Standard Chartered boardroom shuffle sparks shareholder unrest

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Standard Chartered, the Anglo-Asian bank, surprised investors by unveiling a reshuffle of its senior management yesterday, installing its chief executive of five years as the company's new non-executive chairman, and promoting its finance director to take over as chief executive.

Mervyn Davies, who has been chief executive since November 2001 and with the company for more than 13 years, replaces Brian Sanderson, the company's chairman since May 2003 - a move which is in contravention of the Higgs' Combined Code of Corporate Governance. Higgs' code stipulates that chief executives should not ascend to the role of chairman in a company.

Finance director Peter Sands, who joined the company from management consultants McKinsey & Co in 2002, is to take over as chief executive with immediate effect. Richard Meddings, the group's executive director for governance across Africa, Middle East, Pakistan, Europe and the Americas, will become the new finance director.

The group also intends to appoint a deputy chairman, and defended its record on corporate governance yesterday by claiming that it had discussed the management reshuffle with its major shareholders.

"In reaching the decision to request Mervyn Davies to take up the role of chairman, the board considered the complexity of the international banking environment in which the group operates, the magnitude of the group and the diversity of its businesses and people," the company said in a statement.

"The board also considered the significant benefits of continuity as well as leadership skills that Mervyn will bring to the role of chairman. The directors have unanimously approved these appointments."

However, Pirc, the corporate governance consultants, condemned the move, claiming that installing a former chief executive as chairman opened the company up to a number of potential conflicts. Ben Harris, a spokesman for Pirc, said: "In this specific instance, the idea of a chief exec moving to become a non-executive chairman is not appropriate, and we oppose it. One of the most important principles of corporate governance is that a board should have a good level of dispersal of power, so that it isn't too centred around one individual." Mr Harris said that a chief executive moving to become chairman could make it hard for the new CEO to perform his job as he wants, and could create conflict on the board.

As well as announcing the management reshuffle, the company also confirmed that it had been trading in line with expectations since its last update in September. Shares in the group fell in early trading yesterday, before closing up slightly at 1,512p, giving the company a market value of £20.7bn.

Analysts gave a mixed reaction to the news, suggesting that the board reshuffle could signal a change in strategy for the company.

Simon Maughan, a senior analyst at the independent research firm Blue Oak Capital, said: "That's quite radical change, because now the chief exec and finance director are not people steeped in Standard Chartered history, and that's quite significant. It probably suggests a more modest time ahead for Standard Chartered in terms of deals."

The bank has been fairly acquisitive in recent years, most recently making a $1.2bn (£632m) offer for Taiwan's Hsinchu International Bank. Commenting on his resignation from the post of chairman, Mr Sanderson said: "I am confident that the best is still to come for Standard Chartered."