Rose-tinted renaissance easily survives the hype

As he faced the anticipated wrath of his shareholders yesterday, M&S executive chairman Sir Stuart Rose reflected on what it felt like to be described as "the Robert Mugabe of retail". That astonishing comparison reflected the overblown hype that has recently dominated speculation over the outcome of yesterday's annual meeting in London's Royal Festival Hall.

The nation's favourite retailer, like much of the rest of the High Street, has encountered much tougher trading as the impact of the credit crunch and a stalling housing market has spread to other areas of the economy. Last week M&S produced a shock profits warning and dispensed with the head of its food division, after just a year in post and a mere four months on its main board. The M&S share price, already under heavy pressure, fell by another quarter in a single day.

Surveying such meltdown in corporate value, hyper-ventilating commentators predicted Rose - not so long ago the company's lauded saviour, now the Mugabe of the checkouts - might even be thrown out on his ear by M&S's robustly activist shareholders.

After all he had just been made executive chairman of the group until 2011 by the board. That wasn't just a sin against codes of corporate governance. It was evidence of boardroom megalomania at the very moment when a Rose-tinted renaissance in M&S's fortunes was rapidly losing its sheen. Had he been to business school in Harare?

The business commentariat was increasingly outraged. Members vied with each other to quantify how big the vote against the new chairman's re-election as a director would be at yesterday's meeting. Would it be 30%? Or even 40%? How could Rose survive such a shareholder rebuff?

But after two hours of interrogation, that Mugabe analogy took on a completely different meaning. Rose was re-elected by 94.9% of those casting a vote. The head of what Gordon Brown now calls the "criminal cabal" in Zimbabwe would have been proud of that kind of thumping majority.

The revolt against Rose simply failed to get off the ground. Not because the chairman had sent his heavies round to intimidate little old ladies and City institutions into backing the board's unanimous line. Despite all the feverish talk of rebellion in Roseland, not enough of the population wanted to see him deposed.

Little more than half the M&S shareholder base participated in yesterday's vote. Of the remainder around 16%, including some big institutions, sat on their hands. Only 5.9% voted against Rose's re-election. It isn't really very difficult to see why.

In such difficult times on the High Street, who else was waiting in the wings, guaranteed to better Rose's performance since May 2004? Certainly not Steven Esom, the former MD of Waitrose, hired last year to run Food at M&S and brought on to the main board in early March, presumably to be run through his paces as one serious contender to succeed Rose.

A 4.5% fall in like-for-like sales in food for the 13 weeks to June 28 and what the chairman yesterday called self-inflicted injuries from stock availability, pricing promotions and innovations did for Esom. Rose says the problem areas will be fixed "in short order". One wonders whether the current experiment in the Newcastle area to sell non-M&S brands, like Heinz baked beans and Kelloggs cornflakes, alongside existing house lines will now be dropped too.

Consumers are becoming much more discriminating in their spending as talk of recession grows. One of the biggest commercial challenges now facing M&S is how to position its food offering to meet that challenge. In clothing and houseware, its ranges are already priced much more sensitively than before. Its food and drink lines have, in the main, retained - or even added to - their premium positioning.

Is that strategy sustainable if this slowdown lasts for any length of time? It's here that Rose's performance to date deserves close scrutiny. The M&S chairman is right to claim, as he did yesterday, that the market conditions the group now faces are quite different from those he inherited four years ago.

Then M&S was underperforming in a very strong consumer marketplace. More recently the retailer has been a strong performer in a weakening marketplace. But that contrast still begs the question: Have the changes Rose has masterminded left the group well placed to weather the downturn? Given the troubles now revealed on the food side, the answer may vary depending on what bit of the M&S offering one is talking about.

The board's main justification for agreeing, in March, to give Rose the combined chief executive/chairman role was that no-one else within the company "would be ready to assume the role of chief executive by 2009", when Rose's original contract was due to end. The directors, including senior independent director and vice chairman Sir David Michels, are convinced history will vindicate their decision to defy corporate governance conventions and give Rose the dual role until 2011, until the succession can be resolved.

But Rose is also the architect of where M&S sits now. He is no Mugabe. And the savage marking down of M&S's share price may be a gross over-reaction too. But he still has to demonstrate that the retailer can retain market share and margins in a rapidly-changing consumer environment.