Sainsbury's boardroom farce

NO ONE comes out well from l'affaire Prosser. The selection and scuppering of a chairman within a week makes a laughing stock of the wealth of experience on the board of J Sainsbury.

That no one saw the disaster coming is inconceivable. So where does the blame lie? The easy answer is with the nominations committee that chose the headhunters and installed Sir Ian Prosser. But nothing is as simple as it looks.

By all accounts the non-executives did ask the right question of the headhunters. How would Prosser play among the institutions, given the rough ride he had at Six Continents and his early rejection at Standard Chartered?

Directors tell me the answer came back from Anna Mann, of headhunters Whitehead Mann, that while there might be some disgruntlement among shareholders, Prosser would be broadly acceptable. In fact, investors, led by Legal & General and Merrill Lynch, expressed their outrage from the onset.

On this occasion the big American value funds, led by Franklin Templeton, were broadly willing to take the advice of a board engaged in what appeared to be sensible succession planning.

One of the reasons why Sainsbury felt it had to act so quickly was because it wanted to remove the shadow of a row before Justin King, the new generation chief executive, arrives to take over from Sir Peter Davis at the end of March. No one deserves to inherit an unstable board.

But the ditching of Prosser is a pyrrhic victory for dissident shareholders. They have gone in with full guns blazing when it was almost certainly not necessary.

One can think of many other executives more deserving of opprobrium, who were allowed to hang on while shareholder value was routinely destroyed.

Prosser may not have been an exciting choice and there may be better options. But public humiliation was not called for.

I have often felt that boards have ceded too much power to headhunters and consultants, as if they had some magic powers which allowed them to divine the best leadership.

What they seem best at is leaking the names of their favoured candidates. Certainly, if Lord Levene, the senior non-executive at Sainsbury, exercises his renowned judgment, he will give Whitehead Mann a wide berth next time round.

The sooner Sainsbury strengthens its top team with a strong deputy chairman the better. The next year will not be easy in grocery retailing. The Morrison-Safeway combination looks set to take a scythe to supermarket prices as it seeks to establish itself as the chain to watch.

This is going to make it a difficult 18 months for King and Davis. They will need wise heads to see them through this challenge and to deal with any marauders who consider the Sainsbury struggle as the starting gun for an auction.

Sarin's other options

ARUN Sarin is bound to come in for some City stick for daring to throw Vodafone into the bidding war for AT&T Wireless. In the last few days there has been much talk of 'value destruction' in the financial community.

Certainly, there is a case to be made - after the ruthless expansion of the last decade - for Vodafone to draw breath, clean up the goodwill on its balance sheet and let the cash flow speak for itself, perhaps even trickle through to shareholders.

But Sarin also inherited a complex and unfinished hand. Being a minority holder in Verizon Wireless is never going to be a stable situation, however much Vodafone rediscovers its affection now.

It was understandable that it saw an opportunity to secure its future in the United States through AT&T Wireless, even if this would burn cash initially. But if Vodafone had been cautious over the last decade it would not be a £100bn company now.

No real global company, in banking, oil or telecoms, can really afford to neglect the world's largest consumer market - one in which mobile phones are still relatively undeveloped.

So Sarin will have to look for another path. One even more expensive option would be a bid for the whole of Verizon and then to float off its old fixed-line business.

But Vodafone also might consider if it can create value by being a virtual operator that uses its worldwide brand and reputation to piggy back on someone else's network. This is how Richard Branson created value at Virgin Mobile.

Vodafone has not run out of options just yet. It has ensured that rival Cingular will be tied up in knots for years to come as it seeks to modernise the AT&T Wireless network.