The accounting troubles of M&C Saatchi took a dramatic turn on Tuesday night as its founder Maurice Saatchi and three independent directors quit the advertising company in a dispute over reforms.
The mass exit of non-executive directors included Michael Dobbs, the Tory peer and author of House of Cards; Michael Peat, the former private secretary to Prince Charles, and Lorna Tilbian, the former Numis investment banker.
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The departure of Lord Saatchi, the executive director who retains a stake of about 4.5 per cent in the group, was prompted by disagreements over the steps required to clean up governance at the advertising group.
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One significant point of contention was the future of David Kershaw, the long-serving chief executive, whom some independent directors wanted to replace.
One person familiar with the discussions said Mr Kershaw was understood to have been willing to step down, but decided to stay when advised that his exit would be damaging for the company.
The discovery in August of incorrect statements on revenues and costs has left the company, which is best known for its work for the Conservative party, facing its most serious crisis since it was founded in 1995.
Shares in M&C plunged last week after it issued a second profit warning in less than three months and admitted its accounting errors were bigger than expected, potentially stretching back five years.
The mass departures indicate how contentious the process of restoring trust in M&C management has become within the company.
While the board recognises the serious governance failures highlighted in an external review by PwC, the professional services firm, one insider said there was a serious dispute over the sequence of measures necessary to address the problems.
Jeremy Sinclair, M&C chairman, said late on Tuesday that the company had "accepted the decision of these directors to resign".
"We are determined to restore the operational performance and profitability of the business and are already implementing all of the recommendations set out in the PwC report we announced last week," he added.
"We had started a process to reconstruct our board with new independent directors. This new board will have a mandate to conduct a full review of all aspects of our governance."
Lord Dobbs said he "wished to make no comment". Lord Saatchi, Sir Michael and Ms Tilbian could not be reached for comment.
M&C was formed after brothers Maurice and Charles Saatchi walked out of Saatchi & Saatchi following a spat with investors. Its network of agencies counts Unilever, the Premier League and Shell among its clients.
Last week, M&C warned that the initial £6.4m (NZ$12.8m) "one-off charge" it had estimated to cover the accounting errors had increased to £11.6m (NZ$23.3m), spread over its 2018 and 2019 financial results.
PwC found that the group had, in 2018, booked revenues from 12-month contracts into the first half of the year. It warned that similar practices might have been prevalent since 2014.
Shares in M&C have fallen two-thirds since the accounting problems emerged, dragging the company's value to about £95m (NZ$190m).
© Financial Times