Examining the long-term performance and governance of UK quoted companies
UPDATE 29 February 2012: The Kay Review’s interim report has been published today.
UPDATE 23 July 2012: The final report of the Kay Review has been published today. See this post.
Vince Cable, the Secretary of State for Business, Innovation and Skills, today announced that Professor John Kay will be leading a review to:
“examine investment in UK equity markets and its impact on the long-term performance and governance of UK quoted companies”.
Mr Cable launched this “Kay Review” in a speech at the Association of British Insurers. In the same speech the Secretary of State also announced that he would be consulting in July 2011 on changes to company reporting that “will propose tougher provisions on disclosure of executive pay” as part of the Government’s desire to bring “excessive, unjustified, executive pay under control”. Mr Cable’s speech can be read here.
The Kay Review of the effect of UK equity markets on the competitiveness of UK business
The terms of reference of the Kay Review can be read here and the accompanying press release can be read here.
The Kay Review is part of the Mr Cable’s attempt to move corporate Britain away from what he sees as short-termism in investment decisions and a damaging pre-occupation with short-term investment returns. This was also a major theme underlying the Government’s 2010 consultation on a “A Long-Term Focus for Corporate Britain” - we discuss that consultation in this post (and see September 2011 update below).
The aim of the Kay Review as explained in Mr Cable’s speech is to:
“work out how the equity investment regime can be recalibrated to support the long-term interests of companies as well as underlying beneficiaries, such as pension fund members”.
“Equity investment regime” is explained to mean “behaviour right along the investment chain – from company boards, through pension funds, advisers and fund managers, to ultimate beneficiaries”. Mr Kay will be looking at that behaviour and “will consider what is needed to make sure that the UK can be the home to successful companies, with access to the capital they need to deliver reasonable returns”.
The Kay Review will examine:
- How best to make sure that timescales over which investment risks and rewards are considered best matches the interests of clients, beneficiaries and companies;
- Ways to strengthen the engagement between institutional investors and companies;
- The most effective ways of boosting transparency for clients, beneficiaries and companies themselves;
- The legal duties and responsibilities of asset ownership in the UK; and
- The impact of increasingly fragmented share ownership.
The Kay Review will produce a report with final conclusions in 2012.
Other related Government and EU reviews
The Department of Business, Skills and Innovation (BIS) review on “A Long-Term Focus for Corporate Britain” closed earlier in 2011 and the Government will publish the next steps in that wide-ranging review of corporate governance in summer 2011.
UPDATE September 2011: BIS has now announced that the Kay Review will constitute the continuation of its work on “A Long-Term Focus for Corporate Britain”. The Kay Review will publish an interim report in February 2012 and a final report in July 2012.
BIS’s 2010 consultation on “The Future of Narrative Reporting” is also closed and – as mentioned above – the Government will be launching a further consultation on company reporting in July 2011, which will include proposed changes to the executive pay disclosure regime.
The European Commission also published a Green Paper on the “EU Corporate Governance Framework” in April 2011, which we discussed in this post.
UPDATE 15 September 2011: The Kay Review has now published its “call for evidence”, as we discuss in this post.
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