Shareholder Criticizes M&S Board Decision

Marks & Spencer’s board decision to replace Lord Burns, the non-executive chairman with Sir Stuart Rose has not been digested by some of its shareholders as they feel that appointing an executive chairman is in breach of corporate governance best practice guidelines with The Association of British Insurers even demanding an explanation.

Sir Stuart Rose has entered into a deal with M&S to continue till 2011 but this appointment has also raised the hackles of its 2nd largest shareholder, Legal and General, which has a 5% stake in the company and who have now gone public in letting its displeasure known at this decision and even calling it an unwelcome announcement. The head of equities at Legal and General, Mark Burgess quoted “As set out in the combined code, we believe strongly in the separation of the roles of chairman and chief executive, believing this allows a much needed balance in the boardroom and prevents the potentially damaging concentration of power.”

Sir Stuart will assume his post in June and this move could signify a move towards future appointments from its own list of internal aspirants in the future when Sir Stuart steps down in 2011. Sir Stuart seemed to be happy with the changes made to the executive committee saying that more hands were always welcome in the current economic climate even as their retail director since 30 years, Guy Farrant would be stepping down.

Steve Esom will be taking over as director of food, whereas Ian Dyson would be promoted to group finance and operations director and could shoulder some of the additional responsibilities, which could be added on to Sir Stuart by managing the everyday operation of their retail operations. Steve Esom, executive food director and Kate Bostock, executive clothing director will also be joining the board. However, Lord Burns has supported this shuffle and even insisted that shareholders should welcome this move, at the same time adding that it would allow M&S to retain Sir Stuart while the development of the next generation of leaders could be initiated.

Lord Burns also claimed that the re-shuffle plans had the backing of 4 major shareholders of M&S. He also added that for Sir Stuart, it was just a matter of balancing his time between his responsibilities. Sir Stuart too echoed that it would have been difficult to identify a successor in case he was to step down in the near future. But opponents such as Peter Montagnon, ABI’s head of Investment affairs felt that this appointment raised some basic fundamental concerns for the members and that the board would need to persuade people that this was the correct approach.

Sir Stuart is also facing one of the biggest challenges in his 4 years in M&S, with share prices tumbling to 375p from a 749p high in the previous year. He had also successfully averted a takeover attempt from Sir Philip Green and had also managed to turn the company around in the previous year, but the slowdown during and after last Christmas seems to have made up Sir Stuart’s mind not to abandon the company. Sir Stuart too is predicting a tough time for UK’s consumer industry at least till 2010.

So, Sir Stuart, who believes that this shuffle is not such a big change and has wowed to concentrate on the bits that he is good at, will need to convince all the unhappy shareholders that appointing him was in the best interests of the company and that he can restore the lost glory and share prices of M&S. It now remains to be seen whether Legal and General will put their displeasure into action in the coming days.