UPDATE 4-M&S's Rose survives shareholder rebellion

(Adds PIRC comment)

By Mark Potter

LONDON, July 9 (Reuters) - Marks and Spencer (MKS.L) boss Stuart Rose survived one of the biggest shareholder rebellions of recent years on Wednesday as 22 percent of investors abstained or voted against his election as executive chairman.

Rose, under fire for combining the roles of chairman and chief executive, said he had been described as "the Robert Mugabe of retail" but told 1,400 shareholders at their annual meeting that he took corporate governance "extremely seriously."

"M&S is an institution that is bigger than any one individual, and that certainly includes me," he said.

Rose pledged to continue expanding Britain's biggest clothing retailer, despite a downturn in consumer spending, and said he would fix its upmarket food business, which triggered a profit warning last week, "in short order."

He was received warmly by small investors at London's Royal Festival Hall, where they enjoyed lavish hospitality, including tastings of M&S's Rocky Road ice cream and organic cider.

"It looks as if there's a catastrophe in the economy around the corner. So who better to steer the ship?" asked Denise Kieran, a retired teacher and magistrate.

But outside the meeting, corporate governance groups were urging M&S to reverse the concentration of power in Rose's hands as soon as possible.

"The size of today's vote would be significant if it were against any director, let alone the head of an iconic business, and demonstrates the depth of investor unease," said corporate governance consultancy PIRC. It added that the average vote in support of a director up for election was 98 percent.

Some financial analysts also remained critical of Rose's stewardship after a big fall in M&S's shares.

"Shareholders need a Plan B or C," analysts at Lehman Brothers said in a research note, arguing that M&S's expansion plans could stretch its borrowings.

But Rose said he saw no need for big changes.

"Your company failed to invest at the turn of the millennium. We must not make the same mistake twice," he said, adding there was "no current prospect" of a dividend cut.

M&S said 77.9 percent of voting shareholders had backed Rose, with 4.9 percent voting against and 17.2 percent abstaining. Newspapers had said up to 30 percent of shareholders were likely to abstain or vote against Rose's appointment.

HISTORY WILL JUDGE

Rose was brought in to defend M&S in 2004 from a 9.1 billion-pound ($18 billion), or 400 pence-a-share, bid approach from retail billionaire Philip Green.

He revamped stores and introduced new fashions to lure back shoppers and drive a recovery that lifted M&S shares to a record high of 759 pence in April 2007.

But his strategy has been called into question by disappointing Christmas sales and last week's profit warning, which sent the stock plunging to a 7-1/2-year low of 210.25 pence on Tuesday.

Shareholders also repeatedly questioned the surprise departure last week of head of food Steven Esom, tipped as a potential successor to Rose, after only about a year in the job.

However, Deputy Chairman David Michels said there was still plenty of talent within the company's executive team from which to pick a possible successor, and vigorously defended the plan to combine the roles of chairman and chief executive.

"He (Rose) unquestionably has the right set of skills to take Marks and Spencer forward and to complete the job he has started," Michels told investors. "We are convinced history will show us we made the right decision."

Rose said M&S's problems had included self-inflicted injuries on stock availability, pricing promotions and innovation in its food business.

But he reiterated that most of them were due to a consumer downturn as shoppers cut back on spending amid higher food, fuel and mortgage costs.

"M&S is a bit like an early warning system (for the rest of the economy)," he said.

M&S shares closed up 1.1 percent at 234 pence, valuing the business at about 3.4 billion pounds ($6.7 billion).

For a CHRONOLOGY on the history of M&S, please click on [ID:nL08104327], and for a FACTBOX on major UK shareholder protests, click on [ID:nL08631465] (Additional reporting by Clara Ferreira-Marques, Editing by Will Waterman, Paul Bolding and Steve Orlofsky)