When Boards Get It Wrong: The True Cost of CEO Mishires

At its core, executive leadership sets the strategic direction for the company and prepares it for long-term success. But when an executive brings scandal to their role, as can now be seen at Nestlé, the negative effects can be felt across the entire organization.

Nestlé’s Leadership Crisis

Nestlé’s recent leadership turmoil has placed the company under intense scrutiny, particularly from concerned investors. The company abruptly dismissed CEO Laurent Freixe after an internal investigation revealed that he had failed to disclose a romantic relationship with a direct subordinate, violating the company’s code of conduct. Freixe had recently been appointed CEO in September 2024, following the ouster of his predecessor, Mark Schneider.

The dismissal coincides with broader investor frustration with Nestlé’s performance, which has been ongoing for several years. Shares have lagged behind those of other consumer-facing companies and have declined significantly since 2022. The company’s mid-year report shows declining sales and net profit. Freixe’s removal came exactly one year after he had been promoted to take over the company. Philipp Navratil, who most recently led the Nespresso division, was immediately appointed as Freixe’s successor.

The Ripple Effect of a Mishire

The board’s reaction did not stop with the CEO change. Chairman Paul Bulcke, who had earlier announced his intention to step down in April 2026, accelerated his own departure in response to investor pressure. He will be succeeded by Pablo Isla, the lead independent director and former head of Inditex, with the transition effective October 1, 2025. Investors saw this move as necessary to restore credibility and fresh direction to Nestlé’s boardroom.

According to McKinsey, a good CEO will increase a company’s ROI by 9% per year. Naturally, there will be a lot of variation for any given CEO, but at a company like Nestlé, the CEO should be increasing the bottom line by several billion dollars every year–or, at the very least, give investors a reason to believe that increased cash flows will be coming soon.

But that hasn’t happened at Nestlé. The consequences of this kind of misdirected CEO hire are already visible across the company. Abrupt leadership changes disrupt strategy, putting the organization in a precarious position. Internally, morale and confidence have likely taken a hit, especially among employees who expect stability and clarity from leadership. This has all been reflected in the disappointing stock price.

Investor Confidence on the Line

Externally, Nestlé’s reputation has taken a blow; not only because of the personal misconduct but also due to perceptions that oversight was lax or that the board was slow to respond.

Financially, investors reacted to both the governance scandal and the company’s ongoing underperformance.

This collapse, which saw the company lose more than 10% of its value in a matter of weeks, has been described as a “meltdown” by the Financial Times. This value drop was especially concerning for a company as mature as Nestlé, which has been in operation for over 150 years. Mass-consumer, mature, multi-national conglomerates like Nestlé are usually viewed as a relatively safe option for investors. As many feel the risk does match the reward, their capital has been redirected elsewhere.

The share price weakness, combined with concerns about weak growth and rising costs, has heightened investor vigilance. Nestlé is now under pressure to deliver not only through new leadership but through sharper execution and restored trust. Stakeholders are watching how quickly and transparently the company can pivot, align with its strategy, and reestablish its culture.

The Real Cost of Getting It Wrong

Nestlé’s scandal reminds boards of a vital truth: hiring a CEO is one of the most consequential decisions you’ll make. The wrong choice can result in losses that can reach into the billions. Whether through poor oversight, cultural disconnects, or keeping things too close to the vest, the fallout of a poorly chosen CEO can be devastating. The company’s reputation takes a beating, investors lose confidence, and suddenly, your own credibility as a board member is on the line. Even for a powerhouse like Nestlé, digging out of that hole can take years.

Strong succession planning is the key to preventing costly mistakes.  Build strong talent pipelines well in advance, both inside your company and out in the market. Evaluate candidates not only for their past achievements but for their ability to uphold culture, governance, and ethical norms. The early phase of any CEO’s tenure merits extra attention: boards need rigorous onboarding, clear performance milestones, and frequent checkins to surface misalignment or concerns before they become crises.

Transparency matters. That much is clear. When a misstep is discovered, having a plan of action is critical. Taking ownership, proactively communicating what went wrong, and laying out a plan for corrective action helps preserve trust among investors, employees, and other stakeholders. In Nestlé’s case, the involvement of external counsel in investigating Freixe and the public acknowledgement of the breach were necessary, but costly steps.

Ultimately, the Nestlé saga is more than a headline about one CEO’s or one chair’s misconduct. It illustrates how boards must treat CEO selection and succession planning not as routine HR matters, but as a strategy central to corporate health. The stakes are high when shareholder value, brand reputation, employee loyalty, and board credibility are all at risk. Directors who ignore this will risk more poor financial reports; they risk losing investor confidence, access to additional capital, and even their own legitimacy.

Written by Shawn Cole, President and Co-Founder of Cowen Partners Executive Search.