We do not propose to make finely detailed policy recommendations. We believe that it is more important to identify those areas where change should be sought and make broad suggestions for change that can be explored with other interested parties. The investor-company relationship contains too many elements to address only one area, or to only involve one of the relevant participants.
We do not believe that a voluntarist approach to these issues will be sufficient, therefore a number of our recommendations relate to activity we believe the Government could consider.
• The Government should initiate an inquiry into short-termism, to include representatives of employees, employers, the pensions and investment industry and other interested parties.
• Trade unions should identify and network their trustees on pension funds and begin a programme of education on developing long-term investment strategies. The largest funds should be a priority.
• Trustees should consider the implementation of long-term mandates. The Government should encourage the development of such mandates in the Local Government Pension Scheme.
• Trustees should encourage the incentivisation of long-term investment analysis by supporting the Enhanced Analytics Initiative.
• The section of the Combined Code dealing with executive remuneration should be revised to make an explicit link to long-term shareholder value and the importance of extra-financial issues. Companies’ remuneration policies should be reformed accordingly, including a move away from options-based rewards.
• The Government should review the potential to introduce incentives to encourage investors to hold shares for the long term.
• The Government should consider the creation of a British equivalent of the Council of Institutional Investors. Alternatively existing organisations such as the Financial Reporting Council and Institutional Shareholders Committee should be reformed in order to ensure the interests of working people as investors are properly represented.
• Given the poor success record (both financial and organisational) of deals, companies and their investors should operate the ‘precautionary principle’ in relation to merger and acquisition activity. Bidding companies should be able to demonstrate that a proposed deal would operate in the public interest. The impact on impact on employment and industrial competitiveness should be put to shareholders when bid is being decided upon.
Thursday, 23 June 2011
Long-termism review recommendations
In light of Vince Cable's announcement yesterday, here's what the TUC said five years ago...