Mr Fifield, who is known as "Lucky Jim" because of his high pay, will remain in his position as chief executive officer of EMI Music, reporting to Sir Colin, EMI said.
EMI denied that the board had balked at the terms demanded by Mr Fifield to take over as chief executive. City speculation had suggested that Mr Fifield was demanding a contract worth pounds 10m a year to take over the reins. Mr Fifield is already one of the FTSE 100's highest paid businessmen and earned pounds 7m last year. His contract would also have awarded him a pounds 10.9m severance payment if the company is taken over.
"It has nothing to do with the terms," an EMI spokeswoman said. "It was Sir Colin who expressed an interest in being non-executive chairman. We were waiting for the board discussion on that and, following the meeting, there is no change.''
The decision was taken at an EMI board meeting yesterday at which is was expected that Sir Colin would move to a non-executive role. The City has been expecting Sir Colin to reduce his commitments to EMI following his appointment as chairman of the Royal Opera House last month.
Analysts said the announcement seemed only a temporary solution to the succession question and that the potential power vacuum underneath Sir Colin may increase the possibility of a bid for the group. Seagram and Disney are possible predators.
Ken Berry, president of EMI's recorded music worldwide has previously been tipped as a potential successor but difficult trading conditions music markets have made his weakened his claim on the top job.
"It seems clear that Sir Colin would like to take a less executive role but the reasons for this decision are not clear," one analyst said. The analyst added that Sir Colin appeared to have too many commitments given the difficulties at EMI, which has been hit be a slowing of CD sales and the impact of the Asia crisis and the scale of his job at the Royal Opera House. He is also a director of the Bank of England and has two non-executive directorships.
Separately, EMI is set to announce the pounds 300m deal to buy the Waterstone's book business from WH Smith next week. It will then demerge the new company which will also include Dillons and HMV.
It is expected that the reduced size of the company will lead to a reduction in the number of directors. "The board would start looking a bit top-heavy," one insider said.
EMI shares have performed poorly since the demerger of Thorn-EMI in July 1996. They have fallen from their peak of 738.5p that summer to 494.5p, up 10p yesterday.