Survival battle for Sir Desmond

Institutional investors call for the resignation of the chairman of United Utilities

Sir Desmond Pitcher, the embattled chairman of United Utilities, will come under severe pressure to resign next week when a senior non-executive director tells him of intense investor unrest.

It emerged yesterday that Sir Peter Middleton, chairman of BZW and viewed as the City as United's most senior non-executive, held meetings with 10 big investors over the past few days to gauge reaction to the surprise ousting of Brian Staples as chief executive.

Sir Peter was left in no doubt from the meetings that the majority of investors would only be satisfied by Sir Desmond's swift departure. One institution said: "We told him it was not credible even to downgrade Sir Desmond to a non-executive chairman's role. The best recent comparison is with Yorkshire Water, where they got rid of the old board and brought in a new management team."

The investor said United, which is due to announce the outcome of an operational review by October, had to address its "dramatic underperformance" compared with other utility companies. He added: "What does Sir Des do to justify his huge pay package?" Sir Desmond has a basic salary of pounds 310,000.

Another large shareholder saw United's problems as the first test of the Hampel proposals to beef up corporate governance rules.

Sir Desmond refused to give interviews yesterday, with advisers fearing his comments could inflame tensions further. "There's a lot of speculation but no institution has given its name to any of these stories. We can't comment on rumour and speculation." United shares slipped further yesterday, dropping 9.5p to 701p.

At United's annual shareholders meeting in Manchester last month Sir Desmond brushed off resignation speculation. "I've no intention of resigning. I have worked to build this company up," he said.

It was unclear whether Sir Desmond was made aware of Sir Peter's discussions before they began, though sources close to the company said the chairman was kept "fully informed".

The chairman had apparently not intended to justify his position further until the review concluded in the autumn and was said yesterday to be unlikely to change his mind. The Pitcher camp sought to defuse speculation of a rift with Sir Peter, arguing that the talks were merely to clarify the succession issue for when Sir Desmond retires on 2000.

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