Executive Director, Metrical Inc

Aki Matsumoto

Executive Director

Independent Leading Corporate Governance Research

Metrical Inc

METRICAL INC. is an independent leading Corporate Governance research firm in Japan where Corporate Governance is increasingly recognized as an important element on corporate management in these days. Thus, CG research and solutions would become an essential component of global capital markets and play important to contribute to transparency of the markets and maximize shareholders’ value in Japan. 

METRICAL INC. provides Corporate Governance research and analysis including rating services, and  also offers investment research and IR services with solutions and customized profound research on CG and IR issues.

The TOPIX, also known as the Tokyo Stock Price Index, is a capitalization-weighted index of all companies listed on the First Section of the Tokyo Stock Exchange. The index is supplemented by the subindices of the 33 industry sectors. The index calculation excludes temporary issues and preferred stocks, and has a base value of 100 as of January 4, 1968.

<ul>
<li>Even if the initial AUM is small, the impact of launch of a publicly offered mutual fund for retail investors by a foreign activist investor is expected to be significant.</li>
<li>If Dalton gains the support of individual investors through publicly offered investment trust, it would give more legitimacy to the management improvement plans that Dalton is pressing Japanese company for.</li>
<li>Increased attention to the activist investors is expected to lead to a certain number of individual shareholders voting in favor of shareholder proposals, as well as  overseas investor engagement.</li>
</ul>


Even if the initial AUM is small, the impact of launch of a publicly offered mutual fund for retail investors by a foreign activist investor is expected to be significant.
If Dalton gains the support of individual investors through publicly offered investment trust, it would give more legitimacy to the management improvement plans that Dalton is pressing Japanese company for.
Increased attention to the activist investors is expected to lead to a certain number of individual shareholders voting in favor of shareholder proposals, as well as  overseas investor engagement.


The Impact of Launching a Publicly Offered Mutual Fund by an Activist Investor Is ....

<ul>
<li>Even the companies with US type 3 committees, which is expected to have higher awareness of corporate governance, there're differences in the status of nominating committee activities among the companies.</li>
<li>While doubts about whether the nominating committee is fulfilling its function have not been dispelled, there have been cases of low approval rates for proposals for the election of directors.</li>
<li>Since discussions in voluntary nominating committees are only advisory, more companies are expected to move to Company with US type 3 Committees, which have statutory nominating committees.</li>
</ul>


Even the companies with US type 3 committees, which is expected to have higher awareness of corporate governance, there're differences in the status of nominating committee activities among the companies.
While doubts about whether the nominating committee is fulfilling its function have not been dispelled, there have been cases of low approval rates for proposals for the election of directors.
Since discussions in voluntary nominating committees are only advisory, more companies are expected to move to Company with US type 3 Committees, which have statutory nominating committees.


Nominating Committee Is Becoming More Active in a Few Companies, but No Sign yet of Spreading to All

<ul>
<li>While good for small-cap stocks to disclose stock price improvement plans, which is the minimum to be eligible for TOPIX, few global investors can invest in company of this size.</li>
<li>Since many Japanese small-cap companies have diversified businesses and compete with numerous companies for a market that is not large, forcing low profit margins, a market shakeout is necessary.</li>
<li>The key is whether small cap companes that are beyond the reach of overseas investor engagement can execute a business portfolio review on its own initiative.</li>
</ul>


While good for small-cap stocks to disclose stock price improvement plans, which is the minimum to be eligible for TOPIX, few global investors can invest in company of this size.
Since many Japanese small-cap companies have diversified businesses and compete with numerous companies for a market that is not large, forcing low profit margins, a market shakeout is necessary.
The key is whether small cap companes that are beyond the reach of overseas investor engagement can execute a business portfolio review on its own initiative.


Market Shakeout Should Come with Business Portfolio Restructuring Especially for Small-Cap Companies

<ul>
<li>Listing criteria for TSE Growth Market will be raised to over 4 billion yen in market capitalization after 10 years of listing, but the details are left for further discussion.</li>
<li>It is necessary to provide opportunities for founders to exit and recover their capital without relying on an IPO, for example by creating a market for unlisted shares.</li>
<li>Switching to a policy of using cash for shareholder returns because of the inability to comply with TSE Growth Market listing maintenance standards is not a fundamental solution.</li>
</ul>


Listing criteria for TSE Growth Market will be raised to over 4 billion yen in market capitalization after 10 years of listing, but the details are left for further discussion.
It is necessary to provide opportunities for founders to exit and recover their capital without relying on an IPO, for example by creating a market for unlisted shares.
Switching to a policy of using cash for shareholder returns because of the inability to comply with TSE Growth Market listing maintenance standards is not a fundamental solution.


Management Mindset of Believing that Company Growth Is Not the Main Objective Is Hindering Growth

<ul>
<li>With external female board member resources under pressure, it will be extremely difficult to raise the percentage of female board members steadily at this rate.</li>
<li>The trump card for this is matching numbers. Increasingly, female board members with no management background or outside talent are being recruited to female managerial positions.</li>
<li>It is expected that fewer companies will move to Company with US type 3 Statutory Committees in order to avoid increasing the number of statutory executive officers.</li>
</ul>


With external female board member resources under pressure, it will be extremely difficult to raise the percentage of female board members steadily at this rate.
The trump card for this is matching numbers. Increasingly, female board members with no management background or outside talent are being recruited to female managerial positions.
It is expected that fewer companies will move to Company with US type 3 Statutory Committees in order to avoid increasing the number of statutory executive officers.


Side Effects of Matching Numbers to Raise the Percentage of Female Board Members

Metrical Inc
Independent Leading Corporate Governance Research

The Impact of Launching a Publicly Offered Mutual Fund by an Activist Investor Is ....

I have considered the October 25 Nikkei article, “Activist Investment Trust Target Individuals, to be Sold by US based Dalton Investments.”

Metrical Inc

Nominating Committee Is Becoming More Active in a Few Companies, but No Sign yet of Spreading to All

I would like to discuss the October 22 Nikkei Shimbun article, ““Nominating Committee Holds 80% of Meetings to Discuss Top Management Appointments,...

Metrical Inc

Market Shakeout Should Come with Business Portfolio Restructuring Especially for Small-Cap Companies

I would like to discuss the issues on the October 21 Nikkei article, “TOPIX Reform Presses Small Cap Stocks to Transform; Investment Opportunities...

Metrical Inc

Management Mindset of Believing that Company Growth Is Not the Main Objective Is Hindering Growth

I would like to discuss the issues on the October 21 Nikkei article, “Growth Markets Halfway to Reform, and Companies that Fail to Meet Criteria...

Metrical Inc

Side Effects of Matching Numbers to Raise the Percentage of Female Board Members

I would like to discuss the issues on the October 16th Nikkei article, “16.1% of female board members on track to reach goal, but internal...

Metrical Inc