Financial markets reform should focus on regulation, not suffocation by actively controlling systemic risk and promoting mark-to-market accounting, while avoiding an excessive swing of the pendulum that could hamper business, according to a report from F&C Asset Management outlining its corporate governance outlook for this year and its proxy-voting practice last year.
In the report, F&C called for greater transparency and disclosure as investors struggle to make sense of banks battered balance sheets this will play out most obviously in the debate over mark-to-market accounting, where the presumption must be in favor of providing more information to explain why asset values have dropped, not masking the falls with new accounting rules.
F&C supports reform of the flawed bonus culture of the banking sector, developing new best-practice norms that are broadly accepted across the industry while at the same time avoiding the temptation for excessive regulation and placing companies at a competitive disadvantage for talent, the report said. It proposes incentives structures that would reflect the ups and downs of the value generation cycle, rather than allowing managers to collect their chips halfway through and leave shareholders to nurse their losses during the downturns.
F&C calls annual shareholder advisory votes on pay vital in ensuring that reform sticks, the report said.