BLOOMSBURY, publisher of the Harry Potter novels, has announced an overhaul of its corporate governance after admitting that it had issued almost 4.4 million share options by mistake.

The error was revealed as the publisher unveiled interim profits of £3.9 million and said that it was pinning its hopes on Jonathan Strange & Mr Norrell, a novel about magicians by Susanna Clarke.

Nigel Newton, chairman and chief executive, said that the share option mistake stemmed from a misunderstanding of the rules of its option scheme. As a result Bloomsbury had issued too many options to Mr Newton and other executives on the company’s board.

“We made a mistake. When you find out that you have made a mistake, you correct it,” Mr Newton said. The company said that the cancellation would cost the company nothing, and that pay would not rise to compensate for any lost income.

Mr Newton was forced to give up 884,222 share options. However, Bloomsbury refused to disclose the strike price of the options being cancelled, making it impossible to calculate how much money the directors had sacrificed.

At the same time, Mr Newton agreed that when his three-year contract expires in summer 2006, he would switch to a one-year rolling contract. Investors now deem one-year contracts standard for company bosses, although the media sector is one of few in which longer terms endure.

There was also change for the company’s board. Six executives will withdraw from the board, reducing its composition to three executives and three non-executives.

However, Mr Newton said that he would remain as chairman and chief executive, saying that “the current management arrangements have produced a good result for shareholders”.

Bloomsbury has grown rapidly in the past five years, helped largely by the success of J. K. Rowling’s five Harry Potter books. The sixth is out next year, meaning that in 2004 the company has had to get by without the sales boost that accompanies the latest adventures of the boy wizard.

Turnover at Bloomsbury was flat at £30.9 million in the first half, although the company expects to make 80 per cent of its sales in the run-up to Christmas.

Key to this year’s second half will be the performance of Jonathan Strange & Mr Norrell, which has just launched in hardback.

Clarke’s 800-page novel, a tale of magicians who, among other exploits, helps Wellington to defeat Napoleon in the early nineteenth century, was released three weeks ago in the United States.

Last week it climbed to number one in the San Francisco Times bestseller list, although the book missed out on the shortlist for the Man Booker Prize. It was launched in Britain last weekend, priced at £17.99, but no sales figures will be available until Friday. The company has printed about 500,000 copies of the book, at a cost of about £600,000, and has reportedly paid an advance of about £1 million to the author.

Bloomsbury said that during the six months to June 30 it had a number of publishing successes, including A Gathering Light, a children’s book by Jennifer Donnelly. Sales of the book were boosted significantly after it featured on Richard & Judy, the television show. It also won the prestigious Carnegie Medal for children’s literature.

Bloomsbury shares were unchanged at 247½p.

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