Vince Cable, Business Secretary, has used his speech to the Confederation of British Industry (CBI) to launch a review into corporate governance and outline his ideas of how the banking industry should look in five years time.
He announced a government review which will look into the subject of short-termism, foreign takeovers, the role of short sellers and hedge funds and whether remuneration levels push companies to make short-term decisions.
Cable told the CBI that short-termism in the banking sector had been disastrous.
He said: “A guiding principle should be investing for the long-term. The model of finance that brought us to this point was disastrously short term.”
He also said he wants to see a much broader choice in the financial sector for businesses.
He said: “More banks who understand SME finance. More non-bank sources of finance. More use of equity. More specialist knowledge of sectors.” (article continues below)
The review, A Long Term Focus for Corporate Britain, is going to look at boards’ understanding and involvement in take-overs, whether shareholders and investors are too focused on the short-term and the relationship between shareholders and managers.
He was more cautious than during his capitalism kills competition speech delivered at conference, quoting Richard Lambert, director general of the CBI, when mentioning the review will look at directors remuneration.
He said: “To quote Richard again: ’If leaders of big companies seem to occupy a different galaxy from the rest of the community, they risk being treated as aliens.’”
He added: “So perhaps it is time to return to earth.”
The review consultation period closes in January.