LONDON, July 23 A government-backed report has
called for the creation of a new institutional investors' forum
to help shareholders engage with companies more effectively and
prevent Barclays-style board implosions.
John Kay, author of the report examining the impact of
short-term profit-seeking in equity markets, said that fund
investors would be able to improve returns to their savers if
they engaged collectively with company boards rather than
Kay told Reuters: "We have a problem of fragmentation in the
asset management industry. And what we want is a collective
forum that will give shareholders a single voice to address
issues within companies."
He highlighted Barclays as a "classic illustration"
where collective engagement would have ensured a more orderly
transition for the board after the bank lost its top three
executives in the fallout from the Libor rate-rigging scandal.
"The board has little credibility, the chairman is on his
way out and there is no chief executive," Kay said. "What we
have is a situation where fund managers are acting individually
[to bring about change]. This is precisely the kind of issue we
want to address."
The Kay Review of UK Equity Markets and Long-Term Decision
Making was commissioned by Business Secretary Vince Cable in
response to the takeover of confectioner Cadbury by U.S. rival
Kraft Foods, which critics said was driven by short-term
investors seeking a quick reward.
The report said that the key to restoring confidence in the
markets was to ensure that pension funds, fund managers and
companies refocus on fiduciary standards with the aim of putting
the interests of savers and customers first.
As widely expected, Kay also recommended that companies link
their directors' pay to long-term business performance, with
incentives to be provided only in the form of company shares to
be held until after the executives have retired.
Investor challenges to executive pay rises and management
performance gained momentum with the so-called "shareholder
spring" as shareholders voted down pay proposals in big
companies including WPP, Aviva, Cairn Energy
Alan MacDougall, managing director of corporate governance
lobby group Pensions Investment Research Consultants (Pirc),
described Kay's forum recommendation as "particularly helpful".
"The existing architecture for bringing together investors,
now called the Institutional Investor Committee, has morphed
from an original purpose not far from Kay's vision into a
collective of trade bodies principally concerned with
coordinating industry lobbying activity," he said. "A fresh
start here would be very welcome."
(Reporting By Raji Menon; Editing by David Goodman)