Government urged to act on short-termism

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Ministers have been warned they must not allow measures to curb short-termism in the City to be “kicked into the long grass” as MPs raised fears about the lack of action on key reforms set out last year.

Westminster’s business, innovation and skills committee said it was “yet to be convinced” that major players in the financial sector were committed to changes outlined in the Kay review, and said the UK government must be willing to use a “regulatory stick” to bring institutions into line if they refuse to act voluntarily.

The proposals, set out by London School of Economics professor John Kay last July, include paying executives’ long-term incentives in shares that only vest after they have left the company, and scrapping requirements for firms to report every three months.

Committee chairman Adrian Bailey said: “It is not enough for the government to simply say it supports Kay’s recommendations and then leave it to the industry to change of its own volition. [It] must set measurable, accountable targets through which reform can be driven and measured.”

The committee also said it was “disappointed” the government had failed to take action on proposals to reform executive remuneration.

A spokeswoman for the business department said: “We are fully committed to implementing the Kay Review and one year on have already made good progress, introducing reforms to the governance of executive pay, corporate narrative reporting and access to equity finance.”