In a
speech delivered yesterday at the
Work Foundation,
Lord Mandelson, the Secretary of State for the
Department of Business, Innovation and Skills, stated that his Department was reviewing whether changes introduced by the
Companies Act (2006) - including the introduction of
Section 172, which sets out the duty of directors to promote the success of the company - had changed boardroom behaviour. Lord Mandelson had much more to say, including:
... we need to start a debate about how we build a stronger culture of long term commitment to sustainable company growth in this country, based on a strong compact between institutional shareholders and the corporate sector. On one hand we need a system that enables shareholders to discipline poor management. But we also need to give management some scope to plan and build without the excessive demands for quick returns that characterise too much modern public company ownership.
I don’t have any easy answers. Our reforms of company law made clear the importance of directors taking a long term view. At the same time we have empowered shareholders. We are now evaluating whether this has changed behaviour in the board room – and among investors.
Chris Hogg has played a key role in this debate with his
review of corporate governance, and it is time for Britain to take a long hard look at the questions he and others have raised. I attach the highest importance to the new Investor Code and will be meeting investors and companies next week in the run up to the
further consultation by the
Financial Reporting Council.
Takeovers provide a very clear test here - for all involved. Companies making acquisitions should set out transparently and publicly their long term plans for the assets they propose to acquire, including company headquarters, R&D sites and main plants. Although these remain commercial decisions, firms or investors should expect to brave the court of public opinion if they are motivated only by short term profit.
Surely investment managers should be judged on their long term growth and profitability, not their short term performance – and the same goes for CEOs. How many strategic and effective managers are being hobbled with the quarterly race to please the beauty contest of the markets?
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