Vodafone at the crossroads

Succession plans are being drawn up for Sir John Bond but unrest points to deeper issues. Nick Clark reports

In Quantum of Solace, M warns James Bond: "When you can't tell your friends from your enemies, it's time to go." The advice may well have been noted with a wry smile by the fictitious British spy's namesake, Vodafone chairman Sir John Bond, whose tenure is expected to come to an end before next year's annual general meeting after increasing shareholder unrest.

Succession planning is well under way for the former chief executive and chairman of HSBC, with headhunter MWM Consulting hired even before the Ontario Teachers' Pension Plan (OTTP) called for his head in July. Yet, market experts believe Sir John's departure was inevitable anyway, and see the criticism as a warning from investors to the entire board that patience is wearing thin.

In the run-up to this year's annual general meeting in July, the OTTP demanded a rejuvenation of the board "and a re-examination of Vodafone's long history of poor capital allocation and disastrous M&A".

Sir John faced down the dissenters – which ultimately amounted to those with 6.5 per cent of the company stock. However, he has been chairman for almost five years and will celebrate his 70th birthday next year; many believe he would have been preparing his exit anyway.

Steve Malcolm, an analyst at Evolution Securities, said: "The last four or five years have hardly been sparkling and he has to take some responsibility for that. That said, it seems like a perfectly logical time for him to go."

Much of the recent investor ire had been directed at the previous regime under Arun Sarin, and Sir John's support of the big-ticket acquisitions. Little anger has been directed at his replacement, Vittorio Colao, so far – in fact, the OTTP openly backed him – but analysts believe it is little coincidence that rumbles of discontent have emerged shortly after his second anniversary at the helm.

Mr Colao outlined his plans to slash £1bn of costs, streamline the operations, and focus on cash generation several months after his appointment in 2008. It was clear that the days of Mr Sarin's marquee deals were over. The cost-cutting was completed a year ahead of schedule and he revealed at the end of 2009 that the group was to take out a further £1bn by 2010.

Vodafone insiders said that while streamlining the operations was ongoing, Mr Colao is focusing on three key trends. One is data. Vodafone is well placed to benefit from the rise of smartphones – especially as it now offers the iPhone – and the explosion in mobile data demand. The company is also aiming to have a "total communications offering" and has expanded into fixed line telephony and broadband. Finally, it is among the strongest mobile players in the business space, although that division has inevitably suffered in the downturn. Katja Ruud, an analyst at Gartner, said: "At the moment it is in quite a good place. It has a very large mobile operation with a big footprint. It has a good balance between consumer and business as well as between energy and developing industries. Yet it isn't fully consistent. It is difficult to see if the game is crystal clear going forward."

The market expects a dynamic strategy update from Mr Colao in November. Many believe it is time for the group to up its game, citing the recent shareholder rumbles as evidence. Robin Bienenstock, an analyst at Sanford C Bernstein, said: "This is a shot across the bows to the entire board. If you get rid of the chairman, nothing really changes, but you might light a few fires under others. It is an undisruptive way to get things moving."

So far the heat has worked. "The company has done well since that meeting," Ms Bienenstock said, noting the shares have risen almost 17 per cent since the start of July. Part of this has been driven by information investors have been desperate to hear, conveniently leaking out. These include the potential sale of its stake in China Mobile, worth up to £4bn, as well as talk it could offload its 44 per cent stake in French mobile operator SFR and the minority stake in Polkomtel of Poland. Yet, the most eagerly awaited announcement is over its 45 per cent stake in Verizon Wireless in the US. There is still no clarity as to whether it will wait for the dividend, deepen the relationship with partner Verizon Communications, or sell its stake.

This comes against a backdrop of an industry preparing for fourth generation network, rivals moving in from traditional telecoms groups as well as new threats from Google and Apple. Mr Malcolm concluded: "Vodafone's biggest challenge is establishing a true identity versus its competitors. Management is now getting to grips with the cost base and bringing the right scale economies to bear in the business, but the top line story is still very unclear; revenues are at the mercy of wider market trends."

Going? going? gone

Harvey McGrath, Prudential

As company directors and institutional investors alike return from the summer holidays, a number of FTSE 100 chairmen may find their positions under pressure. At the top of some shareholders' hitlists is Harvey McGrath, chairman of Prudential, the insurance company. Mr McGrath is regarded as having been extremely fortunate to ride out the immediate storm following Pru's disastrous failed bid for AIA, the Asian insurance business of AIG. However, some investors are understood still to be pressing for change at the top of Pru, which wasted £450m on advisers' fees during its tilt at AIA earlier this year. The debacle may even have turned Pru into a takeover target itself.

Sir John Parker, National Grid

Sir John, a widely respected figure in the City, is also the chairman of Anglo American, the mining company. Though he has been popular with shareholders in both businesses, the fact that he holds two FTSE 100 chairmanships at the same time is unusual. Sir John has reportedly told friends in recent weeks that he now plans to step down from National Grid next year after eight years at the helm. Earlier this year, the power company surprised investors by announcing a £3bn rights issue to pay for capital spending projects – it previously said such a fund-raising exercise would not be necessary – and it has also run into regulatory difficulties in the US.

Sir Stuart Rose, Marks & Spencer

Having faced sustained criticism from investors for serving as the retailer's chief executive and chairman simultaneously, Sir Stuart formally gave up the first of those roles earlier this year, with Marc Bolland, hired from supermarket group Morrisons, taking over. Sir Stuart is now due to vacate the chairman's office in January, when the investment banker Robert Swannell will take up the role. Sensitive to past recriminations about Sir Stuart's pay packet, Mr Swannell has accepted an annual salary of £450,000 (Sir Stuart is paid £875,000). Sir Stuart, meanwhile, rather fancies a move into television presenting.

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