A probe into equity markets has called for a “much needed shift in culture” to end the City’s obsession with short-term rewards.
John Kay, a professor at the London School of Economics, claimed that pay and bonuses need to come into line with long-term goals rather than “short term gains”.
The UK government-backed report, which was commissioned by Business Secretary Vince Cable, warned there was no “magic bullet” to solve all the problems in the UK’s financial markets.
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 high performing companies and earn returns for investors on a sustainable basis. This means moving away from a focus on short-term transactions and trading to an environment based on long-term trust relationships.”
He added: “We need to broaden the concept of stewardship through more and better cooperation between investors and companies. We don’t want more regulation; we need to ensure that the regulation of market structures and incentives work properly for the real end users.
“There is no ‘magic bullet’ that will deliver these outcomes, but the range of recommendations set out in this review will provide a clear vision and roadmap to help us achieve a financial world very different from our recent experience.”
Cable said: “This is an insightful and powerful review that describes vividly the flaws of the UK’s financial markets and their relationships with investors and businesses.”
To read the full report, visit www.bis.gov.uk/kayreview
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