Member Article

Cable backs UK equity market reforms

Vince Cable has put his backing behind an independant review from Professor John Kay, which has called for a critical change in the culture surrounding the UK’s equity markets.

The report said trusting relationships must be developed between investors and businesses, while the culture of “short-termism” should be actively discouraged.

The Business Secretary responded to the 10 key principles outlined by Prof. Kay to reform the system, and set out changes the Government will make to support his report.

Dr Cable said the Government would work with its counterparts in the EU to put a stop to mandatory quarterly reporting and pledged to help change attitudes that focus on short-term earnings in the sector.

Measures will also be taken to promote a certain standard of behaviour for all investment intermediaries to establish lasting relationships with their clients, while the Law Commission will review the legal obligations intermediaries are under.

The Financial Services Authority will also maintain a regulatory framework that ensures good behaviour from investors.

The equity market industry will be encouraged to install an “Investors Forum”, which will open up a dialogue between companies and investors, while the Government will also promote the use of “Good Practice Statements” for directors, asset managers and holders, in a bid to increase trust.

Prof. Kay’s report said those who participate in the market needed to fundamentally change the way they behave and make investment decisions based on the benefits for companies in the long-term rather than prioritising the short-term gains.

The review, which was published in July, compelled the Government to support necessary reforms through policy changes and by working with businesses to develop good practice standards.

Vince Cable said: “Many of us feel that in the past, our public companies and investors have focused on short-term profit at the expense of long-term value.

“The behaviour of many banks in the run up to the financial crisis is an extreme example of this quick buck mentality, but there is clearly a wider problem.

“That’s why I asked John Kay to look at what could be done to ensure equity markets support good, long-term decision making.

“His insightful review calls for a shift in the culture of investment and sets a clear challenge to companies and those who invest in them.

“His agenda is an ambitious one but I am very encouraged by the level of engagement we have seen already from investors.

“Not only on Kay’s ideas, but through our directors’ pay and shareholder voting reforms; in addressing diversity on corporate boards and through changes to the way companies report their business strategy and results.

“These actions will help restore trust in markets and in the system of capitalism on which our future prosperity depends.”

An update on measures will be published in Summer 2014 to outline the progress made on Prof. Kay’s recommendations.

This was posted in Bdaily's Members' News section by Miranda Dobson .