Colin McLean, managing director of SVM Asset Management, also believes how companies respond in areas such as treatment of employees will come under growing scrutiny from investors.
He argues that the crisis has highlighted how UK corporate governance has “simply not been fit for purpose”.
“Excessive dividends, share buy-backs, and unreasonable executive rewards have led to over-borrowed businesses with no buffers for bad times,” argued Edinburgh-based McLean.
“Heavily borrowed company structures – much loved by private equity – should be the first to go. High debt creates a one-way option; great if the economy goes well, disastrous in a downturn. Restaurant chain Carluccio’s and many high-street retail chains are testimony to this.”
McLean said it was important that investors take to task boards that incentivise bad behaviour and companies that have behaved poorly during the crisis.“Some businesses have been much too quick to dump employees on to state support, when other adjustments might have been made,” he pointed out.
McLean predicts that despite all the money pumped into economies by governments, even lower inflation and interest rates are likely. “Understandably politicians are currently focused on the crisis, but this experience should drive fresh thinking on the economy of the future.”
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