Finally, we need to start a debate about how we build a stronger culture of long term commitment to sustainable company growth in this country, based on a strong compact between institutional shareholders and the corporate sector.
On one hand we need a system that enables shareholders to discipline poor management. But we also need to give management some scope to plan and build without the excessive demands for quick returns that characterise too much modern public company ownership.
I don’t have any easy answers. Our reforms of company law made clear the importance of directors taking a long term view. At the same time we have empowered shareholders. We are now evaluating whether this has changed behaviour in the board room – and among investors.
Chris Hogg has played a key role in this debate with his review of corporate governance, and it is time for Britain to take a long hard look at the questions he and others have raised. I attach the highest importance to the new Investor Code and will be meeting investors and companies next week in the run up to the further consultation by the Financial Reporting Council.
Takeovers provide a very clear test here - for all involved. Companies making acquisitions should set out transparently and publicly their long term plans for the assets they propose to acquire, including company headquarters, R&D sites and main plants. Although these remain commercial decisions, firms or investors should expect to brave the court of public opinion if they are motivated only by short term profit.
Surely investment managers should be judged on their long term growth and profitability, not their short term performance – and the same goes for CEOs. How many strategic and effective managers are being hobbled with the quarterly race to please the beauty contest of the markets?
There's not much new here, as previous posts on 1990s reports by Marsh and Shiller show, but at the questions are the right ones (and as he acknowledges there are no easy answers). I think the idea of reviewing the impact of what the Government has done to date - particularly to try and empower shareholders - is exactly right. In my opinion most investors, including those that make a lot of noise about stewardship, haven't used the rights they have effectively for example to challenge remuneration. And it's great to see another minister say this kind of thing along with Myners.
It's just a shame that this has come way way too late. Even last year BIS had time to say review the impact of a shareholder vote on remuneration reports. Now there is no time left.