The report, which was commissioned by the Labour Party, looks at all aspects of the British economy and identifies ways in which government, businesses and stakeholders can contribute to the establishment of a more long-term outlook culture.
At least 60% of all participants, which included trade unions and business leaders,stated that short termism was a significant impediment to the growth and development of British business.
Cox concluded that directors should have more incentive to stay with their firms through the inclusion of five-year deferred bonus’, while financial incentives and support schemes for smaller businesses should be reviewed to establish their effectiveness with regard to promoting long term development.
It was also suggested that liquidity be improved in the AIM market to make it more attractive for both listed companies and investors, and dividend tax could be reduced over a period of time to promote longer term investments.
The review called for an urgent investigation into the unintended effects of recent and forthcoming financial regulation in promoting short-termism.
Political tinkering
Martin Gilbert, co-founder and chief executive of Aberdeen Asset Management, comments: “As a buy and hold investment house, we’re obviously pleased with Sir George’s conclusion on the benefits of long termism. Business expansion, for example the building of a new factory, cannot be achieved over a couple of quarters. The returns generated from that investment flow through over years, not months.
“That’s why we’re keen to see stronger incentives to encourage both investors and management to take a longer term view. Changes to corporate governance, the tax system and infrastructure spending may all help to achieve this but they need to be carefully thought through. Arguably the problem has been made worse by policy tinkering from successive governments, which has done little to promote a long term approach.
“It’s time for a political consensus to support the overriding objective that the equity investment chain should be to create long-term value in companies and long-term returns for savers.”
