Shareholder short-termism in the UK: The kay review and the potential role of corporate law

Abstract

This paper examines the notion of short-termism and assesses the potential impact of short-termist shareholder pressures on corporate governance in light of available empirical evidence on the effects of institutional shareholder ownership on corporate performance. Its main aim is to evaluate the adequacy of the recommendations included in the influential Kay Report and to assess the legal efficacy of the regulatory tools advocated by Kay. It is argued that although most of the Report’s recommendations are likely to alleviate the consequences of short-termism, the Report does not go far enough to ensure a definite change of culture and practice in equity markets. Therefore, further reforms are necessary in the area. In particular, it is expedient to robustly reform the structure of executive remuneration, facilitate a dialogue between companies and long-term investors, and reform shareholder voting rights to deter short-termist behavior and reward long-term investors