C-Suite·chief executive officer (CEO)Nestlé fired its scandal-clad CEO without a payout—a ‘really unusual’ move, corporate governance expert saysBy Eva RoytburgBy Eva RoytburgFellow, NewsEva RoytburgFellow, NewsEva is a fellow on Fortune's news desk.SEE FULL BIO Former CEO Laurent Freixe had been with Nestle for over 40 years before an 'anonymous' report outed his romantic relationship with a subordinate.
GABRIEL MONNET/AFP via Getty ImagesWhen Nestlé abruptly ousted its chief executive Laurent Freixe over Labor Day weekend after revelations of a romantic relationship with a direct subordinate, one detail stood out: He was shown the door without a severance package.
That, according to corporate-governance veteran Nell Minow, is almost unheard of in the C-suite. “That is really unusual,” she told Fortune.
“I think that’s actually a badge of success for corporate governance, because that’s something investors have been concerned for a long time: CEOs being dismissed and somehow getting to stay on.” Nestlé confirmed to Fortune that Freixe will not receive a severance package.
For years, high-file executives who crossed ethical lines have left with multimillion-dollar parachutes.
Famously, Steve Easterbook, the former executive of McDonald’s, walked away from the role with a hefty sum of $40 million after getting caught having a consensual sexual relationship with a subordinate.
McDonald’s later clawed back $105 million from Easterbook after finding he hadn’t disclosed sexual relationships with other subordinates at the fast-food giant.
Adam Neumann—after leading a disastrous charge to take the company he founded, WeWork, public—received $445 million in a payout package during his ouster.
And after 346 people died in two crashes during Dennis Muilenburg’s tenure as CEO, he was not awarded severance, but was still left with more than $60 million in his pocket from other stock options.
Minow said these different outcomes show that boards are not always consistent in how they police misconduct, but said one thing remains consistent: Social media has left directors with fewer options to look the other way.
“There has been bad behavior in the boardroom for a long time,” Minow said.
“But partly because of social media, partly because of the way things get out, the board is under more pressure to respond.” The reputational fallout from bad behavior can be brutal.
A Polish CEO who was recently caught on snatching a U.S. Open souvenir hat from a child watched his company’s online reviews collapse to near zero in days.
The “John” from Papa Johns caused Major League Baseball to pull their motion with the pizza chain after he said the N-word during a media-training call in 2018.
Boards are slowly adapting, Minow argued.
Some have begun docking bonuses or moving faster to terminate CEOs “for cause,” meaning the executive in question committed serious misconduct that warrants dismissal without severance pay.
But she warned many still demonstrate a double standard.
“If you see some hypocrisy in the board, by the way that they handle the CEO versus the way they handle a middle manager, that’s a green light for employees to behave badly themselves.” Even the apology, she said, operates as a test of governance.
Minow keeps what she calls an informal “hall of shame” of poor executive apologies. The worst, she explained, dodge responsibility or fail to show how the company will prevent a repeat.
The best are blunt, swift, and backed by action. Ultimately, Nestlé’s move may ve a turning point.
By denying Freixe a golden parachute, the Swiss food giant signaled that boards are starting to treat reputational risk as seriously as financial risk, and that missteps at the top no longer guarantee a cushy landing.
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