Sir Peter accused Mr Watson, who was finance director when he was chairman, of abandoning the values of employee participation enshrined in the employee buyout led by Sir Peter in 1982.
He attacked the failure to consult employee shareholders ahead of NFC's recent pounds 260m rights issue. 'We used to pride ourselves on sharing big decisions with employees and shareholders,' he added.
Sir Peter also said elitism was creeping into the business, with executive share options and a pounds 1m refit of the company's head office.
Noting that directors had mortgaged their homes at the time of the original buyout, he criticised directors for not saying whether they were taking up the rights when the issue was announced.
Mr Watson asked directors who had taken up rights to raise their hands. Most did. He said the company still had the values in which Sir Peter believed.
'You have been away from the business for some time,' he said. 'We can't keep looking back at the 1980s, we must think of the 1990s.'
Sir Peter also criticised the company and its broker, Barclays de Zoete Wedd, for the cash offer of 14p a share to buy out the right to subscribe to the new shares.
He claimed that had shareholders sold the rights in the market they would have been 50p a share better off. A significant proportion of small shareholders did sell at the lower price.
Mr Watson defended the 14p offer by describing it as an insurance policy in case the market disliked the issue and the share price fell.
At the heart of the dispute is the gradual dilution of the employees' holding in NFC. The collective holding has dropped to about 12 per cent following the rights issue from more than half the total of shares in the early days. The employee shares also have double voting rights, which will disappear if their combined stake drops below 10 per cent.
Some institutions have refused to invest in the company because of this share structure, which runs against the modern trend to equalise voting rights.
Mr Watson said the value of the holding - now about pounds 200m - was more important than the percentage. It is known that the chief executive, Peter Sherlock, who was recruited from Bass a year ago, would like to see the holding fall below 10 per cent so that NFC would become a more normal public company.
But believers in employee involvement - such as Sir Peter, who is chairman of Proshare, the wider share ownership lobby - regard NFC's record in that area as a template for the future of British industry.
Also at the meeting, Mr Sherlock gave a modestly upbeat account of current trading. 'There is encouraging evidence of a steady, if unspectacular return to growth in our major markets of the US and UK, although not in mainland Europe,' he said.
The first benefits of a restructuring were expected to come through in the second half and the board was encouraged both by this and by the group's performance.
Revenue in Exel Logistics and BRS in the first 12 weeks of the curent year had grown 5 per cent compared with a year ago, Mr Sherlock added.
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