BUSINESS Secretary Vince Cable pledged yesterday that the government would take a “greater interest” in take-overs of UK companies and also fight the City’s “quick buck mentality”.
Endorsing Professor John Kay’s independent review of UK equity markets, Cable said the coalition was also working to scrap companies’ quarterly reporting that he said encouraged greater focus on short-term returns than long-term value.
“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,” Cable said.
“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 a wider problem.”
The Business Secretary said the Kay Review “sets a clear challenge to companies and those who invest in them”. On UK mergers and acquisitions, Cable said the government supported Kay’s view that a company’s directors could reject a bid, even at a good price, if they believed the transaction would destroy value in the longer term.
The takeover of UK confectionery firm Cadbury by Kraft of the US in 2010 was widely criticised for putting short-term share price and shareholder gains above the long-term welfare of the company and staff.
The government said yesterday that no changes to legislation were needed because the City Takeover Code, which regulates UK merger activity, was changed last year to reflect that view.
However, the Kay Review argues against kneejerk hostility to foreign ownership, an approach Cable said the government endorsed because it recognised the continued importance of open markets for growth.
Professor Kay also called for the way directors are paid to be changed to encourage more long-term thinking, including that bonuses should only be paid in shares that could not be sold until after an executive had left the business.
Similarly, another of Kay’s ten principles endorsed by the Department for Business was that bankers and investment managers should get bonuses either in the form of shares in the firms for which they work, or an interest in the investment funds they manage.
Cable, addressing the National Association of Pension Funds (NAPF) annual conference in London, said the Kay Review’s suggested reforms, published in July, were necessary as too many City players were often “working to their own agendas”.
City institutions like the NAPF and the Investment Management Association (IMA) welcomed the review, which also calls for a new investor committee through which institutional shareholders could identify broader support for change at companies where concerns had not been addressed.
Daniel Godfrey, chief executive-designate of the IMA, the trade body for the £4.2 trillion UK asset management industry, said he believed “principled collective action could be effective when engagement [by individual institutions] fails”.
Martin Gilbert, chief executive of Aberdeen Asset Management, said the Kay Review was “a timely endorsement of the benefits of taking a long-term approach to investment”.
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