Kay review sets out measures to transform UK equity markets

22/07/2012

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 >

 

 

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