Building a culture of long-term equity investment

Back in November 2012 the findings of Professor John Kay’s review of ‘UK Equity Markets and Long-Term Decision Making’ were released. The review looked to examine ‘the concern that an excessive focus on short-term performance in equity markets was impeding the creation of sustainable value by British Companies’. Key recommendations were put forward to rectify the lack of trust in the market, alongside addressing shareholder engagement and activities relating to stewardship.

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Last month, the Department for Business, Innovation and Skills (BIS) released an implementation progress report to evaluate what measures had been undertaken in the last two years. In this report, three main areas were highlighted.

  1. Effective shareholder engagement and stewardship investment.
  2. Improving the quality of reporting and dialogue in the investment chain to ensure the information meets the needs of those with long-term investment objectives.
  3. Progress in building trust based relationships and aligning incentives through the investment chain.

Developments in the three areas were outlined, including successes in the update to the Stewardship Code, Investor Forum creation, Stewardship Disclosure Framework, Corporate Narrative Framework and FRC guidance on narrative reporting alongside proposed changes by the Takeover Panel.

Moving forward there are several areas BIS wish to develop, some of which are listed below.

  • The Secretary of State for Business will hold a roundtable to discuss progress to date on shareholder engagement and stewardship and what more can be done in January 2015.
  • Active support of the Investor Forum development.
  • The FRC commitment to encourage and monitor signatories to the Stewardship Code.
  • The FCA review of competition issues in the wholesale financial markets to see if there are other areas that may require further investigation or study.
  • Ensure executive remuneration is aligned with company performance.

The report can be found on GOV.UK which provides a detailed breakdown of each key area and plans for the future.