Sainsbury to defy Higgs over new chairman

J Sainsbury yesterday became the second major supermarket group in less than two weeks to flout the Higgs report on corporate governance when it announced that its chief executive, Sir Peter Davis, would become chairman next year.

Sir Peter, 61, will receive 1.5 million shares worth £3.53m at current levels to lure him to stay beyond his slated retirement date of March next year. He will broadly receive the same salary package as he gets now, which was almost £1.1m last year.

Meanwhile, Sir George Bull, the current chairman, has agreed to extend his time at the group until 29 March 2004. He was due to retire in July.

Sainsbury's, which is one of five potential bidders for the rival Safeway chain, said it would start the search for a new chief executive later this year. It also intends to appoint an independent non-executive deputy chairman who will be groomed to take over from Sir Peter in mid-2005.

J Sainsbury's move follows Tesco's decision earlier this month to name a long-standing board member, David Reid, to succeed John Gardiner as its new chairman.

Defending Sir Peter's appointment, Sainsbury's said: "It's Higgs compliant in terms of it's either 'comply or explain'. We think we can explain and in due course we will be compliant. We think the best person to look after the interests of Sainsbury's to ensure the continuity of the [recovery] programme is Sir Peter." The report by Derek Higgs deemed that a chairman should be independent at the time of an appointment.

Sir Peter rejoined Sainsbury's as chief executive at the beginning of 2000, charged with revitalising the group's fortunes. He kicked off a three-year recovery programme, which is now not due to complete until mid-2005. Although he has halted the group's slide in sales, recent industry data from Taylor Nelson Sofres, the research group, has shown Sainsbury's trailing Tesco, Asda and Morrisons, prompting some analysts to question the success of his strategy. Before leaving for stints as chief executive at Reed Elsevier and then Prudential, Sir Peter spent 14 years at Sainsbury's.

Sir George said: "The board believes it is important to maintain management continuity during this period of recovery and transition."

Shareholding bodies were largely unperturbed by the group's decision to spurn the Higgs recommendations. "It doesn't look as though shareholders are going to have major problems, mostly because Sainsbury's has shown good evidence of succession planning," the National Association of Pension Funds said.

Although the Association of British Insurers agreed, it found fault with the gift of shares. "We do think that it is rather large. We will be looking very carefully at the detailed proposals [such as] performance criteria," aspokeswoman said.Sainsbury's shares closed up 5p at 235p.