Business Analysis: Sir Ken may have met nemesis with acquisition of Safeway

Sir Ken Morrison is running out of places to hide. Yesterday a third shareholder advisory group added its voice to those calling for the head of the man who has run Wm Morrison since being handed the family baton by his father more than four decades ago.

Pensions Investment Research Consultants (Pirc), which advises investors on corporate governance, stoked the growing shareholder revolt by urging that Sir Ken be voted off the board at next week's annual meeting.

At issue is the extent of Sir Ken's powers, branded "unfettered" by an offshoot of the influential National Association of Pension Funds. Although the 73-year-old chairman recently paid lip service to the ideals espoused by corporate governance bodies and yielded his chief executive's role to Bob Stott, few in the City were fooled as to who calls the shots in Bradford.

Pirc said yesterday it regarded Sir Ken as the group's "de facto chairman and chief executive". Like RREV, the NAPF's investor support body, Pirc is afraid that Mr Stott is a mere corporal when it comes to the battles being waged - against rival supermarkets and in the boardroom. Mr Stott, Pirc fears, lacks "sufficient scope to fulfil the [chief executive's] role in practice".

City observers noted that Mr Stott, hitherto joint managing director, was not even in the country when Morrisons issued its latest profits warning on Friday. (He was holidaying in Italy.) That has helped fuel speculation he could soon depart, with some mooting the former Tory MP and Asda chairman Archie Norman as a prime candidate for chief executive.

Friday's warning was the group's fourth in 10 months and served only to batter further Morrisons' image in the eyes of the City. Its shares have slumped 25 per cent since it finally got its hands on Safeway 14 months ago. Such is the scale of the crisis that the stock rose 3.75p yesterday to 191.75p on the belief the company itself is now a takeover target.

Analysts at CSFB wrote: "We realise that management credibility has been impacted, possibly to the extent that the team is no longer trusted to deliver." There has already been one boardroom scalp, in the form of Martin Ackroyd, the group's long-serving finance director. Should Sir Ken's be the next?

Tim Sawyer, the head of RREV, may believe so. He said Sir Ken's role "called into question whether the board can adequately oversee and evaluate the performance of senior officers of the company". And this at a group loosely expected to make one-third less profit in its enlarged guise this year as it was tipped to do before it spent £3bn on Safeway. (Loosely because no analysts have any faith in their forecasts ahead of the appointment of a new finance director.)

Sir Ken knows his performance is under scrutiny. Investors have been making that plain ever since profits warning number one in July. One large shareholder warned recently: "Were things to deteriorate further, Sir Ken's position would become untenable, even though he has a lot of fans."

Sir Ken has also lost the safeguard of a controlling family shareholding. The combined Morrison stake is down to 18 per cent from 32 per cent before the takeover, reflecting the new shares the group had to issue as currency.

Yet from Sir Ken's perspective, Morrisons has already bent over backwards to accommodate its investors' wishes. In March, the group agreed to create its first nominations, remuneration and audit committees and even charged David Jones, who was promoted to deputy chairman, with sketching out a boardroom succession plan.

Sir Ken's antipathy to the City may be legendary. Until March, for example, the executive team had never treated analysts to a full results presentation, preferring to take questions on a one-on-one basis by telephone. And the group still lacks an investor relations department, which means that if the finance director doesn't feel like taking the call, analysts have no one with whom to chew the financial cud. As to whether Sir Ken's position on the board - next year he would have joined half a century ago - deserves to be under threat, shareholders and analysts were doubtful.

William Claxton-Smith, a fund manager at Insight Investment, said: "There's more to feel positive about the corporate governance at this company than at any time in its history. Ken's role has changed since last year; he is no longer chairman and chief executive. I believe [his succession] is being handled in an appropriate way."

One large shareholder said a vote against Sir Ken's re-election would be "completely disproportionate". He said: "It wouldn't be in shareholders' interests. Ken still has the confidence of his board and his employees. Even if the confidence of the City was strained, getting rid of Ken wouldn't be the right action. There are better ways of getting our message across." He cited Mr Jones' highly regarded boardroom negotiating skills, adding: "It's better to have one non-executive that has the ear of Sir Ken than four that do nothing."

Jonathan Pritchard, an analyst at Oriel Securities, said: "From a food retailing perspective, as an individual Ken has very few peers in the industry. For the combined business to lose him would be catastrophic. Ken lives, breathes, eats, sleeps, and drinks the business, and with due respect to the others he's the strongest executive on that board. He's just allowed them to get terribly overstretched, and they have lost control of the day-to-day running of the larger business." Another analyst said: "Head rolling won't solve anything. You can point to a lot of areas where Morrisons has got it wrong, from the culture clash with Safeway to Ken's autocratic way of running the business. But we're talking about some very able retailers. They have a very good format and a lot of experience. They have bitten off more than they can chew but I doubt whether parachuting a new management team in will work."

He added: "I don't think there'll be enough support from shareholders to vote Ken off the board. He is increasingly under pressure. But there has already been one fall guy."

When Sir Ken takes to the floor of the Cedar Court hotel in Bradford next Thursday, he will at least be able to rely on goodwill from the bevy of small shareholders who will flood the venue. There is little doubt that Morrisons' retail shareholder base will back Sir Ken all the way: to them is he is a national hero. Shareholders at last year's meeting were as proud of Sir Ken's hands-on approach to running the business - he can't walk round a store without helping to stack the shelves - as his new-found status in retail's super league.

But it could well take all of Mr Jones' consummate City skills if institutional investors are to quite share their enthusiasm.