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>The reduction of policy shareholdings of companies (excluding financials) for March fiscal year end companies was 2.3 trillion yen, about 600 billion yen more than in the previous fiscal year.</li>
<li>It was a special year in which changes in the TSE's criteria regarding tradable shares included in the market's listing criteria contributed to the reduction of policy shareholdings.</li>
<li>Going forward, companies will need to discuss the nature of cross-shareholdings based on capital allocation even more than they do now.</li>
</ul>


The reduction of policy shareholdings of companies (excluding financials) for March fiscal year end companies was 2.3 trillion yen, about 600 billion yen more than in the previous fiscal year.
It was a special year in which changes in the TSE's criteria regarding tradable shares included in the market's listing criteria contributed to the reduction of policy shareholdings.
Going forward, companies will need to discuss the nature of cross-shareholdings based on capital allocation even more than they do now.


A Fundamental Discussion of the Nature of Policy Shareholdings Will Be Required

<ul>
<li>With company cash equivalents reaching all-time high of 140 trillion yen and many company managers feeling that their company's stock price is undervalued, share repurchases will reach all-time high.</li>
<li>Since the introduction of the Corporate Governance Code in 2015, share repurchases have become an established cash allocation alternative for companies. Companies will continue to enhance the practices  over time.</li>
<li>There is a need to deepen communication by showing investors how the company uses cash in its growth strategy, not limited to shareholder returns.</li>
</ul>


With company cash equivalents reaching all-time high of 140 trillion yen and many company managers feeling that their company's stock price is undervalued, share repurchases will reach all-time high.
Since the introduction of the Corporate Governance Code in 2015, share repurchases have become an established cash allocation alternative for companies. Companies will continue to enhance the practices  over time.
There is a need to deepen communication by showing investors how the company uses cash in its growth strategy, not limited to shareholder returns.


Deepening Cash Allocation Required This Year of a New All-Time High in Share Repurchases

<ul>
<li>While 80% of Japanese institutional investors place a high value on corporate respect for human rights, only 10% of companies have conducted human rights due diligence.</li>
<li>Japanese institutional investors should make it "visible" to their beneficiaries how they require companies to respect human rights in their engagement and how they encourage effective responses.</li>
<li>To ensure that the guidelines don't end up as mere figure of speech, the government should make concrete policies to ensure that respect for human rights takes root in society.</li>
</ul>


While 80% of Japanese institutional investors place a high value on corporate respect for human rights, only 10% of companies have conducted human rights due diligence.
Japanese institutional investors should make it "visible" to their beneficiaries how they require companies to respect human rights in their engagement and how they encourage effective responses.
To ensure that the guidelines don't end up as mere figure of speech, the government should make concrete policies to ensure that respect for human rights takes root in society.


Huge Gap in Awareness of Human Rights Between Japanese Companies and Investors

<ul>
<li>Correlation analysis of the major shareholder factor with ROE, ROA, and Tobin's Q shows that founding family companies tend to have relatively high profitability (ROA) and high stock price valuations.</li>
<li>On board practices, companies with more than 50% ownership are generally less concerned about improving their practices, because they don't have to worry as much about voices of minority shareholders.</li>
<li>With regard to key actions, companies with shareholders holding more than 50% interest are presumed to be proactive in growth investments.</li>
</ul>


Correlation analysis of the major shareholder factor with ROE, ROA, and Tobin's Q shows that founding family companies tend to have relatively high profitability (ROA) and high stock price valuations.
On board practices, companies with more than 50% ownership are generally less concerned about improving their practices, because they don't have to worry as much about voices of minority shareholders.
With regard to key actions, companies with shareholders holding more than 50% interest are presumed to be proactive in growth investments.


Reason Behind the Difference in Management Between Family Companies and Others Is the Shareholding

<ul>
<li>Because there’s nothing about addressing environmental issues that the company itself opposes because they are global issues, it’s relatively easy to vote in favor of shareholder proposals on environmental issues.</li>
<li>Governance proposal is the most sensitive because it's directly related to election of directors. It's challenging for domestic investment managers to vote in favor of shareholder proposals during proxy fights.</li>
<li>FSA's tightening of oversight of ESG investment trusts has triggered shift by major Japanese investment managers toward establishing ESG-related-voting policies and exercising their voting rights in accordance with these policies.</li>
</ul>


Because there’s nothing about addressing environmental issues that the company itself opposes because they are global issues, it’s relatively easy to vote in favor of shareholder proposals on environmental issues.
Governance proposal is the most sensitive because it's directly related to election of directors. It's challenging for domestic investment managers to vote in favor of shareholder proposals during proxy fights.
FSA's tightening of oversight of ESG investment trusts has triggered shift by major Japanese investment managers toward establishing ESG-related-voting policies and exercising their voting rights in accordance with these policies.


Changes in Voting Practices of Japan's Major Investment Managements Will Take Time to Take Hold

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)

A Fundamental Discussion of the Nature of Policy Shareholdings Will Be Required

I would like to discuss the issues on the October 16 article in the Nikkei article that states that "cross-holding dissolution is progressing."

Metrical Inc

Huge Gap in Awareness of Human Rights Between Japanese Companies and Investors

I would like to discuss the issues on the Nikkei article, "80% of institutional investors emphasize human rights due diligence, while only 10% of...

Metrical Inc

Reason Behind the Difference in Management Between Family Companies and Others Is the Shareholding

I would like to discuss the issue of the Nikkei article that states, "Founding family companies have improved their subsequent performance through...

Metrical Inc

Changes in Voting Practices of Japan's Major Investment Managements Will Take Time to Take Hold

I have considered the issues on the Nikkei article, "More than 40% of 20 investment management companies approved shareholder proposals on the...

Metrical Inc

A Fundamental Discussion of the Nature of Policy Shareholdings Will Be Required

I would like to discuss the issues on the October 16 article in the Nikkei article that states that "cross-holding dissolution is progressing."

Metrical Inc

Deepening Cash Allocation Required This Year of a New All-Time High in Share Repurchases

I would like to discuss the issues raised in the Nikkei article to the effect that "The stock prices are likely to rise as share buybacks for the...

Metrical Inc

Huge Gap in Awareness of Human Rights Between Japanese Companies and Investors

I would like to discuss the issues on the Nikkei article, "80% of institutional investors emphasize human rights due diligence, while only 10% of...

Metrical Inc

Reason Behind the Difference in Management Between Family Companies and Others Is the Shareholding

I would like to discuss the issue of the Nikkei article that states, "Founding family companies have improved their subsequent performance through...

Metrical Inc

Changes in Voting Practices of Japan's Major Investment Managements Will Take Time to Take Hold

I have considered the issues on the Nikkei article, "More than 40% of 20 investment management companies approved shareholder proposals on the...

Metrical Inc