The Kay Review of UK Equity Markets and Long-term Decision Making

Ethical Markets Reforming Global Finance, Reports You Need

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by John Kay for the Department for Business Innovation and Skills, UK, July 2012

“Financial intermediation depends on trust and confidence: the trust and confidence that savers who invest funds have in those they choose to manage these funds, and the trust and confidence of investors in the businesses they support. Trust and confidence are the product of long-term commercial and personal relationships: trust and confidence are not generally created by trading between anonymous agents attempting to make short term gains at each other’s expense.

“Trust and confidence, or their absence, are the product of the prevailing culture. Incentives matter: not because, as some people crudely think, financial rewards are the only human motivation – although there are some people of whom that is true, and many of them are to be found in the financial sector. Most people have more complex goals, but they generally behave in line with the values and aspirations of the environment in which they find themselves. We must create cultures in which business and finance can work together to create high performing companies and earn returns for savers on a sustainable basis.

“These themes – the dependence of successful financial intermediation on trust and confidence, the importance of incentives – are central to this Report. Taken together, rather than separately, they imply a financial world different from our recent experience.”

John Kay, Professor of Economics, London School of Economics; Fellow, St John’s College, Oxford; columnist, Financial Times