Corporate Governance at Nestle: The Debate Over Combined CEO and Chairman
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Code : GOV0016
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Region : Switzerland |
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Introduction:
In January 2005,Nestle announced that it wouldmake Peter Brabeck-Letmathe (Brabeck), its Chief ExecutiveOfficer
(CEO), the combined CEO and Chairman of the company. Brabeck, who has served Nestle for eight years as its CEO, is
the next to succeedRainerGut (Gut) as theChairman of Nestle afterGut retired on April 14th 2005.Reacting to the decision
ofNestle, Ethos Foundation (Ethos), alongwith a group of other pension funds,5 submitted their proposals at Nestle’s AGM
demanding the company to change its policy of promoting the role of combined Chairman and CEO. Other proposals of
Ethos included reduction of the tenure for directors on board from five years to three years and also decrease in the
threshold shareholding equity for filing resolutions at the annualmeetings from1million francs (as prevailing at Nestle) to
100,000 francs. |
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It was observed that Nestle was unsuccessful in finding a competent person for the post of CEO. Gavin Anderson, CEO of GovernanceMetrics International (GMI)7 commented, “The Board has failed in succession planning.”8 However, Nestle argued that it followed the decision of its Board of Directors and its Executive Board that voted Brabeck as the bestman to hold both the positions. Brabeck said, “For us, the decisionmust be about awell thought-through governance construct that seeks the smoothest andmost cost-effective division of responsibility for strategy, control and execution between the board of directors and the executive board.We have come to the conclusion that – under present conditions – the best solution for Nestle is the doublemandate.”
