City’s love of quick profit ‘is blighting recovery’

Published on 23/07/2012 01:08

The City’s obsession with short-term profits will be attacked today in a report calling for a sweeping overhaul of pay 
policies.

John Kay, a professor at the London School of Economics, will warn that the current culture of “making the numbers” is blighting Britain’s recovery.

His review of equity markets and long-term decision making, commissioned by Business Secretary Vince Cable in September, will argue that pay policies are out of step because they focus on instant gains with little regard for the future.

The review’s expected call for companies to do more to explain the way they are compensating senior executives comes amid this year’s “shareholder spring”, which saw institutional investors rebel against pay at a number of companies.

Highlighting the “tyranny” of quarterly company reporting, Prof Kay will recommend the scrapping of rules obliging stock market-listed firms to publish updates every three months.

He will also take aim at fee-hungry investment bankers, whom he blamed for the dearth of the stock market flotations that have cut off a key source of funding for young companies.

Pointing to the damage caused by some of the heavily-indebted companies that listed before the credit crunch, he believes the relationship between fund managers and investment banks had been poisoned.

Speaking yesterday, Prof Kay said: “Trust relationships were replaced with trading relationships. If you don’t have trust relationships, people don’t have confidence in what’s promoted to them.”

His measures will reflect an earlier call from senior business figures that asset managers should act as “stewards” of firms in which they invest, rather than just buying and selling shares.