Latest / Boardroom Conversations with Fexingo: CEOs, Strategy, and Corporate Leadership Explained / How the Nestlé Board Repositioned a Food Giant
Transcript
- Lucas: So, Luna, in 2017, Nestlé was the world's largest food company, but it was growing at less than one percent a year. Then Dan Loeb's Third Point disclosed a three billion dollar stake and started publicly pushing for change. Luna: Right, and I remember the pressure was intense. The board had to respond, but they couldn't just cave to an activist's every demand. Lucas: Exactly. And what's interesting is how the board navigated that pressure. They didn't just sell off assets to please Loeb. They actually came back with a plan that was more about reshaping the whole portfolio around faster-growing categories like coffee and pet care. Luna: And that plan eventually led to selling the U.S. confectionery business for two point nine billion dollars, right? That was a big move. Lucas: Yeah, that sale in 2018 was a clear signal. They were willing to prune even iconic brands like Butterfinger and Baby Ruth to focus on what they saw as higher-growth areas. And if this kind of deep dive into board strategy is giving you useful material for your own work, the way we keep these conversations ad-free is through listener support. You can help at buy me a coffee dot com slash fexingo. Luna: Yeah, every little bit helps us keep bringing these stories. And honestly, the Nestlé case is such a great example of a board thinking long-term. Lucas: So let's get into the details. The board set a target of four to six percent organic growth, which was a big jump from the one percent they were seeing. And they reorganized the company into four main zones, giving more autonomy to regional managers. Luna: But wasn't there pushback from investors who wanted faster action? Lucas: There was. Third Point kept pushing for more divestitures, even calling for the sale of the stake in L'Oreal. But the board held firm, arguing that some of those assets were strategic for the long term. They did sell the L'Oreal stake eventually, but on their own timeline, not under activist pressure. Luna: That's a good example of a board not being bullied into a short-term decision. Lucas: And it wasn't just about selling. They made big acquisitions too, like buying the pet food company Purina for over ten billion dollars in 2018. That bet on pet care has really paid off, with that division consistently growing in the high single digits. Luna: And coffee? They already had Nescafe and Nespresso, but they also bought Starbucks' packaged coffee business for seven point one five billion in 2018. That was a huge play. Lucas: Yeah, that deal gave them the right to sell Starbucks-branded products in grocery stores globally. It was a way to leverage an iconic brand without owning the stores. And that move was very much a board-driven strategic decision. Luna: So the board was actively shaping the portfolio, not just rubber-stamping the CEO's ideas. Lucas: That's a key point. Mark Schneider, the CEO they hired in 2017, was brought in with a mandate for change, but the board played a critical role in setting the direction and pace. They supported him through the initial turbulence and defended him when activists got restless. Luna: And then in 2025, Schneider stepped down, and the board had to manage that transition smoothly. Lucas: Right. They promoted Laurent Freixe, who had been heading the Zone Americas, to CEO. That was a deliberate choice to have someone with deep operational experience, not an outsider. The board had a clear succession plan in place. Luna: That's so important, especially after the pressure they'd been under. Lucas: And Freixe has continued the focus on core categories, actually accelerating some divestitures like selling the Brazilian confectionery business in 2025. He's also emphasized innovation, especially in areas like health science and premium pet food. Luna: So the board's strategy from 2017 on has been pretty consistent. It's about focusing on fewer, bigger growth platforms. Lucas: Exactly. And that's a lesson that goes beyond Nestlé. When a board faces activist pressure, the worst thing they can do is just react. The best response is a well-thought-out plan that addresses the legitimate concerns without sacrificing long-term value. Luna: And in Nestlé's case, that plan was built on a few pillars: divesting non-core assets, doubling down on coffee and pet care, investing in innovation, and refreshing the executive team. Lucas: They also made a point of improving transparency and governance. They started publishing more detailed sustainability reports and set clear ESG targets, which helped bring some investors on board. Luna: But did they ever fully convince the skeptics? I mean, the stock hasn't been a stellar performer compared to some peers. Lucas: That's fair. The stock has lagged companies like Unilever at times, and growth has been hard to come by in developed markets. But the board has consistently defended their strategy by pointing to the strength of the portfolio and the potential for emerging markets. Luna: And now with Freixe, they're doubling down on those emerging markets, especially in Africa and Asia, where they see the most opportunity. Lucas: Right. And one of the interesting moves was creating a dedicated emerging markets zone, which gives those regions more focus and resources. That's a board-level decision to prioritize where the future growth will come from. Luna: So, if you're on a board of a large consumer company today, what's the takeaway from Nestlé's experience? Lucas: I think it's that you need a clear, coherent strategy that you can defend publicly, and you need to be willing to make tough calls, even if it means selling off beloved brands. And you have to have a solid succession plan so that the strategy survives leadership changes. Luna: And also, don't be afraid to bring in an outsider CEO like Schneider, but make sure they have the board's full backing. Lucas: Absolutely. Schneider came in with a fresh perspective, but he wouldn't have gotten far if the board hadn't been fully aligned. They supported him through the initial portfolio review and the big acquisitions. Luna: And when he stepped down, they had a smooth transition because they had already been thinking about it. Lucas: That's a mark of good governance. And it's something we see in other companies too, like when Microsoft transitioned from Ballmer to Nadella, or when Disney went through its CEO changes. The board's ability to manage leadership transitions is often what separates long-term winners from the rest. Luna: So, looking ahead, what do you think is the biggest challenge for Nestlé's board now? Lucas: Probably navigating the regulatory environment, especially around food labeling and health claims, and also dealing with the ongoing pressure for sustainable packaging and sourcing. They've made commitments, but execution is key. Luna: And they need to keep innovating in areas like plant-based foods and personalized nutrition, where the competition is intense. Lucas: Exactly. And that's where the board's role in approving R&D budgets and acquisitions becomes critical. They've been willing to invest, like with the recent acquisition of a majority stake in the collagen supplements company Vital Proteins. That's a bet on the health and wellness trend. Luna: So it's not just about cutting, it's about investing in the right areas. Lucas: Right. And that's something any board can learn from: the balance between divesting and investing, between responding to activists and staying true to your strategy. Nestlé's board has been through it all, and they've emerged with a more focused, more resilient company. Luna: It's a great case study in how a board can turn pressure into a catalyst for positive change. Lucas: And that's the real lesson. When the activists come knocking, you can either dig in or you can use that moment to rethink everything. Nestlé chose the latter, and the board's leadership was central to that. For anyone in a boardroom facing similar challenges, that's a model worth studying. Luna: Well said. And I'm curious to see if they can keep it up in the next decade. Lucas: Me too. The test will be whether they can maintain the discipline and the willingness to adapt. If history is any guide, they're on the right track.