The Kay Review Of UK Equity Markets And Long-Term Decision Making (July 2012) is a very useful contribution to the Long Finance debate on “when would we know our financial system is working?” The Kay Review makes a number of recommendations to move back from short term performance measurement, e.g., “Companies should seek to disengage from the process of managing short term earnings expectations”.
This emphasis on the long term is great, but Long Finance intended ‘long’ not as another four letter adjective for ‘good’, rather closer to ‘appropriate’. The problem that the Kay Review leaves us with is governance, control and management. We believe strongly that the first step towards management, whether scientific or commercial or political, is measurement. If we adopt ‘long’ does that mean we need to drop ‘measurement’? Over long periods we repeatedly find that not measuring people leads to low standards, slack practices and corruption. This is certainly not the intention of the Kay Review. If we adopt ‘measurement’, are we excising the long term?
Long Finance seeks to explore these issues, perhaps in a publication provisionally entitled Long Term Performance Measurement: Paradox and Practice. In outline, this publication should cover:
Examples of interesting or good practice:
We do have some form in this space with this publication on Asymmetric Gain Loss Recognition - Spend For Glory Or Reserve Wastefully: Asymmetric Gain And Loss Recognition, Anthony Hene and Michael Mainelli, Charity Finance (February, 2003), pages 28-30, and our involvement and support with Ole Peters' work on Irreversible Time. Long-Term Performance Measurement is clearly related to another research topic, Uses and Abuses of Discount Rates.