I announced on 22 September that I would be undertaking a review into corporate governance and short-termism. Today’s publication of “A Long-Term Focus for Corporate Britain—a call for evidence” marks the first stage of this review.
The UK has benefited greatly from open, free and well functioning capital markets. Our companies and markets have been successful in attracting investment into the UK and providing wealth creation which we need to prosper as a nation. But recent events have exposed weaknesses. We must ensure that growth is not compromised by short-term volatility or its benefits captured by a few at the expense of the many who provide the capital, and the wider national interest.
Government intervention, both through regulation and other measures, seeks to address such failures, while maintaining markets which are as free and open as possible. The UK has led the world in developing high standards of corporate governance, most recently with the introduction of the stewardship code, setting out the role of shareholders in holding directors to account.
These are important steps to secure sustainable UK growth for the future. The review aims to establish whether there are further issues affecting the functioning of capital markets and, if so, what are the causes. It considers the role of directors and shareholders and asks fundamental questions; for example, about shareholder engagement, market short-termism and the functioning of the investment chain in the UK. It also considers directors’ remuneration and—following up the takeover panel’s recent announcement—the economic case for takeovers.
This review builds on the report published by the Business, Innovation and Skills Committee on “Mergers, Acquisitions and Takeovers: The Takeover of Cadbury by Kraft”. It is also closely linked to the Department’s recent consultation on the future of narrative reporting.
I am placing copies of this document in the Libraries of both Houses.