C&W chief Wallace agrees to go, but could walk away with £1.5m

The troubled telecoms group Cable & Wireless finally bowed to shareholder pressure yesterday as it parted company with its chief executive, Graham Wallace, in a move that sent the shares up nearly 4 per cent.

Mr Wallace, who has been in the top spot since February 1999, is staying on at the company until a successor has been found but has had his responsibilities pared back ahead of his departure. When Mr Wallace goes, he could be in line for a pay-off of more than £1.5m.

The move comes less than two weeks after the highly regarded Richard Lapthorne – the man credited with rescuing British Aerospace from collapse in the early 1990s – was named chairman. Cable & Wireless stock closed up 2.25p at 64p.

The company has appointed the headhunter Whitehead Mann to find a new chief executive – which could take up to three months – and is thought to be considering only external candidates for the position.

That will undoubtedly come as a blow to David Prince, who was appointed finance director at Cable & Wireless last July and who had been seen by many in the City as a successor. Names in the frame for the top position are said to include Bill Allan of the telecoms company Thus and Duncan Lewis, the former head of C&W's telecoms business Mercury.

While Mr Wallace will continue to be responsible for the day-to-day operations of the company as well as for implementing the cost reduction programmes, he will no longer oversee either the finance or legal operations, headed by Mr Prince and the legal director, Dan Fitz, respectively.

Both those areas will fall under the remit of Rob Rowley, a non-executive director, who was yesterday named executive deputy chairman. Working on a part-time basis "for an interim period", he will report directly to Mr Lapthorne.

Mr Wallace has faced calls to quit after presiding over four profit warnings as well as the emergence of a potential £1.5bn tax liability and other lease liabilities of about £1.4bn.

While the details of his pay-off have still to be finalised, the shareholder body, the Pensions Investment Research Consultants, urged the company to minimise the award. He will be entitled to a payout of at least £1.55m under the terms of his two-year contract.

"It [his pay-off] should be minimised as far as possible. While there are certain contractual obligations that companies have and we wouldn't encourage companies to ignore their contracts, there's usually a fair degree of discretion they can exercise," Stuart Bell, the research director at PIRC, said.

As part of the reshuffle orchestrated by Mr Lapthorne, Cable & Wireless said it was also parting company with two directors, who will leave at the end of the month. Don Reed, the executive director who was recently demoted to a "special projects role" at the company's Global internet and data division from his previous position of chief executive of the unit, and Raymond Seitz, a non-executive director, are retiring on 31 January.

It also appointed two new non-executive directors, bringing the total number of non execs on the board to five including Mr Lapthorne who is non-executive chairman.

Tony Rice, who was formerly group treasurer at British Aerospace, and Bernard Gray, who is chief executive of United Business Media's unit CMP Information and a former Financial Times journalist, are joining the board immediately. Mr Rice is replacing Mr Rowley as chairman of the company's audit committee.