, along with a reorganization so that one lovestruck employee doesn’t report to the other.
Boards have been known to look past misconduct by high performers
Although star CEOs have been taken down by affairs, it’s also true that when a CEO is not living up to expectations, the board might find a way to send that CEO packing using corporate policy for cover, says Schloetzer. Before he became an academic, the professor tells Fortune, he became aware that “it is not unusual for companies to do things to get the conclusion that they’re looking for.”
“For instance, I can suddenly decide to audit expense reports just to make sure that everybody’s expense reports are following company practices,” he says. “And lo and behold, this person was not following company practices. Now I have a reason to get rid of them.”
Kabrina Chang, clinical professor of business law and ethics at Boston University’s Questrom School of Business, agrees, adding that on the flip side, businesses have a way of willfully ignoring poor behavior when it comes to rainmakers.
But complaints from employees about a leader’s behavior can sometimes force action. “While a hypothetical board member might turn a hypothetical blind eye,” she says, employees don’t have the same incentive to do so.
If your spouse used to report to you, you probably shouldn’t be a CEO
The Nestlé board overlooked an important detail about Freixe when he was first nominated for the corner office, argues Guido Palazzo, a professor of business ethics at the University of Lausanne and co-author of The Dark Pattern: The Hidden Dynamics of Corporate Scandals: According to reports, the CEO married a woman he met at Nestlé; the pair disclosed the relationship, then she left the company.
Nestlé’s board would likely have been aware of that background, and hiring him anyway sent a mixed message. “He should never have become CEO if this behavior was not acceptable at Nestlé,” says Palazzo. “Instead, it was tolerated, and he continued to be promoted.”
