In commissioning the Kay review, the Government sought to address the concern that an excessive focus on short-term performance in equity investment markets was impeding the creation of sustainable value by British companies. The final report set out a clear challenge to companies, investors and Government to bring about a shift in the culture of equity markets by rebuilding relationships of trust and confidence and aligning incentives in the investment chain.

In November 2012, the Government published its response and committed to publishing an update on progress in delivering the review’s specific recommendations and to respond to its wider principles and directions. This report was published on 27 October 2014 (click here to see a copy).

The report is split thematically into the following sections:

  • encouraging effective shareholder engagement and stewardship
  • ensuring information meets long-term investor needs, and
  • building trust-based relationships and aligning incentives through the investment chain.

Each part of the report refers to the specific recommendations made in the Kay Review, noting what steps the Government has taken, the response from market practitioners, and relevant developments in the regulatory framework.

However, whilst the Government believes that the progress made represents a significant contribution to the necessary shift in the culture of equity markets advocated by Professor Kay, it acknowledges that further progress is needed. The report sets out a number of important areas on which market participants, government, and regulatory authorities are now focused and highlights the next steps in a number of areas including:

  • the promotion of more meaningful commitments to the Stewardship Code and the facilitation of clear choices on stewardship for pension funds and other investors,
  • a roundtable in January 2015 to consult senior stakeholders from business and the investment industry on their views of progress to date on shareholder engagement and stewardship, and on what further steps the Government, FRC and industry can take to encourage better engagement and long-term stewardship investing,
  • a continued focus on ensuring that executive remuneration is aligned with long-term sustainable company performance, with policy on company directors’ remuneration being kept under review - the Government is currently monitoring the impact of its reforms to the governance of directors’ remuneration in the context of the 2014 reporting and AGM season and will publish the key findings shortly, and
  • further work being undertaken to consider whether the system for holdings of securities electronically works effectively and efficiently for both investors and issuers - this will continue to explore (in discussion with the FCA and key stakeholders) the most cost effective means for individual investors to hold shares directly on an electronic register, and will form part of the implementation of the EU Central Securities Depositories Regulation (CSDR) which requires dematerialisation for transferable securities admitted to trading venues, including shares in quoted companies, by 2023 for newly issued securities, and by 2025 for all securities.

During the course of the Kay review and the various reports and responses that followed, there was a debate about the role of short-term shareholders in takeover bids and, in particular, whether such shareholders should be disenfranchised. Whilst the Government noted that there would be a number of practical difficulties in implementing such a proposal and that, in its view, it would be largely in effective in achieving its objective, it undertook to test this analysis further by inviting comments from interested parties and convening a roundtable of expert stakeholders. The roundtable took place at the end of last year, and the Government has published a full note of the discussion alongside its progress report (click here to read it). Overall, the Government notes that the discussion reached a clear consensus broadly in line with the Government’s previous analysis and, in light of this, the Government states that it has no plans to introduce a disenfranchisement measure.


As the progress report notes, the findings of the Kay review posed a significant challenge as regards cultural change. Whilst progress has been made, there is still some way to go. The summary of next steps is, therefore, useful as it provides greater clarity as to how these issues are to be addressed. The confirmation that there will be no further action as regards the suggestion that short-term shareholders be disenfranchised during takeovers is particularly welcome, as it draws to a close a debate that has been on-going for a number of years.