The government has set out a clear direction of travel for addressing the problem of short-termism in equity markets in its response to the Kay Review, the National Association of Pension Funds said today.

In the response, Business Secretary Vince Cable endorses the ten principles for equity markets which were a key aspect of the final report published by Professor John Kay in July. He also backed the report's directions for market participants which follow from these principles.
Requirements for company's narrative reports to be 'higher quality, simpler, more relevant to users and more focused on forward-looking strategy' will come into force from October 1 2013, Cable said in a written ministerial statement laid today.
Cable said: 'Many of us feel that in the past, our public companies and investors have focused on short-term profit at the expense of long-term value. The behaviour of many banks in the run up to the financial crisis is an extreme example of this quick buck mentality, but there is clearly a wider problem.
'That's why I asked John Kay to look at what could be done to ensure equity markets support good, long-term decision making. His insightful review calls for a shift in the culture of investment and sets a clear challenge to companies and those who invest in them.'
The government will also pursue reforms to European law that will remove mandatory quarterly reporting and promote a revised edition of the Stewardship Code which emphasises the importance of stewardship taking into account investors' engagement in company strategy.
David Paterson, head of corporate governance at the NAPF, welcomed the government's support for the Kay Review's conclusions. 'By endorsing Professor Kay's recommendations, the government is giving a clear direction of travel, which will help pension funds play their part more effectively in reducing a short-termist culture in UK companies and markets,' he said. 'Equity markets must work more effectively in the long-term interests of investors and savers
In particular, he highlighted the benefits of the abolition of mandatory quarterly reporting. 'There is a strong sense among our members that quarterly results reporting and trading updates bring excessive focus to the short term with little or no benefit for the long-term investor. So we are pleased that the government will undertake work in this area,' he said.
The NAPF also backs the Good Practice Statement that Kay said should be adopted by company directors, asset managers and asset holders to promote stewardship and long-term decision making.
'We have already taken some of the principles forward by publishing our Stewardship Policy today, which will help our members fulfil their responsibilities as investors and to sign up to the Stewardship Code,' Paterson said.