Boots seeks new chairman and chief executive to drive change

Boots is to replace its chairman and chief executive in a wholesale management reshuffle designed to revive the retailer's faltering performance.

The company broke its silence on the chief executive position for the first time yesterday and said it had started a search for a successor to Steve Russell. Its statement follows days of speculation about management changes. It is understood that the search is close to short-list stage.

Mr Russell, who has been chief executive for two-and-a-half years, will be eligible for a pay-off under the terms of his one-year contract. He earned a total of £764,000 last year, including a salary of £575,000.

Boots also said John McGrath will step down as chairman next summer after three years in the job. Mr McGrath, 64, will recommend that his successor be Sir Nigel Rudd, the former head of Williams who is Boots's deputy chairman.

Mr McGrath said: "For several months the issue of succession at Boots has been under consideration. It was my view, supported by the non-executives, that we should accelerate the succession process in order to drive strategic change faster. Accordingly, I initiated a search to identify a successor to Steve Russell. This search was undertaken with the full knowledge and support of Steve."

He added: "The search is proceeding well and, subject to a suitable candidate emerging and being approved by the board, we would expect to identify a new chief executive in the near future."

The search is being handled by Anna Mann of Whitehead Mann, the doyenne of London headhunters, who has also filled senior positions for Marks & Spencer and BT.

It is understood that Whitehead Mann has contacted Stuart Rose, who leaves as Arcadia's chief executive at the end of this week. Other candidates include Tim Mason, Tesco's marketing director, and Sara Weller, assistant managing director of J Sainsbury.

Mr Mason would be expensive, as he earned £1.3m at Tesco last year, but he would have good knowledge of the strategic issues facing Boots as it is the supermarkets' attacks on the toiletries market which have hit the company hard. Ms Weller already has some links with Boots, as Sainsbury and Boots are trialling a joint venture on health and beauty products. However, health and beauty retailing has never been a Sainsbury's strength. Ms Weller also has a reputation for making unguarded remarks. For example, she told a retail conference earlier this year that arch-rival Tesco was the "pre-eminent retailer, bar none". She later admitted it was "the worst thing I've ever said".

Mr Russell is understood to be "not deliriously happy about the way the matter has been handled". However, he is also thought to be relieved that the issue is now public. Mr Russell, 57, has been at Boots all his working life. But he has struggled with his strategy of revamping Boots as a retailer of health and beauty services as well as products as the major supermarkets attacked Boots relentlessly on basic toiletries. New areas such as dentistry, chiropody and massages have proved slow to take off while also recording mounting losses. A plan to move upmarket with new Pure Beauty cosmetics stores has also failed and a trial now will not be extended.

One senior retailer said: "There's only one question with Boots and that is what would you do with it? Just running it better might work for a while. But that doesn't mean the structural problems are going to go away."

Mr Rose is thought to be considering three or four serious offers and is undecided whether to return to running a listed company or accept offers in the private equity field.

Separately, the Office of Fair Trading investigation into the way pharmacy licences are awarded has been delayed until January. The report, due in the autumn, was expected to be published tomorrow. It is now expected early in the new year.