Investors tighten their grip on P&O

THE appointment at P&O of Rodney Galpin as a non-executive director last week was prompted by outside pressure from institutional shareholders worried about the cosiness of the P&O boardroom.

Shareholders have been increasingly concerned by the power concentrated in the hands of Lord Sterling, the executive chairman, and by P&O's poor recent record. It was the worst performing stock in the FT-SE 100 index last year.

According to Dick Barfield, chief investment manager of Standard Life: "We certainly mentioned to them that we thought it might be appropriate to strengthen the non-executive element of the board when we last saw them."

"And I don't think we were the only ones," he added, echoing the concern of several institutions, which have privately called for the head of Lord Sterling.

The shipping-to-construction group is short of heavyweight independent directors. Among the non-executives, Lord Hambro is chairman of Hambros, advisers to P&O, and John Steele, a former civil servant, has done paid work for P&O. The only wholly independent director was Sir Peter Cazalet.

Mr Galpin, the former chairman and chief executive of Standard Chartered and a former Bank of England official, is considered a safe pair of hands with the added advantage of having good contacts in Asia, a key market for P&O.

While the P&O share price has risen from its three-year low of 460p in December, it is still languishing far from its peak of 741p, at 489p. Sentiment was hit again last week after IBCA, the debt-rating agency, downgraded P&O's long-term debt from A to A-minus.

It warned that P&O's gearing had risen to 80 per cent , the ferries business was likely to suffer further from Eurotunnel, and that competition was increasing in the cruise market, where P&O is investing heavily.

Without a cut in the dividend - which Lord Sterling ruled out last week - the company needs to make disposals.

Mark McVicar, a transport analyst with NatWest Securities, dismissed speculation that Mr Galpin's appointment was a first step in his elevation to non-executive chairman if Lord Sterling were to go.

"I certainly don't detect any strong institutional pressure on Sterling," he said. He added that there had been dissatisfaction over P&O's communications with the City, but that had improved over the last few months. He expects 1995 pre-tax profits to be down 10 per cent to pounds 305m when P&O reports in March.

Mr Barfield of Standard Life last week wrote to the chairmen of the 100 biggest quoted companies calling on them to have "at least three independent non-executive directors".

He also called for separation of the chairman and chief executive roles, better disclosure of boardroom pay, and he threatened to vote against the re-election of directors on service contracts greater than one year.