Kay review sets out measures to transform UK equity markets
By Daniel Hunter
Restoring relationships built on long term trust and confidence and realigning incentives across the investment chain should be the basis of a much needed shift in the culture of the UK’s equity markets, according to a new independent review from Professor John Kay, published today (Monday).
In his review, UK equity markets and long-term decision making, Professor Kay sets out a clear vision and a set of principles to ensure that equity markets support their core purpose of enhancing the performance of UK companies, and providing returns to savers.
The report finds that short-termism is an underlying problem in UK equity markets, principally caused by a misalignment of incentives within the investment chain and the displacement of trust relationships by a culture based on transactions and trading.
His recommendations, which are aimed at key players in UK equity markets, as well as Government and regulators, look to:
· Improve the incentives and quality of engagement, including by establishing an Investor Forum to foster more effective collective engagement by investors with UK companies
· Restore relationships of trust and confidence in the investment chain, including by applying fiduciary standards more widely within the investment chain
· Change the culture of market participants, including by adoption of ‘good practice statements’ by company directors, asset managers and asset holders that promote a more expansive form of stewardship and long-term decision making throughout the investment chain
· Realign incentives by better relating directors’ remuneration to long-term sustainable business performance and better aligning asset managers’ remuneration to the interests of their clients
Launching the review, Professor Kay said:
“A lack of trust and poorly aligned incentives have helped create a culture of short-termism in our financial markets. This is undermining their role of supporting innovative, sustainable long-term business performance.
“We must create cultures where business and finance can work together to create... continued on page two >