Hermes chief calls for end to short-term gain

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Colin Melvin, chief executive of Hermes which manages over £50 billion for BT and other pension funds, said: "There needs to be a paradigm shift in the way the City works. We need to usher in a new culture which rewards the creation of sustainable wealth and shuns short-termism and the rewards of risk."

His comments come a day before Chancellor Alistair Darling publishes his White Paper on the future shape of banking regulation.

Melvin said: "Further regulation is only part of the solution." He criticised fund managers for failing to challenge the City's bonus culture. He said: "They just didn't step up to the plate. If we'd challenged the banks on their risk strategies and their pay policies we wouldn't be in the mess we are in."

He added: "Making money over the short term was the priority. Not much attention was paid to the longer-term issues of corporate governance. Long-term shareholders are just not up to the job at the moment."