UK: the Government's review of corporate governance

The Department for Business, Innovation and Skills has announced some details about its forthcoming review of corporate governance: see its press release here. Given the scope of the review, it has the potential to be the most wide reaching and important undertaken in recent years. In the press release, the BIS Secretary, Dr Cable, is quoted as follows:

“We will look at the economic impact of takeovers, shareholder responsibility, corporate incentives and pay – all the factors that can help us build a framework founded on long-term economic logic. Short-termism and shareholder disengagement are an increasing problem for our economy. Short-term investors and financial gamblers value a quick buck above all else, for example, by driving company boards into accepting takeover bids that make no economic sense. We need shareholders that act like long-term owners, alive to the risks of instability and the broader consequences of how the companies they own behave.

I welcome the Takeover Panel's decision to look into the rules on takeovers [see here, pdf], but this is just part of a broader picture. My department is complementing this work with a comprehensive review that will ask fundamental questions about corporate governance and short-termism. Alongside ongoing work into the shape of regulation and narrative reporting, we aim to put responsible shareholders back in the driving seat of our economy.

The Government will launch a comprehensive consultation in the autumn. Areas it may cover include:

• What drives market short-termism?
• Do boards set out their long-term objectives sufficiently clearly?
• How can we encourage shareholders to become more engaged in the company’s future?
• Do shareholders have sufficient opportunity to vote on takeover bids?
• Do target boards do enough to consider whether the bid represents value for their shareholders in the long-term?
• Does the way in which directors are paid unduly encourage takeover activity?