Speculation is that several of SMG's shareholders had wanted Flanagan removed from his position, after accusing him of failing to create value during his 10-year reign leading the group.
Shareholders in the SMG include institutional investors Fidelity, SVG Capital, Soc Gen and Morley, which account for almost 25% of the group's stock.
Reports state that rebel shareholders are backing an alternative plan for SMG put forward by an outsider, Rob Woodward, a former commercial director of Channel 4 and investment banker.
Woodward's plan is to concentrate SMG on its television and radio activities and to sell its troubled outdoor and cinema advertising businesses, Primesight and Pearl & Dean. Speculation also suggests that SMG's Virgin Radio would also be on the auction block, should the initiative go ahead.
SMG owns two ITV franchises in Scotland, Scottish TV and Grampian TV, and Virgin Radio, which has a national footprint across the FM and AM frequencies.
Virgin Radio was the subject of a failed £100m bid from media entrepreneur and Labour peer Lord Alli in February last year.
The shareholder unrest may impact on SMG's search for a new chief executive. Flanagan's departure means SMG is currently led by acting chief executive Donald Emslie, the head of its television division, and chairman Chris Masters.
The group is currently considering "both internal and external" candidates to take the position of chief executive.
Other investors in SMG include ITV with the largest stake of 16.8% and the radio DJ Chris Evans with 3%.
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