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.

<ul>
<li>It'll be interesting on whether shareholder proposals will be passed in companies with larger market capitalization and larger institutional investor ownership, which will be the main battleground for activist investors.</li>
<li>There are so many companies that are not creating the value they should be, it is no wonder that any company becomes a target for activist investors.</li>
<li>As activist funds' AUM grows, their approach is likely to focus more on overall assets that are not being used effectively, such as cash, real estate, equities, and non-core businesses.</li>
</ul>


It'll be interesting on whether shareholder proposals will be passed in companies with larger market capitalization and larger institutional investor ownership, which will be the main battleground for activist investors.
There are so many companies that are not creating the value they should be, it is no wonder that any company becomes a target for activist investors.
As activist funds' AUM grows, their approach is likely to focus more on overall assets that are not being used effectively, such as cash, real estate, equities, and non-core businesses.


Activist Investors Will Focus Their Approach More on Whole Assets that Aren't Being Used Effectively

<ul>
<li>An increasing number of companies had eliminated shareholder benefit plans, but reducing cross-shareholdings and caution toward activist investors may have been the motivating factors in the reversal of this trend.</li>
<li>If managers distract from management reform by gaining the support of individual investors through shareholder benefits, the stock benefit program will become a pseudo cross-shareholding.</li>
<li>Shareholder benefit programs and shareholder returns cannot be compared in the same manner. Companies shouldn't underestimate the fact that the problem with this lies in “principle of equality of shareholders."</li>
</ul>


An increasing number of companies had eliminated shareholder benefit plans, but reducing cross-shareholdings and caution toward activist investors may have been the motivating factors in the reversal of this trend.
If managers distract from management reform by gaining the support of individual investors through shareholder benefits, the stock benefit program will become a pseudo cross-shareholding.
Shareholder benefit programs and shareholder returns cannot be compared in the same manner. Companies shouldn't underestimate the fact that the problem with this lies in “principle of equality of shareholders."


Attention Should Be Paid to Whether the Pseudo Cross-Shareholdings Will Hinder Management Reform

<ul>
<li>The key is whether the effectiveness of special committee can fairly guide MBO, but whether the independent outside directors are truly independent, properly informed, and skilled is an important assumption.</li>
<li>Since companies with high foreign shareholdings generally have higher corporate governance practices, there are concerns about practices in MBO cases for many companies that do not have high foreign shareholdings.</li>
<li>When a company whose “goal is IPO” conducts MBO when the stock price is lower than at IPO, there are concerns about whether the special committee will guide MBO fairly.</li>
</ul>


The key is whether the effectiveness of special committee can fairly guide MBO, but whether the independent outside directors are truly independent, properly informed, and skilled is an important assumption.
Since companies with high foreign shareholdings generally have higher corporate governance practices, there are concerns about practices in MBO cases for many companies that do not have high foreign shareholdings.
When a company whose “goal is IPO” conducts MBO when the stock price is lower than at IPO, there are concerns about whether the special committee will guide MBO fairly.


Effectiveness of MBO Special Committee Is Linked to Effectiveness of Independent Directors

<ul>
<li>TSE seems reluctant to raise the market capitalization criteria for listing on Growth Market, but wants to encourage management to grow after IPO by raising the criteria for maintaining listing.</li>
<li>The reason why companies don't grow after IPO is that IPOs are often conducted for tax savings for founders and for other reasons without any intention to grow.</li>
<li>It is questionable whether the new listing maintenance criteria will help these companies grow and whether the verbal intervention in the listing review process will be successful.</li>
</ul>


TSE seems reluctant to raise the market capitalization criteria for listing on Growth Market, but wants to encourage management to grow after IPO by raising the criteria for maintaining listing.
The reason why companies don't grow after IPO is that IPOs are often conducted for tax savings for founders and for other reasons without any intention to grow.
It is questionable whether the new listing maintenance criteria will help these companies grow and whether the verbal intervention in the listing review process will be successful.


Can Growth Market Reform Succeed in a Structure of Interdependence of IPO Ecosystem Stakeholders?

<ul>
<li>Japan's declining % global GDP and the number of top companies in market capitalization shows that simply boosting profits through yen depreciation left behind the growth speed of global competitors.</li>
<li>While many Japanese companies tried to improve profit margins by reducing labor costs and other expenses, few have managed to improve gross profit margins, which relate to their business models.</li>
<li>The fact that few companies have taken steps to shift to higher value-added products and services is why the yen rate remains a key factor in stock valuations.</li>
</ul>


Japan's declining % global GDP and the number of top companies in market capitalization shows that simply boosting profits through yen depreciation left behind the growth speed of global competitors.
While many Japanese companies tried to improve profit margins by reducing labor costs and other expenses, few have managed to improve gross profit margins, which relate to their business models.
The fact that few companies have taken steps to shift to higher value-added products and services is why the yen rate remains a key factor in stock valuations.


Companies May Worked on Raising OP Margin in Minor Ways Without Working on Raising Gross Margins

Japan

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.

TSE Tokyo Price Index TOPIX (TPX INDEX)

Activist Investors Will Focus Their Approach More on Whole Assets that Aren't Being Used Effectively

I would like to discuss the issues on the March 13 Nikkei newspaper article, “40 Companies Targeted by Activist Shareholders.”

Metrical Inc

Attention Should Be Paid to Whether the Pseudo Cross-Shareholdings Will Hinder Management Reform

I would like to discuss the issues on the March 10 Nikkei article, “Shareholder Benefit Programs Have Low-Cost and Stock Price Support Effects.”

Metrical Inc

Effectiveness of MBO Special Committee Is Linked to Effectiveness of Independent Directors

I would like to discuss the issues in the document ““TSE to Introduce New Rules for MBOs to Curb Management-Backed Takeovers,” which was released...

Metrical Inc

Can Growth Market Reform Succeed in a Structure of Interdependence of IPO Ecosystem Stakeholders?

I would like to discuss the issues in the document “Sinking TSE Growth Market: Listing Goal Vices, Investor Detachment” released by the TSE on...

Metrical Inc

Companies May Worked on Raising OP Margin in Minor Ways Without Working on Raising Gross Margins

I would like to discuss the February 25 Nikkei article, “Corporate earnings, shrinking effect of yen's depreciation: 50% of companies whose fiscal...

Metrical Inc