New twist in hunt for ITV chief

ITV's succession saga took a new turn today as the broadcaster revealed its hunt for a chief executive had disintegrated and said Michael Grade would step down as chairman.

The broadcaster ended its discussions with former BSkyB boss Tony Ball citing "significant differences", with a row over a replacement for Mr Grade thought to be at the heart of the disagreement.

Mr Ball had come under fire for the size of his pay demands - said to have initially been as much as £42 million in a share and pay arrangement over five years, although this was reduced to around £20 million as the negotiations progressed.

ITV - home to hit shows including Coronation Street and X-Factor - today said negotiations had stalled amid disagreements, including "a failure to finally agree contractual arrangements".

But the sticking point seems to have come with the shock news of Mr Grade's intended departure from his position as chairman, introduced into negotiations this week.

Reports quickly identified Sir Crispin Davis, the former boss of publishing and media group Reed Elsevier, as a front-runner for the chairmanship.

ITV announced in April that industry veteran Mr Grade would step down from his current executive chairman's role - combining both chairman and chief executive positions - to become non-executive chairman before the end of the year.

But it emerged today that he had agreed with ITV two or three months ago to quit the chairmanship as well.

One source close to the negotiations said that ITV felt it should not make candidates for chief executive aware of Mr Grade's impending departure until a deal was almost finalised.

He said negotiations went off the rails after Mr Ball reacted to the news by asking for the right to veto potential candidates - a request that the board took to be the wrong approach to corporate governance.

The source added there were also eight outstanding terms in the contract that had not yet been ironed out, including details of the proposed long-term incentive scheme.

The ITV statement today said Mr Grade had agreed to stand down as chairman regardless of whether a chief executive was found.

"During the chief executive search process, it was agreed between the committee and Michael Grade that whatever the outcome he would stand down as chairman," the firm said.

Another source close to Mr Ball said he had concluded that the firm was employing "delaying tactics" by revealing the departure of Mr Grade at a late point in negotiations.

"They introduced the idea of appointing a chairman simultaneously with the chief executive only this week after more than a month of negotiations," the source said.

"Most of the outstanding issues on the remuneration package had been resolved and Mr Ball felt that there would have been a further unnecessary delay and the company just did not want to proceed."

Mr Ball is thought to have agreed to take a basic salary similar to that of Mr Grade, around £800,000 to £850,000.

But he also planned to invest £2 million of his own money in company shares, with ITV matching his investment.

The source said that if Mr Ball had managed to double the value of ITV's shares in five years he would then have been entitled to a payout worth 1 per cent of the increase - or around £20 million. However, had the shares continued to decline at their present rate, it is estimated he would have lost £1.7 million.

ITV today said the process of selecting a replacement chairman was "well advanced" and a number of external candidates were in the spotlight.

"The committee is confident of appointing a new non-executive chairman in the near future," the firm said today.

"The first task of the new chairman will be to appoint a new chief executive."

It added that Mr Grade had agreed to continue in his role as executive chairman until a new non-executive chairman started work.

Shareholder group PIRC said the move could send a message to executives seeking large rewards.

Managing director Alan MacDougall said: "This will have been a difficult decision for ITV to take, but it will be the right one if the board felt the potential demands were excessive.

"We are also pleased to see that the company is pressing ahead with the appointment of an independent chair.

"The existing governance arrangements have been far from ideal. The sooner it can revert to best practice the better."

ITV has been hit by falling advertising revenues due to the recession and last month unveiled a £105 million loss for the first six months of the year.

The firm's shares also suffered recently after the Competition Commission refused to scrap rules about how much the broadcaster can charge advertisers.

The competition watchdog's provisional decision to keep the Contract Rights Renewal (CRR) system - introduced to protect advertisers from the broadcaster's dominance when Carlton and Granada merged to form ITV in 2003 - was poorly received by investors, although the Commission said it was considering relaxing the regime.

Shares in ITV fell around 2 per cent today.