Duncan Lewis resigned from C&W's flagship UK subsidiary Mercury Communications after just nine months in the post - the fourth Mercury chief executive to leave in six years.
One fund manager commented: "If a company has a strategy that is not paying off, then the finger points at the chairman. I wouldn't say there was huge satisfaction with him."
It now seems as if the shock resignation, which came the day after Mr Lewis had delivered a stinging attack on Government policy, calling for more action to promote effective competition against BT, was the culmination of one of C&W's periodic power struggles over future direction.
Officially, Mr Lewis left for "personal reasons", but few in the City believe that version of events. "He had a hole in his head after the chairman shot him," was how one institutional investor interpreted events.
One theory is that Lord Young, the former Secretary of State for Trade and Industry, sought to silence Mr Lewis with the offer of boardroom membership. "It is the sort of thing politicians do in their sleep," explains the fund manager.
But the Mercury chief may have declined the offer because he felt his voice would not be heard in the boardroom.
It would not be the first time that Lord Young has emerged victorious from a boardroom coup. "He has a very developed political sense, which often manifests itself in boardroom reshuffles," says a leading sector analyst. "For example, his own position was reinforced when Gordon Owen [widely considered to be the architect of Mercury] was ousted."
Lord Young also clashed with another Mercury chief executive, Peter van Cuylenburg, when the latter was passed over for the post of Cable &Wireless chief executive three years ago in favour of James Ross.
Mr Ross, who now combines the role of joint deputy chairman with that of group chief executive, is considered to be the natural successor to Lord Young, 63. But some observers think history may yet repeat itself. "It is typical of highly political companies that an heir is groomed and then kicked out. GEC is a classic case," one source said.
Mr Lewis was brought in to turn round Mercury, where profits fell last year by 16 per cent to pounds 203m before exceptional charges of pounds 60m to cover the cost of 2,500 redundancies. Although substantial inroads have been made into the business market, Mercury has failed to dislodge BT at the residential end and is currently dismantling its distinctive high-street telephone kiosks. Cable & Wireless insists Mercury is now re-focused and that the results will become evident when interim results are posted in November.
What remains unclear is Mercury's place within the larger Cable & Wireless empire, or "federation", which spans more than 50 countries, most of them former British colonies. Mercury accounts for only a sixth of group operating profits, whereas the 57.5 per cent stake Cable & Wireless holds in publicly quoted Hong Kong Telecom is far and away the largest of its profit centres.
Until the recent profits collapse, Mercury was the subject of periodic takeover speculation, with AT&T of the US and BT itself mentioned as possible bidders. More recently, market rumours have suggested that telecoms giant Bell Canada is keen to sell its 20 per cent stake in Mercury. Hopes that a de-merger along the lines being considered by music-to-rentals group Thorn EMI have faded.
The question now is how any hidden value can be unlocked for investors. "Cable & Wireless looks more like a telecommunications property portfolio," says one leading sector analyst. "It is an inherently unstable unit. The ultimate pay-off for shareholders will be the manner in which that portfolio is juggled."
Uncertainty about strategic direction has manifested itself on the stock market, which at times has implied a negative value for the entire group minus the Hong Kong Telecom stake.