Damning verdict on City: ‘No longer fit for purpose’ – The Independent

The Liberal Democrat Treasury spokesman on a v...

The Liberal Democrat Treasury spokesman on a visit to Cambridge today. (Photo credit: Wikipedia)

A report commissioned by business secretary Vince Cable was made public earlier this week and finds a financial sector that is no longer fit for purpose. Professor John Kay, a leading economist, has made his recommendations after scores of submissions and interviews with top business and investment people.

In particular, Prof Kay says that regulation needs an overhaul and that traders seeking short-term profits are not acting in the wider interests of the public and should be marginalised.

His review comes when the stock of the banking sector has never been lower, given a seemingly constant run of scandals involving rogue trading, interest rate fixing and global money laundering.

The report finds that short-termism is an underlying problem in UK equity markets, principally caused by a misalignment of incentives within the investment chain and the displacement of trust relationships by a culture based on transactions and trading.

 His recommendations, which are aimed at key players in UK equity markets, as well as Government and regulators, look to:

  • Improve the incentives and quality of engagement, including by establishing an Investor Forum to foster more effective collective engagement by investors with UK companies
  • Restore relationships of trust and confidence in the investment chain, including by applying fiduciary standards more widely within the investment chain
  • Change the culture of market participants, including by adoption of ‘good practice statements’ by company directors, asset managers and asset holders that promote a more expansive form of stewardship and long-term decision-making throughout the investment chain
  • Realign incentives by better relating directors’ remuneration to long-term sustainable business performance and better aligning asset managers’ remuneration to the interests of their clients

Damning verdict on City: ‘No longer fit for purpose’ – Business News – Business – The Independent.

One Response to Damning verdict on City: ‘No longer fit for purpose’ – The Independent

  1. Now Labour have weighed-in with a report of their own from Sir George Cox
    (preview/download from here https://www.box.com/s/5uad5hi9gmtzwstc7pb4) recommendations include:
    * Extending the governance code so that sufficient long-term incentives are incorporated in the pay of executive and non-executive directors;
    * Changes to the rules on takeovers and reporting requirements so that investors and businesses can build for the long-term;
    * Improving the functioning of equity markets through changes to the tax system;
    * Measures to encourage support for, and investment in, small businesses;
    * A mechanism to ensure that decisions on infrastructure investment are made for the long-term and not just based on political cycles;
    * Building research capability through increased spending on improved post-graduate education;
    * Improvements in public procurement including better engagement with smaller companies and more concern with the long-term effect of decisions.

    From a Complexity/Ontonix perspective, using system-generated information to measure complexity and manage resilience [i2o: inside to out], from the bottom up and across business networks is the ONLY means by which short-termism and other risk decisions, undertaken at C-level, can be rigorously regulated. Strategies that are ‘justified’ by financial forecasts or data manipulation but can be shown to be detrimental to the resilience of the business – through an objective real-time measurement – can be identified and ALL such decisions validated.

    Overcoming short-termism, amongst other things, requires a means of identifying the warning signs, an alternative path and the means to maintain the resilience of business entities (from nano/micro to macro scale) to serve as ‘building blocks’ for a sustainable economy.

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