Exclusive-Nestle chair's exit followed rising unease over direction, investors say

By John Revill, Oliver Hirt and Richa Naidu

ZURICH/LONDON (Reuters) -Nestle's recent announcement that Chairman Paul Bulcke will step down followed rising investor unease over the food group's share price, the tenure of previous CEO Mark Schneider and concerns its corporate governance model was out of date, investors told Reuters.

Support for Bulcke, 70, was ebbing away due to doubts about Nestle's recovery after the pandemic, when sales volumes flagged in 2023 as the world's largest packaged food maker increased prices to offset rising raw material costs, four Nestle investors said.

There was also discontent over Bulcke's loyalty to Schneider during that tough period, as well as Nestle's practice of making former CEOs chairmen, they said. Schneider was eventually ousted last August and replaced by Nestle veteran Laurent Freixe.

The maker of Nescafe instant coffee and KitKat chocolate bars said on June 18 that Bulcke, CEO from 2008 to 2016, would step down as chair in April 2026 and be replaced by vice chairman Pablo Isla, a former chairman and CEO of Spanish fashion retailer Inditex.

"Nestle is not in crisis mode, but it's the right time for a change," said Ingo Speich, head of sustainability and corporate governance at Deka Investment, a top-30 Nestle investor which voted against Bulcke at this year's AGM on April 16.

"We are big supporters of independent chairmen, but after being on the board for more than a decade, Bulcke was no longer independent," added Speich. "Nestle has been too much like a closed shop in the past."

Bulcke was not available to comment on this story.

His departure will mark the end of a near 50-year career that saw him rise from marketing trainee to the very top.

Responding to a Reuters request for comment on this story, Nestle spokesperson Christoph Meier said Bulcke chose not to seek re-election at a time when Freixe was well established, and the company's strategic direction was clear and firm.

"This timing ensures a smooth transition, providing ample time and space for the new leadership team to settle in," Meier said, noting the firm had reviewed its succession plans in June.

But the timing of Bulcke's exit - announced soon after he was re-elected for another year, and a year before his mandatory retirement age - was unusual, analysts and investors say.

Bulcke, chairman since 2017, was due to retire in 2027 under Nestle's rules.

Several top-30 investors told Reuters they had been unhappy with Bulcke for years, with some seeking his departure either privately or at shareholder meetings.

"The time has been right for Mr. Bulcke to step aside for quite some time," said one, who declined to be named.

Bulcke's shareholder backing has been declining. In April, he won re-election with 84.8% shareholder support. While apparently substantial, it was well below the level chairs usually get in Switzerland. In 2017, he received almost 96%.

"This was a clear sign that many investors did not appreciate him anymore," the investor said. "He shouldn't have been chairman in the first place - we don't like a CEO becoming chairman without cooling off periods."

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Two previous powerful Nestle chairmen, Peter Brabeck and Helmut Maucher, had also been CEO.

"Chairmen who are former CEOs can be resistant to change," said Kuno Schedler, a corporate governance expert at the University of St. Gallen, Switzerland.

Shareholders also criticised Bulcke's decision to retain Schneider when Nestle's performance struggled after 2022.

Adding to the disquiet were scandals such as Nestle's use of banned treatments to purify bottled water in France, and supply chain problems in the United States. Yet when Schneider was finally let go, it came as a shock.

"Safe haven companies like Nestle should never surprise the market," one shareholder said. "The former CEO was doing roadshows with investors shortly before he had to go."

Shareholders have also been concerned by the performance of the group's share price - which fell 42% between 2022 and 2024 - lagging rivals like Unilever and Danone which gained 15% and 19% respectively.

Investors were also worried about high debt which threatened future payouts. Net debt at the end of 2024 was 2.9 times adjusted earnings before interest, taxes, depreciation and Amortization, up from 2.5 times at the end of 2023.

"Shareholders only want one thing: returns. And if they're not there, then people are unhappy," said one investor.

Investors and analysts said incoming chair Isla showed strong leadership at Zara-owner Inditex, cheering a potentially fresh approach to driving growth at Nestle.

One of Isla's first priorities will be to define the profile of the next CEO, said Vontobel analyst Jean-Philippe Bertschy. Freixe is 63, so questions have been raised about how long he will remain in the top job.

Other tasks will include deciding what to do with Nestle's roughly 40 billion euro ($47.11 billion) stake in French cosmetics giant L'Oreal, and whether to keep the company's struggling frozen foods business.

"We need better execution at Nestle," said Simon Jaeger, a portfolio manager at Nestle investor Flossbach von Storch. "That's why it's good to have a breath of fresh air in the position of chairman.

"Inditex is one of the best-managed companies in an ultra-competitive sector. Pablo Isla played a leading role in this. And because he already knows Nestle, he is a good solution."

($1 = 0.8490 euros)

(Reporting by John Revill, Oliver Hirt in Zurich and Richa Naidu in LondonEditing by Dave Graham and Susan Fenton)