Love Life and Corporate Governance

On September 1, Nestlé announced the immediate dismissal of its chief executive officer (CEO), Laurent Freixe, exactly one year after he took office. An internal investigation confirmed an undisclosed romantic relationship with a direct subordinate. Taken by surprise, even before any external revelation of the relationship, this decision sparked a series of negative comments in the media and on social networks. The very next day, on LCI, third-ranked continuous news channel in France, Ruth Elkrief devoted her 7:40 p.m. segment to denouncing the company’s interference in the private lives of its employees. In L’Express, the third weekly general interest news magazine in France, Julie de Funès saw it as the emergence of a “sentimental record.” Others perceived it as an infringement on individual freedom and pointed out that many romantic encounters take place within the company, where employees spend most of their time. Could the company claim the right to condemn its employees to celibacy or judge their intimate behavior? Everyone drew parallels with the situation of the CEO of Astronomer, who was forced to resign in early August following controversy sparked by the release of anonymous videos that went viral, showing him in unambiguous positions with his HR director at a Coldplay concert. And to denounce, as Vincent Lamkin did in an op-ed in Le Figaro, the rise of hypocritical corporate puritanism.

This is a view we do not share: the issue is a private matter, but it is also central to corporate governance. We believe Nestlé’s decision was not only justified but necessary, as the relationship was part of a hierarchical relationship involving the group’s chairman and its continuation would have created lasting reputational risks.

Intimate relationships and hierarchical relationships

The radical nature of the decision can be explained primarily by the fundamental rejection of intimate relationships with direct subordinates, a situation in which the issue of consent becomes a major risk and in which the functioning of the teams concerned can be disrupted or even permanently affected. In an organization, intimacy becomes a collective issue when it affects hierarchical relationships. It is not a moral issue, but a question of transparency and consistency. In their codes of conduct or ethics, companies have established an obligation of transparency in such cases, which should enable management to assess the risks and, if necessary, offer a transfer to one or both employees concerned. The relationship itself is not wrong but allowing it to continue without declaring it and remedying its consequences for the functioning of the company is.

Credibility of the leader

This requirement for transparency is even more justified when it comes to the group’s president. As the company’s representative, he must embody its values and respect its rules with constant vigilance. He is an essential part of his image, which he must defend and promote. Any deviation on his part constitutes a potential reputational risk. As the holder of the most extensive authority and the final decision-maker on a wide range of issues, both large and small, he must not put himself in a position where his objectivity could be questioned. How can the smooth and effective functioning of an executive committee be ensured in such a situation? Furthermore, as is the case at Nestlé, according to our information, if a rule is explicitly laid down on this subject, it must be respected.

Long-term reputational risks

In choosing to dismiss its CEO, the group was undoubtedly aware that it would spark controversy. The fact that it had itself recently been accused of a lack of transparency in some of its activities created fertile ground for irony and virality, which were widely exploited on social media and in the press. But the controversy would undoubtedly have been more violent and devastating for the company if the situation had continued and been revealed by indiscretions, clandestine videos, or journalistic investigations. The chairman would likely have been joined by the group, which would have been criticized for its inaction.

Even if the terms of his decision and its announcement are open to debate, Nestlé had, in our view, no choice but to terminate its CEO’s duties and thus remind everyone that a leader’s first obligation is to set an example.

Eric Giuily, President
Alae Taybi, Consultant