UK -  Institutions should pursue their fiduciary duty more vigorously and quarterly reporting has an adverse affect on company behaviour, the UK's Kay Review on equity markets and business competitiveness has been told.

The Kay Review, publishing its interim findings today, was also asked to examine the role of institutional investors and pension funds in promoting long-term investment and engagement.

Prof. John Kay, who was asked by Vince Cable, UK secretary of state for business, innovation and skills in June last year to conduct the review, emphasised that the comments published today did not represent its provisional conclusions.

The interim report gives an overview of submissions received in response to last September's call for evidence.

Several investment managers highlighted the fact that quarterly or interim management statements had "adverse effects" on on the behaviour of both investors and companies.

Standard Life Investors said in its response: "The noise - positive or negative - arising in response to quarterly interim management statements is an unwelcome distraction in the context of encouraging boards to focus on the long term development of the business."

In addition, the interim report stresses that executive remuneration schemes had steadily increased in complexity, while individual remuneration through the investment chain was contested for being too high.

Several members of the responsible investment industry echoed these sentiments, although UK Sustainable Investment and Finance Association's (UKSIF) chief executive Penny Shepherd noted that the topics at hand were not the '"sexiest".

"Effective transparency and procurement are not the sexiest of topics, but they are ones that must be embraced if we want to create genuine long-term relationships between companies and investors," she said.

"Hot topics in the UK today from executive bonuses to mark-to-market accounting to carbon prices all come back to the basic problem that markets tend to reward short-term behaviour. That is why this report is so important and needs to be widely discussed."

Shepherd also pointed out that pension funds outside the UK similarly had an interest in the health of the UK economy. Therefore, the UK equity market should encourage effective long-term behaviour.

Moving to fiduciary duty, several respondents proposed that the concept should be employed more widely in the investment chain.

"That obligation is a creation of the common law", the interim report noted. "It is the highest standard of agency relationship the law allows, and obliges the fiduciary to place the interests of the client before his or her own."

Catherine Howarth, chief executive of FairPensions, said: "Professor Kay's interim report demonstrates his interest with the case presented by FairPensions and others that orthodox interpretations of fiduciary duty are holding back long-term and responsible investment behaviour.

"The notion of a narrow 'duty to maximise return', although not an accurate reflection of the legal position, has become so entrenched that it seems unlikely to be shifted without explicit statutory clarification."

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