Kay Review Report
The Secretary of State for Business, Innovation and Skills (Vince Cable)
I would like to inform the House that the Government are today publishing a report on progress made in implementing the recommendations of the Kay review of equity markets. Copies of the report will be placed in the Libraries of both Houses.
In July 2012, the Kay review report set out a vision for reform of UK equity markets to ensure that they support long-term investment, constructive relationships between companies and in their investors, and sustainable value creation by British companies. The Government have welcomed the review and responded in November 2012 setting out a number of steps it would take to deliver against its recommendations, and calling for a sustained commitment to reform from both, Government and market participants.
In the response we committed to publishing an update on progress achieved by the Government, regulatory authorities and market participants, to deliver the review’s specific recommendations, and to respond to its wider principles and directions. The report meets that commitment, providing a broad stock-take of measures taken by the Government and regulatory authorities relevant to the delivery of the recommendations and wider principles of the Kay review. It also summarises progress made by business groups and the investment industry to develop good practice as Professor Kay suggested.
The Government believe this represents significant progress to implement the agenda set out in the Kay review. However a further sustained commitment from Government and market participants will be needed to deliver this important agenda. The report therefore also highlights plans for further work in a number of areas.
This programme of work should be seen in the context of the Government’s Industrial Strategy which reflects the long-term focus recommended by Professor Kay. The strategy aims to develop enduring partnerships between Government and business to give confidence for investment and growth.
Today’s report also incorporates the Government’s response to the Law Commission review of fiduciary duties. The Government have already welcomed the Law Commission’s report, published in July 2012, which was commissioned in response to a recommendation of the Kay review. In particular we have welcomed its clear guidance on the factors which fiduciaries and other investment intermediaries should consider when investing on behalf of others. We now set out a more detailed, positive response to the Law Commission’s specific recommendations, which include a commitment to ensure that the Law Commission’s core findings with respect to consideration of long-term factors in investment decisions will be embedded in regulatory guidance.
Alongside today’s progress report, we are also publishing two additional documents resulting from the Government’s programme of work to implement the Kay review. Copies of each of these documents will be placed in the Libraries of the Houses.
First, we are publishing an independent research paper, commissioned as part of our response to the Kay review, into the metrics and models used to assess company and investment performance by long-term investors. Our intention is to convene a number of focused round-table discussions involving investors, asset managers and companies, and relevant regulatory authorities, to discuss the findings of this research and to agree what practical steps may be appropriate. These may include the development of guidance on good practice or regulatory reforms.
Secondly, we are publishing the note of a BIS round-table of expert stakeholders which we convened to consider whether policy measures restricting the role of short-term shareholders during a takeover bid could be made to work in practice. We had committed to look in detail at this question in our response to a recommendation of the BIS Select Committee report on the Kay review of November 2013.
Overall, the discussion reached a clear consensus, broadly in line with the Government’s previous analysis, that there are a series of legal and technical implementation issues which would be extremely difficult to overcome in introducing such a measure, and that it appeared unlikely that a disenfranchisement measure would eliminate the influence of short-term shareholders in a takeover bid. In light of these conclusions and the level of consensus among those attending the round-table, we have no plans to introduce a disenfranchisement measure.
Separately, the progress report provides a more general summary of policy developments relevant to Professor Kay’s recommendation that the Government keep the scale and effectiveness of merger activity under review, and in particular notes the Takeover Panel’s recent proposed changes to the Takeover Code. Copies of each of these documents will also be placed in the Libraries of both Houses.