Shareholder anger grows over Nicoli

Eric Nicoli, the embattled head of EMI, is facing growing shareholder unrest over his decision to take control of the company's struggling recorded music division, with a number of key investors unhappy with the management shake-up at the world's third-largest music company.

Mr Nicoli stepped into the role last Friday, ousting the industry veteran Alain Levy and his deputy, David Munns, after another profits warning from the group.

Mr Levy, head of EMI's recorded music division, paid the price for a dismal Christmas trading period when a series of high-profile album releases failed to resurrect EMI's fortunes.

His departure was anticipated, but many investors had also expected Mr Nicoli to move on after a disastrous year for the music giant. His decision to head up the recorded music division has caused consternation among investors who would have preferred the appointment of a new management team to address EMI's numerous problems. One top-five shareholder said: "We have significant reservations about Eric Nicoli's continued role at EMI." Mr Nicoli is not considered to have the necessary experience running a record label, despite his time in EMI's boardroom. Mr Levy and Mr Munns turned PolyGram into the world's largest music company by acquiring the vibrant record labels Motown, Island and Def Jam. Mr Nicoli spent 20 years in the biscuit industry, where he was credited with inventing the Yorkie Bar.

Mr Nicoli has presided over one of the most tumultuous periods in EMI's history, after joining from United Biscuits in 1999. He took over the company just as the recorded music industry entered the most difficult period in its history. Websites such as Napster allowed users illegally to download music for free, while physical CD piracy became an increasing problem for music companies. More recently the rise of legally downloadable music through services such as iTunes has impacted album sales, while the success of websites such as MySpace which enable musicians to directly market music to an audience of millions has raised question-marks over the role of record labels.

Mr Nicoli has faced numerous other challenges outside the structural shift within the music industry. A long-anticipated deal to merge EMI and Warner Music has fallen through three times since he joined, and an approach from the private equity company Permira to take the company private last year also collapsed. His decision to reject Warner Music's 320p a share offer last summer, which valued the company at £2.5bn, has frustrated investors who now hold shares worth 245p.

For now, Mr Nicoli has the support of the company's board and new chairman, John Gildersleeve. The company has dismissed the notion that Mr Nicoli's role as head of the recorded music division is short-term. A source said: "The board felt he was the right man for the job, and his priority will be to build creative talent."

Of more immediate concern will be slicing millions of pounds from the recorded music division's cost base, although the company declined to comment on reports it is preparing a wide-ranging shake-up of its artist roster.