September 23, 2010
In an effort to challenge economic “short-termism” and issues within British businesses, coalition Business Secretary Vince Cable has vowed to review corporate governance.
This week, Mr Cable is expected to announce plans for a “wide-ranging” consultation on executive pay, takeover rules and similar areas which the government and Mr Cable in particular believe are suffocating business and the country’s post-recession growth.
“We will look at the economic impact of takeovers, shareholder responsibility, corporate incentives and pay – all the factors that can help us build a framework founded on long-term economic logic,” he said.
“Short-termism and shareholder disengagement are an increasing problem for our economy. Short-term investors and financial gamblers value a quick buck above all else, for example, by driving company boards into accepting takeover bids that make no economic sense. We need shareholders that act like long-term owners, alive to the risks of instability and the broader consequences of how the companies they own behave.”
The government’s review, expected this autumn, will cover a wide range of governance issues and business practices, including:
- What drives market short-termism?
- Do boards set out their long-term objectives sufficiently?
- How shareholders become more engaged in a company’s future?
- Do shareholders have sufficient opportunity to vote on takeover bids?
- Do target boards do enough to consider whether the bid represents value for their shareholders in the long-term?
- Does the way in which directors are paid unduly encourage takeover activity?
While the possible outcomes and consequences of the review remain unclear, companies may have to pay close attention to a changing governance landscape in the coming months.
