The Cox Review: Overcoming Short-termism

The Labour Party has published an independent review, carried out by Sir George Cox, into Overcoming Short-termism within British business.

Sir George’s review includes new research into the experiences of businesses and trades unions of the problem of short-termism.

Through surveys of businesses leaders, members of the Institute of Directors, trades union representatives and members of Intellect (the trade body for the ITC and electronics industries) he found that: 60 per cent of business leaders, 92 per cent of IoD members, 86 per cent of trades union representatives and 67 per cent of Intellect members surveyed thought that short-termism was a major or significant impediment to growth and development of British business.

Sir George’s conclusions are that:

  • Short-termism – the pressure to deliver quick results to the potential detriment of the longer-term development of a company – has become an entrenched feature of the UK business environment.
  • Short-termism curtails ambition, inhibits long-term thinking and provides a disincentive to invest in research, new capabilities, products, training, recruitment and skills. It results in drastic cost-cutting and staff-shedding whenever revenue growth fails to keep up with expectation.
  • Its most important consequence is that it militates against the development of internationally competitive businesses and industries that are essential to the UK’s future economic prosperity.

His recommendations include:

  • Extending the governance code so that sufficient long-term incentives are incorporated in the pay of executive and non-executive directors;
  • Changes to the rules on takeovers and reporting requirements so that investors and businesses can build for the long-term;
  • Improving the functioning of equity markets through changes to the tax system;
  • Measures to encourage support for, and investment in, small businesses;
  • A mechanism to ensure that decisions on infrastructure investment are made for the long-term and not just based on political cycles;
  • Building research capability through increased spending on improved post-graduate education;
  • Improvements in public procurement including better engagement with smaller companies and more concern with the long-term effect of decisions.

Sir George Cox said:

“Economic growth needs to become an objective, with strategies to achieve it, not a forecast on which all other decisions are dependent. Only by overcoming short-termism will we grow the UK economy and ensure the UK can pay its way.

“I would in like to thank all those who contributed to the review and in particular thank my steering group who gave continuously helpful views and advice, although the conclusions are very much my own. I’d also like to thank the EEF and Institute of Directors who helped with the research for the report.”

Ed Balls MP, Labour’s Shadow Chancellor and Chuka Umunna MP, Labour’s Shadow Business Secretary, will respond to the review when they address the EEF National Conference today.

Ed Balls MP, Labour’s Shadow Chancellor, said:

“Sir George Cox has carried out an excellent review, which sets a clear direction for encouraging the long-termism we badly need in British business.

“A One Nation economic policy is about making sure our economy invests and works for the long-term and uses the talents of all and not just a few. Sir George’s report sets out a clear plan for creating that more long-termist economy including radical reforms to executive pay, tougher rules on takeovers and encouraging longer-term shareholding and we will now study his detailed proposals as part of our policy review.

“It’s vital that we take action to kick-start our flatlining economy, but now is also exactly the right time to make the long-term changes we need to make our economy stronger, more balanced and better able to attract new investment and create skilled jobs for the future.

Chuka Umunna MP, Labour’s Shadow Business Secretary, said:

“For too long Britain’s potential has been held back by short-termism, hitting our ability to compete internationally in an increasingly globalised world. We need an economy structured to deliver the jobs and growth of the future, focused on sustainable, long-term success rather than the fast buck.

“I welcome Sir George Cox’s report, which makes an important contribution to the discussion of how we best overcome short-termism in British business. Sir George talks for many in business when he says industrial strategy should form the cornerstone of government policy to achieve this.

“We are already developing a proper industrial strategy for government and Labour has backed significant changes to underpin long-term goals, such as requiring fund managers to disclose how they exercise voting rights and changing Board nomination committees so they are composed of shareholders, and putting employees – who often have longer term priorities – on company boards. We will look closely at Sir George’s findings and recommendations as we build proposals for the new economy we want to see.”

Download Sir George Cox's report on Overcoming Short-termism and have your say by making a submission to Labour's Work and Business Policy Commission.

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