UK: Vince Cable on corporate governance - the Kay review, remuneration and women on boards

In a speech delivered today, the Secretary of State for the Department for Business, Innovation and Skills - the Rt. Hon. Dr Vince Cable MP - observed that whilst there was much that was good about the UK corporate governance framework, the financial crisis had highlighted long-standing concerns: are there, in Dr Cable's words, "systemic flaws in the way companies are owned and managed in the UK"?

Dr Cable used his speech to launch an independent review considering the effect of UK equity markets on the competitiveness of UK business. The review's terms of reference are available here (pdf). The review's principal purpose will be "To examine the mechanisms of corporate control and accountability provided by UK equity markets and their impact on the long term competitive performance of UK businesses, and to make recommendations". In doing so the following areas have been identified for study (to quote directly from the terms of reference):

• Whether the timescales considered by boards and senior management in evaluating corporate risks and opportunities, and by institutional shareholders and fund managers in making investment and governance decisions, match the time horizons of the underlying beneficiaries.
• How to ensure that shareholders and their agents give sufficient emphasis to the underlying competitive strengths of the individual companies in which they invest.
• Whether the current functioning of equity markets gives sufficient encouragement to boards to focus on the long term development of their business.
• Whether Government policies directly relevant to individual quoted companies (such as regulation and procurement) sufficiently encourage boards to focus on the long term development of their business.
• Whether Government policies directly relevant to institutional shareholders and fund managers promote long-term time horizons and effective collective engagement.
• Whether the current legal duties and responsibilities of asset owners and fund managers, and the fee and pay structures in the investment chain, are consistent with asset owners’ long term objectives.
• Whether there is sufficient transparency in the activities of fund managers, clients and their advisors, and companies themselves, and in the relationships between them.
• The quality of engagement between institutional investors and fund managers and UK quoted companies, and the importance attached to such engagement, building on the success of the Stewardship Code.
• The impact of greater fragmentation and internationalisation of UK share ownership, and other developments in global equity markets, on the quality of engagement between shareholders and quoted companies.
• Likely trends in international investment and in the international regulatory framework, and their possible long term impact on UK equity markets and UK businesses.

Elsewhere in his speech, Dr Cable stated that a consultation paper on changes to company reporting, including increased disclosure regarding remuneration and its relationship with company performance, would be published next month. He also stated that in this context greater transparency was not enough and that he would be exploring other ways to "intervene sensibly" and "put an end to the culture of rewards for failure". With regard to increasing the proportion of women on company boards, Dr Cable stated that the Government was at the moment waiting to see what would be achieved by the voluntary approach advocated by Lord Davies.