The decision to replace Ms Iverson, 54, was taken by the board after several weeks of discussions and she was informed by the chairman, John Thornton, on Monday evening. The company said its decision had not been prompted by pressure from institutional shareholders but by the apparent failure of Ms Iverson's strategy to turn the group around. The company denied that Sir Bernard Ashley, Laura Ashley's widower, had instigated Ms Iverson's removal though it is understood he did support it.
Ms Iverson will depart with immediate effect with a pay-off of one year's salary equivalent to pounds 450,000. Jim Walsh, one of her closest allies whom she brought in as finance director, is also set to leave though he will remain until a successor can be found.
Stephen Cox, the group's company secretary, said: "If you look at this year's numbers it was not a surprise. Obviously it is disappointing not just for her but for the rest of the business. We probably ran too far too fast and the plan now will be to restore stability."
David Hoare, who was brought in as chief operating officer two months ago, will become the group's fourth chief executive in less than four years. He is set to review the group's operations in North America, which have been performing poorly. The number of product lines will also be reviewed after City criticism that the attempting to sell ladieswear, childrenswear and home furnishings from small stores is proving unsuccessful.
The company is also in talks with its bankers about the terms of a pounds 50m loan. A company spokesman claimed that the banks were being supportive.
Ms Iverson will return her 5.5 million share options. Mr Walsh will return his 1.1 million options and will also receive a pounds 300,000 pay-off. After the controversy of Ms Iverson's remuneration, Mr Hoare is being paid a more modest pounds 200,000 a year with no bonus. His share option package has yet to be decided.
Retailing analysts said the timing of Ms Iverson's departure was a surprise. Nick Bubb of Societe Generale Strauss Turnbull said: "Either there has been a falling out or there is more bad news about trading on the way." He added: "The task [to turn around Laura Ashley] was almost superhuman. It now faces a long period of consolidation and cost-cutting. But it is a business with some kind of future."
Ms Iverson's departure marks the end of a two-year tenure at Laura Ashley which has been characterised by aggressive predictions which have seldom been realised. When she was recruited in June 1995, she arrived with a golden reputation as a retail wonderwoman. After making her name as a high flyer at Bonwit Teller and Bloomingdales in the United States, she was enticed to Britain by David Dworkin, then head of Storehouse, the BHS and Mothercare retailer. She cemented her reputation here by turning around the fortunes of Mothercare before returning to America.
When Sir Bernard Ashley announced her as the new chief executive of Laura Ashley, she was hailed as the potential saviour of the once proud retailer which had fallen on troubled times.
But her appointment caused problems from the start. Her pay package, which could have netted her pounds 3.4m over three years, ruffled feathers in the City. And her aggressive management style soon caused disquiet in the boardroom. She recruited an almost entirely new team which included John Thornton, one of the most senior figures at Goldman Sachs, as chairman. She also filled the board with several Americans and several women. But her hands-on style which many said was too interfering, caused a string of executives to quit.