John Kay to take on 'quick buck mentality'

The economist has been chosen by Vince Cable to wipe out short-termism. Which is a big ask for anyone.

by Emma Haslett
Last Updated: 14 Jul 2015
Is it a bird? Is it a plane? Nope – it’s John Kay, economics commentator, MT contributor, ex-director of the Institute for Fiscal Studies and former professor at both the University of Oxford and the London Business School. Kay is the man chosen by Vince Cable to chair a review into equity markets, with the aim of getting institutional shareholders more involved in their investments (crash!), combating excessive pay deals (pow!) and, eventually, stamping out short-termism (zap!). Although even for someone with an almost superhuman grasp of economics, that’s a pretty tall order…

At a speech to the Association of British Insurers, Cable will say tonight that the City’s ‘quick buck mentality’ is having ‘serious implications for investment in longer-term projects’ like improvement to networks or the development of new technologies. In other words, the City’s urgency for short-term gains means long-term insights are being neglected.

As part of that, Cable wants ordinary people who invest in companies through their pensions and insurance to have more say in how the companies they have an interest in are run. Apparently, much of UK plc is owned by these types of shareholders, but they don’t have much power over the companies the funds put money into, while ‘at the same time, hedge funds and traders are able to turn a quick profit, with no thought for the broader implications’. Part of Kay’s remit, then, will be to look into ways of giving those small investors more of a say.

The idea then is that once ordinary people can influence how the UK’s biggest companies are run, they’ll be able to start doing things like, for example, taking a stand against pay deals that disproportionately encourage – you guessed it – short-termism. Thus, the nation’s CEOs will be forced to take a more responsible and forward-thinking approach to doing business. Clever, eh?

This has all come out of an inquiry into Kraft’s hostile takeover of Cadbury. During the takeover, the American company insisted it would ensure job-losses would be kept to a minimum. Once the takeover was completed, though, it closed one of the company’s largest factories – and its CEO, Irene Rosenfeld, has resolutely refused to appear before the Treasury Select Committee.

Of course, businesses may not be particularly impressed at the prospect of ordinary people getting their hands on their inner workings – but what strikes us as an even bigger question is whether the average pension-holder will really take an interest. If they want to get involved, that’s one thing – but if, as we’d imagine is more likely, they couldn’t particularly give a toss, except when things go wrong, then the whole exercise seems a little pointless. Of course, that’ll be part of Kay’s report, to be delivered early next year. Wonder if he’ll don a cape for the occasion?

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