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>With the revision of Corporate Governance Code in 2021 and its listing criteria on prime market, the groundwork has been laid to some degree to facilitate functioning of compensation committee.</li>
<li>Meanwhile, there are not many companies with voluntary nominating and compensation committees that disclose the authority of their nominating and compensation committees in their annual securities reports.</li>
<li>Many companies, even large companies, do not even have a compensation policy in place, indicating that individual director compensation is a much lower priority to consider.</li>
</ul>


With the revision of Corporate Governance Code in 2021 and its listing criteria on prime market, the groundwork has been laid to some degree to facilitate functioning of compensation committee.
Meanwhile, there are not many companies with voluntary nominating and compensation committees that disclose the authority of their nominating and compensation committees in their annual securities reports.
Many companies, even large companies, do not even have a compensation policy in place, indicating that individual director compensation is a much lower priority to consider.


Move to Company with Statutory Committees Is Shortcut to Make the Compensation Committee Functional

<ul>
<li>Changes in Tobin's q were closely related to increases in foreign ownership. Companies with increases in Tobin's q reduced cash equivalents and total assets, suggesting they used assets more effectively.</li>
<li>No significant correlation was shown between Tobin's q and board practices, but companies with large increases in Tobin's q improved in % independent directors and the independence of compensation committees.</li>
<li>Companies with increases in Tobin's q showed superior values in Key Actions: change in growth policy score, dividend policy score, cash holdings score, frequency of share retirements, AGM/IR disclosure scores.</li>
</ul>


Changes in Tobin's q were closely related to increases in foreign ownership. Companies with increases in Tobin's q reduced cash equivalents and total assets, suggesting they used assets more effectively.
No significant correlation was shown between Tobin's q and board practices, but companies with large increases in Tobin's q improved in % independent directors and the independence of compensation committees.
Companies with increases in Tobin's q showed superior values in Key Actions: change in growth policy score, dividend policy score, cash holdings score, frequency of share retirements, AGM/IR disclosure scores.


What Initiatives Are Being Taken by Companies that Have Increased Valuations?

<ul>
<li>The decision as to why a company should or should not repurchase its own shares now is also a management vision.</li>
<li>Management of companies with low stock valuations should seriously discuss why they are low and implement measures to address the problem.</li>
<li>The company should consider what combination of cash-allocations is reasonable and effective for its situation, and announce it to investors, including plan for what to do with the treasury stock.</li>
</ul>


The decision as to why a company should or should not repurchase its own shares now is also a management vision.
Management of companies with low stock valuations should seriously discuss why they are low and implement measures to address the problem.
The company should consider what combination of cash-allocations is reasonable and effective for its situation, and announce it to investors, including plan for what to do with the treasury stock.


Share Repurchases Should Be Tailored to the Individual Company's Effective Cash Allocation

<ul>
<li>Even couples who have decided to get married are squeezing wedding expenses, indicating that financial reasons are overshadowing the factors that keep young people from getting married.</li>
<li>Real wages have continued to decline over the past 25 years, and real income per household is known to be lower in 2018 than it was in 1980.</li>
<li>The deflationary cycle that has carried out by procuring cheap labor from overseas under the guise of technical intern trainees and women as non-regular workers doesn't seem to be sustainable.</li>
</ul>


Even couples who have decided to get married are squeezing wedding expenses, indicating that financial reasons are overshadowing the factors that keep young people from getting married.
Real wages have continued to decline over the past 25 years, and real income per household is known to be lower in 2018 than it was in 1980.
The deflationary cycle that has carried out by procuring cheap labor from overseas under the guise of technical intern trainees and women as non-regular workers doesn't seem to be sustainable.


Continuing Deflationary Cycle Will Not Raise Younger Generation's Desire to Marry and Have Children

<ul>
<li>The ongoing panel discussions also call for increasing TOPIX liquidity as a market need. However, TSE seems to think that it has completed the TOPIX reform for the time being.</li>
<li>TSE appears to be insisting that the criteria for TOPIX stock selection be consistent with the prime market listing criteria of 10 billion Yen in tradable market capitalization.</li>
<li>On the periodic replacement of TOPIX components, TSE isn't looking at the urgent need of improving liquidity as issue to be addressed after the completion of the staged-weighting-reduction (February 2025).</li>
</ul>


The ongoing panel discussions also call for increasing TOPIX liquidity as a market need. However, TSE seems to think that it has completed the TOPIX reform for the time being.
TSE appears to be insisting that the criteria for TOPIX stock selection be consistent with the prime market listing criteria of 10 billion Yen in tradable market capitalization.
On the periodic replacement of TOPIX components, TSE isn't looking at the urgent need of improving liquidity as issue to be addressed after the completion of the staged-weighting-reduction (February 2025).


Criteria for TOPIX Components and Prime Market Listing Criteria Should Be Discussed Separately

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)

Move to Company with Statutory Committees Is Shortcut to Make the Compensation Committee Functional

On Nikkei article, "Director Compensation 'President's Discretion' at 30%, while 90% of Major Companies Have Compensation Committees," I would like...

Metrical Inc

What Initiatives Are Being Taken by Companies that Have Increased Valuations?

Focusing on changes in Tobin's for 1,487 companies over the period from tDecember 2020 to February 2022, I examined what initiatives were taken by...

Metrical Inc

Continuing Deflationary Cycle Will Not Raise Younger Generation's Desire to Marry and Have Children

I would like to discuss the issues on the Nikkei article, "Young Generation's Willingness to Get Married and Have Children Has Declined...

Metrical Inc

Criteria for TOPIX Components and Prime Market Listing Criteria Should Be Discussed Separately

TSE disclosed a document entitled "Review of TOPIX" on September 9, 2022. I would like to discuss the issues on this disclosure document.

Metrical Inc

Move to Company with Statutory Committees Is Shortcut to Make the Compensation Committee Functional

On Nikkei article, "Director Compensation 'President's Discretion' at 30%, while 90% of Major Companies Have Compensation Committees," I would like...

Metrical Inc

What Initiatives Are Being Taken by Companies that Have Increased Valuations?

Focusing on changes in Tobin's for 1,487 companies over the period from tDecember 2020 to February 2022, I examined what initiatives were taken by...

Metrical Inc

Share Repurchases Should Be Tailored to the Individual Company's Effective Cash Allocation

I would like to discuss the issues on the Nikkei article which states that "August share buyback quotas increased 43% YoY, a record high for August."

Metrical Inc

Continuing Deflationary Cycle Will Not Raise Younger Generation's Desire to Marry and Have Children

I would like to discuss the issues on the Nikkei article, "Young Generation's Willingness to Get Married and Have Children Has Declined...

Metrical Inc

Criteria for TOPIX Components and Prime Market Listing Criteria Should Be Discussed Separately

TSE disclosed a document entitled "Review of TOPIX" on September 9, 2022. I would like to discuss the issues on this disclosure document.

Metrical Inc