By Marcus Leach
Equity investment needs to be re-calibrated to support the long-term interests of companies and underlying beneficiaries such as pension fund members, Business Secretary Vince Cable said today, as he launched an independent review into UK equity markets.
In a speech at the Association of British Insurers the Business Secretary laid down a challenge to investors, shareholders, the boards of UK listed companies and regulators to better serve the long-term interests of British businesses, investors and the economy.
The Review will be led by respected economic commentator Professor John Kay with the support of an expert panel. Professor Kay will examine investment in UK equity markets and its impact on the long-term performance and governance of UK quoted companies.
He will examine the way that the investment chain currently works — from company boards, through pension funds, advisers and fund managers, to ultimate beneficiaries. He will also consider what is needed to make sure that the UK can be the home to successful companies, with access to the capital they need to deliver reasonable returns.
Business Secretary Vince Cable said,
“It is especially urgent that we work out how the equity investment regime can be recalibrated to support the long-term interests of companies as well as underlying beneficiaries, such as pension fund members.
“I am very pleased that Professor John Kay has agreed to conduct a review into the UK equity market. He brings a wealth of expertise to the task.
“He will look at behaviour right along the investment chain — from company boards, through pension funds, advisers and fund managers, to ultimate beneficiaries. And he will consider what is needed to make sure that the UK can be the home to successful companies, with access to the capital they need to deliver reasonable returns.”
Professor John Kay said,
"Equity markets are a principal mechanism of control and accountability for Boards and senior managers, and a means by which individuals and households provide for retirement and other long term financial goals.
"The Review will examine how these capital market disciplines contribute to the achievement of such goals and to the community more generally by enhancing the competitiveness and long term performance of British business.
"I believe this is probably the most important issue in industrial policy today and am pleased to have the opportunity to assess the evidence and make recommendations to Government."
The Review will look at the whole investor chain and examine the role of all the players — pension funds, pension advisers and fund managers. It will examine:
- how best to make sure that timescales over which investment risks and rewards are considered best matches the interests of clients, beneficiaries and companies;
- ways to strengthen the engagement between institutional investors and companies;
- the most effective ways of boosting transparency for clients, beneficiaries and companies themselves;
- the legal duties and responsibilities of asset ownership in the UK; and
the impact of increasingly fragmented share ownership.
The Business Secretary wants to see real progress being made on these issues so a report will be delivered to government in 2012.
Another area where the Business Secretary wants to see progress is in bringing excessive, unjustified pay under control. Next month BIS will be launching a consultation on changes to company reporting that will propose tougher provisions on disclosure of executive pay and its link to company performance.
The Business Secretary will also be holding talks with relevant parties and remuneration committee chairs in the next few weeks to explore various policy options, with a view to announcing further action in the autumn.
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