THE mobile-phone giant Vodafone is facing increased pressure to break itself up this weekend after the influential American investor group Glass Lewis publicly supported radical proposals from a rebel shareholder.

The activist investor Efficient Capital Structures last month called on Vodafone to return £38 billion to shareholders. Under the plan, ECS is demanding Vodafone gears up its balance sheet and spins off its 45% stake in Verizon Wireless, the American mobile-phone firm.

Glass Lewis’s support for ECS will be seen as a setback for Arun Sarin, the Vodafone chief executive. The battle has become increasingly acrimonious in recent weeks as ECS has stepped up its campaign.

Glass Lewis is one of the two largest corporate-governance advisory groups in America with about 80% of US institutions believed to be subscribers to its service. American investors are understood to hold 30% of Vodafone’s shares.

ECS’s proposals, to be put to shareholders at Vodafone’s annual meeting on July 24, have sparked controversy and accusations that the activist group is looking to make a quick profit.

ECS is backed by John Mayo, the former deputy chief executive of Marconi, through his Beehive Capital investment vehicle.

Mayo is a controversial figure in the City and was blamed along with Marconi chief executive George Simpson for the collapse of the company after a disastrous acquisition spree. He was ousted in 2001.

Glass Lewis has also increased pressure on Vodafone by urging shareholders to reject the company’s remuneration report.

The governance group said it had “severe reservations” about Vodafone’s policy on executive pay. It argues that less stringent targets under the group’s long-term incentive plan “will now allow executives to be excessively rewarded for less-than-superior performance”.

The investor group also criticised the Vodafone board for not fully explaining the award of options to Sarin in July 2006 worth a maximum of 735% of his base salary. Last year, he was paid £6.1m, including payments under the incentive scheme.

At last year’s annual meeting, 20% of Vodafone shareholders opposed or abstained from voting for the remuneration report after the company introduced easier targets for executive bonuses.

ECS has also attacked the link between executive pay and earnings-per-share targets at Vodafone. The rebel group argued that this has made bonuses for Sarin and other top executives too dependent on the performance of Verizon. ECS calculates that Verizon accounted for 62% of the increase in Vodafone’s growth in earnings per share over the past three years.

The support of Glass Lewis is a welcome boost for ECS, which has been struggling to win over Vodafone’s largest shareholders.

ECS chairman Glenn Cooper, a veteran investment banker who floated Manchester United on the stock market in 1991, said yesterday the group was gathering support after meeting 80% of Vodafone’s top shareholders. It needs 50% of investors to vote in favour of its resolutions.

Last night Cooper said: “This is not a short-term grab. It is about releasing some of the value now and putting the company into a stronger position for the future.”

However, three of Vodafone’s biggest shareholders – Morley Fund Management, Insight and M&G – have publicly backed Vodafone. The mobile-phone group has returned £28 billion to shareholders through dividends and buybacks in the past three years.

Vodafone has rejected ECS’s proposals, warning they would create “significant additional risk, constrain future flexibility and erode the group’s ability to generate value for its shareholders in the future”.

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