LONDON Business Secretary Vince Cable will renew calls to boost scrutiny of companies in a bid to rein in reckless behaviour, avoid another crisis and bring back trust in financial markets.
Cable wants to increase regulation to rein in executive pay schemes and change the way company directors measure their performance by scrapping quarterly reporting, he told institutional investors at the Association of Pension Funds (NAPF) Corporate Governance Conference on Thursday.
The business secretary submitted a written ministerial statement to Parliament supporting proposals for new governance standards by the Kay Report to get rid of short-term profit-seeking in equity markets.
The Kay Review of UK Equity Markets and Long-Term Decision Making was commissioned by 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 government is pushing through legislation to allow shareholders a binding vote on pay policy for first time, and wants the EU to change compulsory quarterly reporting, which Cable says distorts the way companies measure performance.
"Managing a company through 90-day intervals and on expectations for the next quarter can be quite harmful," said Simon Wong, a partner at activist firm Governance for Owners.
"There needs to be a drive to change the way asset owners such as pension funds look at the performance of their asset managers."
Cable also backed the Kay Report's call for the creation of a new institutional investors' forum to help shareholders engage better with companies.
Pension funds, fund managers and companies need to push for a change in the culture of the financial markets, which still produce examples of "irresponsible capitalism", Cable said.
He referred to Starbucks avoiding paying UK, UBS trader Kweku Adobli, who was jailed for seven years after gambling $2.3 billion (1.4 billion pounds) of the bank's money, and the sale of unnecessary and unasked-for Payment Protection Insurance to consumers.
Pension funds were criticised after the financial crisis for not demanding greater accountability through their fund managers from the companies they invest in - particularly banks.
Cable said he believed most companies played by the rules.
"But like many people (I) share a sense of dismay about some recent behaviour," he said. "Our task is to reform the system, bring about a restoration of trust so the system can work properly."
(Reporting by Sarah Mortimer; Editing by David Cowell and Helen Massy-Beresford)