Search for new Royal Mail chief

By Robert Peston Business Editor, BBC News

Mr Leighton has been credited with turning around Royal Mail

The government has chosen head hunters to find a successor to Allan Leighton as chairman of Royal Mail.

Egon Zehnder, the headhunting firm, is drawing up a shortlist for a new deputy chairman of Royal Mail.

According to government sources, the deputy chairman would be expected to work in tandem with Mr Leighton for a year before succeeding him as chairman.

Candidates include Philip Hampton, chairman of J Sainsbury, and Paul Myners, former head of Marks & Spencer.

It is understood that Myners has already decided he does not want the job, although Mr Hampton is mulling it over.

Share transfer

The search for a deputy chairman is regarded by some in government as insurance in case Mr Leighton decides to quit early.

He is frustrated by ministers' reluctance to transfer 20% of the business to Royal Mail staff.

"Allan Leighton is always threatening to resign and one day it might just happen" said a government source.

Relations between Royal Mail's directors and the government have become strained by a succession of delays to a decision on whether 20% of the company will be given to staff as a performance incentive.

Royal Mail has reached an impasse over share proposal

The transfer of shares is opposed by the Communication Workers Union (CWU), the powerful postal workers trade union.

Earlier this week, MPs on the influential Trade and Industry select committee also said that Royal Mail had failed to make a compelling case for the share transfer.

Wider implications

The shares impasse has wider, damaging implications for Royal Mail, because the company is refusing to sign off its new £2bn financing arrangements with government until the issue is resolved.

"It is all part of the same package" said a Royal Mail insider. "We cannot do one without the other".

Although he is high maintenance, there is no doubt he has done a better job than any of us could have expected Government source

But the trustees of the Royal Mail's huge pension fund have been put in a difficult position by the standoff between the company and ministers.

They need the financing agreement to be signed off, to reassure the Pension Regulator that practical steps are being taken to reduce the fund's £5.6bn deficit.

Mr Leighton is credited with turning round Royal Mail since becoming chairman in 2002.

He cut 30,000 jobs and shut thousands of post offices, in order to stem losses that peaked at more than £1bn in the year to March 31 2002.

"Although he is high maintenance, there is no doubt he has done a better job than any of us could have expected" a government source said.