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>The speed of management reform in Japanese companies is usually slower than investors and shareholders expect. In case of small- to mid-cap stocks, the speed is much slower.</li>
<li>In small-to-mid-cap stocks, foreign ownerships are often lower than the average for listed companies, and older companies are often protected by cross-shareholdings. Therefore, engagement should be prepared for sluggish response.</li>
<li>The way to resolve this situation is for the company to break the silent shareholder structure or increase shareholders who can exercise their voting rights based on rational decisions.</li>
</ul>


The speed of management reform in Japanese companies is usually slower than investors and shareholders expect. In case of small- to mid-cap stocks, the speed is much slower.
In small-to-mid-cap stocks, foreign ownerships are often lower than the average for listed companies, and older companies are often protected by cross-shareholdings. Therefore, engagement should be prepared for sluggish response.
The way to resolve this situation is for the company to break the silent shareholder structure or increase shareholders who can exercise their voting rights based on rational decisions.


Patience Is Often Needed for Small- And Mid-Cap Company Engagements

<ul>
<li>The increase in net profit from the previous year outpaced the growth in dividends, which increased cash on hand for listed companies to a record high level. </li>
<li>Since the equity ratio of manufacturing sector is over 40% and there's little room for debt repayment, there's room for a considerable increase in dividends in conjunction with share repurchases.</li>
<li>If free cash flow isn't used to invest in growth and return profits to shareholders, rather than to pay small dividends to shareholders, cash on hand will continue to increase.</li>
</ul>


The increase in net profit from the previous year outpaced the growth in dividends, which increased cash on hand for listed companies to a record high level. 
Since the equity ratio of manufacturing sector is over 40% and there's little room for debt repayment, there's room for a considerable increase in dividends in conjunction with share repurchases.
If free cash flow isn't used to invest in growth and return profits to shareholders, rather than to pay small dividends to shareholders, cash on hand will continue to increase.


Cash on Hand Has Built up to a Level Where Small Shareholder Returns Are No Longer Sufficient

<ul>
<li>The increase in foreign ownership and the decline in cross-shareholdings have encouraged management reform. In order for engagement to be effective, it is essential to further reduce cross shareholdings.</li>
<li>Reasonable explanation of the reasons for such transfers as changes in the purpose of policy shareholding or contributions to retirement benefit trust must be provided in the annual securities report.</li>
<li>Rising stock prices increase the value of policy shareholdings. To accelerate the reduction of policy shareholdings, numerical targets should be published, such as by setting milestones.</li>
</ul>


The increase in foreign ownership and the decline in cross-shareholdings have encouraged management reform. In order for engagement to be effective, it is essential to further reduce cross shareholdings.
Reasonable explanation of the reasons for such transfers as changes in the purpose of policy shareholding or contributions to retirement benefit trust must be provided in the annual securities report.
Rising stock prices increase the value of policy shareholdings. To accelerate the reduction of policy shareholdings, numerical targets should be published, such as by setting milestones.


Amidst Changes in Purpose of Policy Shareholdings, We Should Note Whether They Are Really Decreasing

<ul>
<li>The percentage of shares held by individuals and trust banks fell from 17.6% to 16.9% and from 22.6% to 22.1%, respectively. Increasing individual investors' investment in Japanese equities isn't easy.</li>
<li>The presence of overseas investors will increase, as the percentage of shares held by foreigners, which has reached a record high, is expected to remain high in the future.</li>
<li>The percentage of shares held by corporations decreased slightly, and cross-shareholdings are gradually being unwound. The gradual decline is likely to continue in the future.</li>
</ul>


The percentage of shares held by individuals and trust banks fell from 17.6% to 16.9% and from 22.6% to 22.1%, respectively. Increasing individual investors' investment in Japanese equities isn't easy.
The presence of overseas investors will increase, as the percentage of shares held by foreigners, which has reached a record high, is expected to remain high in the future.
The percentage of shares held by corporations decreased slightly, and cross-shareholdings are gradually being unwound. The gradual decline is likely to continue in the future.


Foreign Ownership, Which Has Reached a Record High of 31.8%, Will Continue to Play a Major Role

<ul>
<li>The government's goal of "30% women in management positions by 2030" should be included by a bill to be submitted to the ordinary Diet session in 2025.</li>
<li>The bill should include specific measures to provide government support to companies that created environment in which women can give birth and raise children without having to leave their jobs.</li>
<li>Not only is the value of the goods and services from the women's perspective overlooked, as well as the underutilization of human resources from about half of the universes.</li>
</ul>


The government's goal of "30% women in management positions by 2030" should be included by a bill to be submitted to the ordinary Diet session in 2025.
The bill should include specific measures to provide government support to companies that created environment in which women can give birth and raise children without having to leave their jobs.
Not only is the value of the goods and services from the women's perspective overlooked, as well as the underutilization of human resources from about half of the universes.


Will Mandatory Reporting of the Ratio Alone Lead to Higher Ratio of Women in Managerial Positions?

Metrical Inc
Independent Leading Corporate Governance Research

Patience Is Often Needed for Small- And Mid-Cap Company Engagements

I would like to discuss the issues on the June 25 Nikkei article, "Shareholder Proposals by Activist Investors, Pressure on Management Even if...

Metrical Inc

Cash on Hand Has Built up to a Level Where Small Shareholder Returns Are No Longer Sufficient

I would like to discuss the issues on the June 26 Nikkei Shimbun article, "Corporate Cash on Hand at 114 Trillion Yen, Record High; Increase...

Metrical Inc

Amidst Changes in Purpose of Policy Shareholdings, We Should Note Whether They Are Really Decreasing

I would like to discuss the issues on the June 15 Nikkei article, "Reduction of Policy Shareholdings, Disappearing Stable Shareholders: Management...

Metrical Inc

Foreign Ownership, Which Has Reached a Record High of 31.8%, Will Continue to Play a Major Role

I would like to discuss the issues on the summary of the document "Results of the Survey of Stock Distribution in FY2023" disclosed by the TSE on...

Metrical Inc

Will Mandatory Reporting of the Ratio Alone Lead to Higher Ratio of Women in Managerial Positions?

I would like to discuss the issues on the June 27 Nikkei article, "Companies with 301 or more employees must disclose ratio of female managers."

Metrical Inc