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>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

<ul>
<li>Clearly, the pace of decline of deemed cross-held shares held in retirement benefit trusts is slower than the pace of decline of ordinary cross-held shares held on the balance sheet.</li>
<li>Companies with deemed shareholdings tend to have larger total assets than companies with general policy shareholdings (policy shareholdings account for 7.3% of total assets).</li>
<li>Although they are less visible, the reduction of deemed shareholdings will come later because shares of important business partners and banks are contributed to retirement benefit trust as deemed shareholdings.</li>
</ul>


Clearly, the pace of decline of deemed cross-held shares held in retirement benefit trusts is slower than the pace of decline of ordinary cross-held shares held on the balance sheet.
Companies with deemed shareholdings tend to have larger total assets than companies with general policy shareholdings (policy shareholdings account for 7.3% of total assets).
Although they are less visible, the reduction of deemed shareholdings will come later because shares of important business partners and banks are contributed to retirement benefit trust as deemed shareholdings.


Do Not Miss the Movement of Deemed Cross-Held Shares, Which Are the Last Resort of Cross-Held Shares

<ul>
<li>Since hostile takeovers are one of the key strategies to quickly gain market share in domestic market with limited growth, more hostile takeovers are expected to occur in the future.</li>
<li>Only 12.1% of prime market companies have majority of independent directors. This raises concerns about whether the opinions of independent directors in minority position will be heard by the boards.</li>
<li>The court's decision to dismiss the claims of companies that proposed hostile takeovers makes us think about whether hostile takeovers are being considered on fair standpoint, even in judicial arena.</li>
</ul>


Since hostile takeovers are one of the key strategies to quickly gain market share in domestic market with limited growth, more hostile takeovers are expected to occur in the future.
Only 12.1% of prime market companies have majority of independent directors. This raises concerns about whether the opinions of independent directors in minority position will be heard by the boards.
The court's decision to dismiss the claims of companies that proposed hostile takeovers makes us think about whether hostile takeovers are being considered on fair standpoint, even in judicial arena.


Hostile Takeovers Should Be Well Thought Out on Fair Basis, Both in Boardroom and in Judicial Arena

Japan

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TSE Tokyo Price Index TOPIX (TPX INDEX)

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

Do Not Miss the Movement of Deemed Cross-Held Shares, Which Are the Last Resort of Cross-Held Shares

I would like to discuss the article of Pension Information, "Deemed Shareholdings Continue to Decline. Decrease of 2.4% in real terms in FY2021...

Metrical Inc

Hostile Takeovers Should Be Well Thought Out on Fair Basis, Both in Boardroom and in Judicial Arena

I would like to discuss the issues on the Nikkei article, "Companies should not run away from hostile takeover bids, but enhance their value."

Metrical Inc