Tidjane Thiam was ousted as chief executive officer of Credit Suisse Group AG, losing a boardroom showdown with the chairman in the wake of a tabloid scandal that unnerved the Swiss establishment.
The 13 directors rebuffed appeals from major shareholders in the U.S. and U.K. to back Thiam and instead closed ranks behind Chairman Urs Rohner, giving him their “unanimous” support, according to a statement Friday. They picked Thomas Gottstein, a 20-year Credit Suisse veteran, as the bank’s first Swiss-born CEO in almost two decades.
Credit Suisse shares dropped as much as 5.1%, reflecting doubts about strategy under the new boss.
The drama represents the culmination of a conflict between the CEO and Rohner that escalated after it emerged that top management hired detectives to follow former executive Iqbal Khan. While Thiam, 57, was cleared in an internal probe and a close lieutenant was blamed, the bank has struggled to move beyond the scandal. Swiss regulators have launched their own inquiry, raising questions about the culture at the top of the firm.
Top shareholders including Harris Associates, Silchester International Investors and Eminence Capital had warned the board of directors before Thursday’s meeting that if there was a choice to be made, Rohner should be the one to go. They urged the chairman to back Thiam or step down. Rohner’s backers saw the high-profile demands as an unseemly gambit, according to a person familiar with the matter. Meanwhile, the chairman lined up support behind the scenes from other shareholders for the board, including Qatar’s sovereign wealth fund, the person said.
“Tidjane has made an enormous contribution to Credit Suisse since he joined us in 2015,” Rohner said in the statement. “It is to his credit that Credit Suisse is standing on a very solid foundation and has returned successfully to profit.”
For Thiam, who was born in Ivory Coast and previously held top roles at Aviva Plc and Prudential Plc before Rohner hired him in 2015, the departure blemishes a record that includes a pivot away from volatile trading and toward the more stable business of catering to affluent clients. While the shares lost about half of their value during his tenure, he was applauded for stabilizing the franchise.
The troubles started in September when Swiss media reported Khan, who had left for crosstown rival UBS Group AG, confronted his pursuers in downtown Zurich. Embarrassing disclosures followed, including accounts of the personal feud between Thiam and Khan and the suicide of a contractor, rattling business circles in a city that normally enjoys a reputation for quiet professionalism.
An internal probe concluded Thiam didn’t know about the spying, and that Chief Operating Officer Pierre-Olivier Bouee was responsible. Bouee was fired late last year. It later came out that human resources chief Peter Goerke was also followed, which the bank also blamed on Bouee.
“I had no knowledge of the observation of two former colleagues,” Thiam said in the Friday statement. “It undoubtedly disturbed Credit Suisse and caused anxiety and hurt. I regret that this happened and it should never have taken place.”
A third spying case, involving a former Credit Suisse employee in the U.S., was also probed and rejected by the bank. However, lawyers for Credit Suisse still looked into the matter as recently as last week, Bloomberg reported on Tuesday.
Gottstein is CEO of Credit Suisse Switzerland and has been in the banking industry for 30 years, including more than 20 at Credit Suisse. His experience includes 13 years in investment banking in London, as well as in private banking.
Thiam’s resignation after prominent overseas shareholders had backed him marks a victory for the Swiss establishment. A former lawyer who has been chairman of Credit Suisse for a decade, Rohner’s leadership “during this turbulent time” was praised by lead independent director Severin Schwan, CEO of Swiss pharmaceuticals company Roche Holding AG.
The spying scandal underscores the risk of reputational damage to companies if their top executives are seen as running afoul of ethical standards. Barclays Plc CEO Jes Staley survived a yearlong regulatory probe into his attempts to unmask a whistle-blower, escaping with a fine in 2018. The British lender reprimanded Staley after discovering he had twice tried to identify a whistle-blower who had raised concerns about his recruitment of a former colleague.
It’s unclear what impact Thiam’s surprise departure will have on the investigation by Swiss banking regulator Finma into the scandal. Finma said in December that it had appointed an independent auditor to investigate the case and that such probes typically take several months. No one at the regulator was immediately available on Friday morning to comment on the news.
Thiam took over at Credit Suisse in mid-2015 and quickly outlined a plan to slash costs, boost profitability and increase his firm’s financial strength. A former politician and insurance executive, he had no direct experience in investment banking, a business that became one of his biggest headaches. He was blindsided by losses at the trading unit in 2016, pushing him to accelerate cost cuts.
While the cost reductions were successful, the bank initially saw revenue fall under his watch, and the CEO had to tap investors for fresh capital. The measures started to pay off last year as earnings bucked the gloom facing other European banks and wealthy clients added new money. But by December, Thiam cut a profitability target and warned of a loss at the investment banking and capital markets business.
Educated in France at the elite Ecole Polytechnique, the francophone Thiam has spent a lifetime defying the odds. By his mid-20s, he was working in Paris for McKinsey & Co., the high temple of consulting. By his mid-30s, he was back in Ivory Coast — and under house arrest following a military coup. By his late-40s, he was in Britain, as the first black executive of a FTSE-100 company.
More must-read stories from Fortune:
—Stock scammers are using coronavirus to dupe investors, SEC warns
—Asia worries about big events like the Olympics amid coronavirus spread
—Why China is still so susceptible to disease outbreaks
—Looking to cut emissions, Europe eyes a “sustainability” tax on meat
—Fortune Explains: Tariffs and trade wars
Catch up with Data Sheet, Fortune’s daily digest on the business of tech.