Rocky start to King's reign

JUSTIN King has left behind one struggling food business at Marks & Spencer and inherited one at J Sainsbury that has been in decline since 1995.

But it would be too easy to dismiss Sainsbury - or for that matter M&S - as hopeless cases.

Both companies are trapped by emblematic history and are struggling to regain traction in a one-shop-a-week food market where the cheaper players, Tesco and Asda, have moved up the quality chain.

A blind tasting organised by Sainsbury at its results presentation embarrassingly demonstrated this when the happy eaters consistently chose Tesco over Sainsbury. Ouch!

The good thing is that King appears to recognise what the problems are. His predecessor, the City grandee Sir Peter Davis, ploughed £3bn of investment into distribution, but the benefits have been minimal because of poor execution.

This, in some respects, is a bit like M&S's rather expensive overseas supply chain, which is only just being tackled. Both firms also have key problems of service to sort out.

The encouraging thing about this is that weaknesses are being recognised and there are determined executives in charge who, if given the time by shareholders, may still be able to deliver the changes.

After all, Sainsbury may have lost ground to rivals, but it is not a basket case. Profits over the last year are only marginally down. With a more realistic pricing strategy, an improvement in product and service and better focus on holding its 'quality' image, it could be rescued.

There will be some raised eyebrows at Sainsbury's governance. Davis is stepping back to be a non-executive chairman, but will still be picking up a cool £500,000 plus zillions of shares including half a promised bonus of 150,000 for finding a chief executive.

The search for the next chairman is still on, but headhunter Whitehead Mann, widely perceived to have fouled up last time, is jettisoned for rival Egon Zehnder.

Whether Davis will still deserve the other half of his idiosyncratic recruitment bonus is a moot point.

Smelling a rat

THE boardroom coup against Sir Clive Thompson at Rentokil is not quite the glorious end that 'Mr 20%' might have hoped for.

But he will be comforted by the fact that he had the good sense to sell £9m worth of shares at Easter when the company was stalling, which will give him a tidy payoff. Other shareholders should have been so lucky.

We should have guessed it was all over for Thompson when he took on the presidency of the CBI (1998 to 2000) - always a sell signal.

Then the mistake was compounded when he took the pre-Higgs decision to step up from chief executive to chairman. In the case of someone with a record as stellar as Thompson's, this was always going to be a mistake. His successors could never measure up to his own standards.

Full marks to Brian McGowan, the deputy chairman, for organising Thompson's departure - with the help of Ian Harley (who knows about dismissals from his Abbey experience) - without waiting to have his hand forced by shareholders.

A profit warning from a company which thrived on ever-rising earnings is a real humiliation. Thompson's successors have much to do. This may mean several years of low growth as neglected investment is put right.

Rate warning

IF there were any lingering doubts about the way which British interest rates are going, they will be removed by the May minutes.

Not only did all nine members of the Monetary Policy Committee vote for the quarter-point rise in rates to 4.25%, there was a lengthy discussion about whether half a point was more appropriate.

This was apparently rejected because inflation was so far below the 2% central target, but that may not be the case for that long.

Serious economic opinion is now closely focused on the oil price and its impact - not just on overall prices in the economy, but interest rates, growth and ultimately unemployment.

No wonder Gordon Brown is seeking to pressure Opec into loosening oil production in the hope of lowering fuel costs.

House prices are still a cause of concern for the MPC even though it does not target the residential market.

But they are likely to be a key influence on future thinking, with deputy governor Sir Andrew Large among those who fear a hard landing.

The markets are picking up on the hawkish noises coming from Threadneedle Street and rates are expected to reach 5.25% by year-end.

Heavily-borrowed consumers may soon be reaching for the seatbelts.