7 Annex A: Professor Kay's Principles
1. The Stewardship Code should be developed to
incorporate a more expansive form of stewardship, focussing on
strategic issues as well as questions of corporate governance;
2. Company directors, asset managers and asset
holders should adopt Good Practice Statements that promote stewardship
and long-term decision making. Regulators and industry groups
should takes steps to align existing standards, guidance and codes
of practice with the Review's Good Practice Statements;
3. An investors' forum should be established
to facilitate collective engagement by investors in UK companies;
4. The scale and effectiveness of merger activity
of and by UK companies should be kept under careful review by
BIS and by companies themselves;
5. Companies should consult their major long-term
investors over major board appointments;
6. Companies should seek to disengage from the
process of managing short-term earnings expectations and announcements;
7. Regulatory authorities at EU and domestic
level should apply fiduciary standards to all relationships in
the investment chain which involve discretion over the investments
of others, or advice on investment decisions. These obligations
should be independent of the classification of the client, and
should not be capable of being contractually overridden;
8. Asset managers should make full disclosure
of all costs, including actual or estimated transaction costs,
and performance fees charged to the fund;
9. The Law Commission should be asked to review
the legal concept of fiduciary duty as applied to investment to
address uncertainties and misunderstandings on the part of trustees
and their advisers;
10. All income from stock lending should be disclosed
and rebated to investors;
11. Mandatory IMS (quarterly reporting) obligations
should be removed;
12. High quality, succinct narrative reporting
should be strongly encouraged;
13. The Government and relevant regulators should
commission an independent review of metrics and models employed
in the investment chain to highlight their uses and limitations;
14. Regulators should avoid the implicit or explicit
prescription of a specific model in valuation or risk assessment
and instead encourage the exercise of informed judgment;
15. Companies should structure directors' remuneration
to relate incentives to sustainable long-term business performance.
Long-term performance incentives should be provided only in the
form of company shares to be held at least until after the executive
has retired from the business;
16. Asset management firms should similarly structure
managers' remuneration so as to align the interests of asset managers
with the interests and timescales of their clients. Pay should
therefore not be related to short-term performance of the investment
fund or asset management firm. Rather a long-term performance
incentive should be provided in the form of an interest in the
fund (either directly or via the firm) to be held at least until
the manager is no longer responsible for that fund; and
17. The Government should explore the most cost
effective means for individual investors to hold shares directly
on an electronic register.[264]
264 Professor Kay, The Kay Review of UK equity markets
and long-term decision making, July 2012, page 12 Back
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