3 Previous review of the market |
9. The commissioning of the Kay Review was not the
first attempt by a Government to examine and reform the UK equity
market. In 2001, Lord Myners published his Review of Institutional
Investment in the United Kingdom (the Myners Review).
10. In the introduction to that Review, Lord Myners
gave the following description of his work:
The review does not seek to argue that the institutions
whose investment behaviour it examines have some public interest
responsibility to invest in certain ways. But it is a legitimate
issue of policy concern to establish the extent to which institutions'
approaches to investment decisions are:
· subject to the correct incentives;
· as far as possible, undistorted.
The review also has a specific remit to investigate
institutional investment in private equity, but its purpose in
doing so is to determine whether there are unnecessary barriers
to such investment which should be removed, not to promote such
investment regardless of whether it is right for the institution
concerned. Indeed, a sudden move by pension funds to increase
their allocation to private equity without proper consideration
and analysis would be both damaging to them and contrary to the
spirit of the review's recommendations. Private equity requires
a sustained long-term approach, not rapid entry and exit driven
by short-term performance results or changing fashion.
11. Lord Myners told us that the Kay Review was "very
well argued" and identified the core issue which was "the
emergence over the last 30 years of a transactional relationship
between companies, investors and intermediaries, and the dominance
of the financial intermediaries, matched by a steady erosion of
trust as the basis for commercial relationships".
However he went on to argue that without Government action the
Review would have little impact on the sector:
I do not think that the Professor's report will
add a jot or tittle to the prosperity of the UK economy and the
success of our businesses.[...] The industry's response to Kay
is, I think, one of considerable comfort. It might be summed up
with: "Move along, Sir. Nothing much to look at here".
12. Lord Myners made more than 50 recommendations
to the then Government to implement change. However, little progress
was made in the implementation of those recommendations. Lord
Myners argued that the reason for this was that the Government
had simply lacked the resolve to act:
I am very disappointed in the lack of progress
after my report on institutional investment in 2001. It relied
on the same statements on principles of best practice that Kay
is continuing to rely on. I have come to the conclusion that there
are some fundamental flaws in our current approach to corporate
He went on to remind us that "there is a long
succession of reports on these areas" and that "there
is very little in Kay's early chapters that represent any fresh
and additional perspective on these issues".
13. Professor Kay's remit appears to support that
lack of progress. We asked the Secretary of State for assurances
that the Government would act on the Kay Review. Although the
Secretary of State acknowledged that "there is always a danger
of nice reports that just never happen",
he assured us that this would not be the case with the Kay Review:
We are not letting the matter rest. [...] We
have made it very clear that in the summer or autumn of 2014 we
want to go back over what the Kay Review has recommended to make
sure that these things are actually happening. We are also commissioning
a group of independent people who will track these recommendations
and see that they are being followed through.
14. In the 12 years since the Myners Review, little
has changed in the role and actions of institutional shareholders.
The recommendations and findings of the Kay Review cannot be ignored
or diluted as we have heard the Myners Review was. The similarities
between the remit of the Kay review and that of the Myners Review
demonstrate that little progress has been made to reform the sector.
It is therefore critical that they do not share a similar fate.
The Government must play an active role to drive reform on implementation
of Professor Kay's recommendations. Our Report, therefore, concentrates
on where that activity must take place.
14 Lord Myners, Myners Review of institutional investment:
Final Report, March 2001, page 4, para 5 Back
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