A GOVERNMENT-BACKED REPORT on the UK’s financial services industry has called for the removal of quarterly reporting and less stringent regulation, a move backed by the industry.
John Kay (pictured), a professor at the London School of Economics, has warned that the culture of “short-termism” is hurting Britain’s economy and that companies should move away from quarterly reporting and box-ticking to more sustainable annual reports – principles based in his “Kay Report”.
“This culture change can be best achieved by high-quality engagement between boards and investors, which needs to move beyond corporate box-ticking to focus on company strategy,” said Matthew Fell, CBI director for competitive markets.
“There is no silver bullet. However, removing the requirements for quarterly reporting and short-term earnings updates will take away unnecessary distractions and help boards and investors focus on the long term.”
The ICAEW echoed these sentiments and added standard-setters need to look at the type of information investors will need.
“There has been a tendency for standard-setters to focus on the information that investors need for buy/sell/hold decisions. ICAEW hopes that this [review] will lead to a refocusing on what matters to firms and their investors to promote long-term performance,” said Robert Hodgkinson, executive director at ICAEW.
“We support the removal of mandatory requirements for quarterly reporting, which Professor Kay advocates, as it should help to reduce short-termism and encourage more responsible markets. But those firms that wish to continue reporting on a quarterly basis – perhaps in response to the demands of their shareholders – should be free to do so.”
However, the GoodCorporation, which promotes ethical management practices, said it will take more than a review to instigate changes in the City.
“The City needs a change of culture with the emphasis on principle and integrity, rather than more reviews of management practice, if we want to restore trust and avoid a repetition of the recent financial scandals,” said director and co-founder Leo Martin.
“Regulation breeds a culture of avoidance, with businesses focusing on ways around the rules rather than the way their business is done. We need a change of culture that requires companies to be responsible for the integrity of their business conduct and demands that senior executives know exactly what is going on.
“From the scandals we have seen recently, it really is about how a company behaves when no one is watching. At the moment, the answer to that would seem to be pretty badly.”
Mark Fawcett, chief investment officer at workplace pension business NEST, agrees, explaining those that buy assets need to act more like “long-term owners rather than short-term tenants”.