Blow to Sarin as boardroom ally quits

Arun Sarin, Vodafone's embattled chief executive, suffered another blow yesterday when a key boardroom supporter quit unexpectedly on the eve of the mobile phone giant's potentially explosive annual meeting.

The timing of the exit by Bill Morrow, the head of Vodafone's European business, could not have been worse, with up to 10 per cent of shareholders expected to vote against the re-election of Mr Sarin and other board members today. Mr Morrow, a Vodafone veteran, cited personal reasons for his departure. He was considered a key figure in turning around the company's struggling European operations. Yet fears of a shareholder revolt against the board were partially soothed after Legal & General, Vodafone's second-largest shareholder with a 3.7 per cent stake, pledged to support the company at the meeting. "We do not think it is sensible to change chairman and chief executive at the same time and we would expect Sir John Bond as incoming chairman to conduct a full review of all his senior executives and make changes where necessary," a spokesman said.

However, L&G also joined the chorus of critics regarding Vodafone's progress since Mr Sarin took charge. "It is clear that the company has not performed well in operational or share price terms over the last couple of years." Morley Fund Management, with a 2.1 per cent stake, will vote against Mr Sarin's election today, while Standard Life and Hermes appear likely to do the same.

On a conference call, Mr Sarin said he had "strong support from a majority of shareholders and from the board". He added: "This is the time for us to move on. The board decides the direction of the firm."

Mr Morrow, formerly the head of the UK and Japanese divisions, has been with Vodafone for 10 years and led the sale of Vodafone Japan earlier this year. In his new role, Mr Morrow was charged with cutting costs while stimulating revenue growth from new services in mature markets across Europe including the UK, Germany and Italy.

Vodafone stressed that Mr Morrow's exit was not a result of disagreements over strategy, nor the high-profile boardroom bust-up that has taken place since last November's profit warning. After two weeks in his native California, Mr Morrow has decided to return to the US "urgently" to keep his family together. Mr Morrow's wife and three children live in California.

Analysts at UBS said: "At a time of unprecedented pressure on the European mobile divisions, increased focus on cost-led restructuring is key - Bill Morrow's track record fitted well to these challenges. We therefore view his resignation for family reasons as a blow and view his long-term successor as a pivotal appointment."

Fritz Joussen, the head of Vodafone Germany, will fill in for Mr Morrow on an interim basis but Mr Sarin said the vacancy provides a good opportunity to bring a big hitter to run its core European operations.

The departure overshadowed solid first-quarter trading data from Vodafone that pushed its customer base to a whopping 186.8 million. Vodafone's shares have lost 8 per cent over the last two weeks but recovered some ground as investors applauded first-quarter revenue growth of 6.4 per cent and a reiteration of its guidance for fiscal 2007. As with previous quarters, strong revenue growth in emerging markets offset weakness in Europe, particularly in Germany and Italy. Vodafone shares closed up 4p at 115.25p.