Colin Skellett, the Wessex Water chairman and chief executive arrested last week on suspicion of receiving a £1m bribe, yesterday resigned as non-executive chairman of rail contracting firm Jarvis.
Mr Skellett's departure from the £100,000-a-year role follows pressure from its shareholders for him to step aside while City of London police continue what is expected to be a lengthy investigation.
The 57-year-old water industry veteran denies the £1m he was paid by YTL of Malaysia after it took over Wessex Wa ter in May was a bribe. He is on police bail until January and has not been charged following his arrest last Thursday after police took him for questioning from his home in Bath.
While Jarvis insisted it expected Mr Skellett to be cleared, its board is thought to have been conscious of the impact the investigation would have on its reputation. Jarvis was the contractor which maintained the rail track at Potters Bar before the accident in May in which seven people died.
The company said: "Mr Skellett has indicated that, given the on-going police investiga tion into the sale of Wessex Water, it is right at this time that he should step down from the board of a publicly listed company."
His position at Wessex Water, owned by the collapsed US energy company Enron until its sale, appeared safe last night after he was publicly backed ahead of a board meeting today. Wessex Water, which is not listed on the London stock market, said that its board had "full confidence" in Mr Skellett and "believes that he is the right person to lead the company forward".
The Wessex board had taken legal advice and was "satisfied that Colin has not breached any contractual terms or his fiduciary duties as a director of Wessex Water".
At Jarvis, the board decided his offer to resign should be accepted after a lengthy and detailed discussion. The engineering group will be chaired by former banker Lord McGowan, a non-executive director.
Jarvis said it accepted the resignation with "great regret". "The board is confident that Colin Skellett will be cleared of the allegation and wishes him and his family well in the future," the transport group said in a statement to the stockexchange.
Mr Skellett's reputation in the water industry - where he will have worked for 40 years next year - is as a "Mr Clean". He is an active member of the charity WaterAid, which has said it would not be reviewing his position as a trustee.
Mr Skellett has told the police that the money paid into his Barclays bank account last month was an up-front fee for a five-year consultancy arrangement with YTL agreed after the deal to buy Wessex Water had been sealed. He said he had had no influence over who should buy Wessex Water, which the City had expected to be sold to a consor tium led by Royal Bank of Scotland.
Mr Skellett said he paid tax in Malaysia before almost £920,000 was paid into his bank account. YTL has dismissed suggestions that the money was not paid in directly but rather through Martin Bushnell, a former John Laing employee who acted on behalf of YTL.
Mr Bushnell is also on police bail after handing himself over to them when he heard reports of Mr Skellett's arrest last Thursday.
The City of London police said yesterday its investigation was continuing.