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.

METRICAL has been focusing on the "major shareholder factor" for years. It is not uncommon for a parent company to list its subsidiaries and affiliates while maintaining a certain level of equity stake, including the unique parent-subsidiary listing in Japan. In the case of family companies, it is also possible for the founder's family to maintain a certain level of equity stake in the company, given how the company was formed. As I have shown in my previous article, if we look at the companies in which these large shareholders' equity interests are maintained in terms of the percentage of independent outside directors on the board of directors, it has been confirmed that these companies generally have a low % of independent outside directors. On the other hand, the profitability of these companies is relatively high compared to the average of all listed companies. In this article, we will look at the board practices of these companies.

METRICAL has been focusing on the "major shareholder factor" for years. It is not uncommon for a parent company to list its subsidiaries and affiliates while maintaining a certain level of equity stake, including the unique parent-subsidiary listing in Japan. In the case of family companies, it is also possible for the founder's family to maintain a certain level of equity stake in the company, given how the company was formed. As I have shown in my previous article, if we look at the companies in which these large shareholders' equity interests are maintained in terms of the percentage of independent outside directors on the board of directors, it has been confirmed that these companies generally have a low % of independent outside directors. On the other hand, the profitability of these companies is relatively high compared to the average of all listed companies. In this article, we will look at the board practices of these companies.

Japan's Governance: Major Shareholder Factor

In my previous article, "Tokyo Stock Exchange Reorganization and the Future of Governance," I mentioned that the TSE's market reorganization is expected to have a certain impact on the progress of governance in Japan. On April 4, 2022, the TSE will be reorganized into the "Prime Market", "Standard Market" and "Growth Market" from the previous market segmentation of the 1st Section and three other markets. The Corporate Governance Code is expected to be revised in line with this change, and the draft of the revised Corporate Governance Code was released on April 6, 2021. The proposed revision of the Corporate Governance Code includes a requirement that listed companies in the "Prime Market" have at least 1/3 of all independent outside directors (at least 2 independent outside directors before the revision) as part of their governance structure. The final revision will be made by the Tokyo Stock Exchange, and the revised Corporate Governance Code will be announced by December 2021. Companies wishing to list their shares on the Prime Market are expected to be required to submit a corporate governance report describing matters related to the above-mentioned rules for companies listed on the Prime Market promptly after the general meeting of shareholders of each company to be held after April 2022. I would like to think about this issue.

In my previous article, "Tokyo Stock Exchange Reorganization and the Future of Governance," I mentioned that the TSE's market reorganization is expected to have a certain impact on the progress of governance in Japan. On April 4, 2022, the TSE will be reorganized into the "Prime Market", "Standard Market" and "Growth Market" from the previous market segmentation of the 1st Section and three other markets. The Corporate Governance Code is expected to be revised in line with this change, and the draft of the revised Corporate Governance Code was released on April 6, 2021. The proposed revision of the Corporate Governance Code includes a requirement that listed companies in the "Prime Market" have at least 1/3 of all independent outside directors (at least 2 independent outside directors before the revision) as part of their governance structure. The final revision will be made by the Tokyo Stock Exchange, and the revised Corporate Governance Code will be announced by December 2021. Companies wishing to list their shares on the Prime Market are expected to be required to submit a corporate governance report describing matters related to the above-mentioned rules for companies listed on the Prime Market promptly after the general meeting of shareholders of each company to be held after April 2022. I would like to think about this issue.

Japan's Governance: Revision of Corporate Governance Code and Ratio of Independent Outside Directors

There are two companies whose fiscal year ends in March that have completed their shareholders' meetings at the end of May, and the season for annual shareholders' meetings will finally begin in mid-June. At the AGM, after the business report, the financial statement report and the audit results report, the agenda moves on to the resolutions. In most companies, the appropriation of retained earnings is the first item on the agenda for approval (in companies that do not pay dividends or companies that delegate the appropriation of retained earnings to the board of directors by amending the articles of incorporation, this item is not a resolution of the shareholders' meeting). In most cases, the proposed appropriation of retained earnings is usually approved without any difficulty in the resolution. In recent years, many companies announce dividend increases or share buybacks at the time of their 3Q or 4Q financial results announcement in order to avoid wrangling at the voting stage. However, what shareholders are most interested in is how the company uses its profits and cash flow, and this policy is something that institutional investors always ask the company management to confirm in their engagement. I have discussed capital allocation several times in previous articles, but I would like to consider this issue again from the perspective of exercising voting rights.

There are two companies whose fiscal year ends in March that have completed their shareholders' meetings at the end of May, and the season for annual shareholders' meetings will finally begin in mid-June. At the AGM, after the business report, the financial statement report and the audit results report, the agenda moves on to the resolutions. In most companies, the appropriation of retained earnings is the first item on the agenda for approval (in companies that do not pay dividends or companies that delegate the appropriation of retained earnings to the board of directors by amending the articles of incorporation, this item is not a resolution of the shareholders' meeting). In most cases, the proposed appropriation of retained earnings is usually approved without any difficulty in the resolution. In recent years, many companies announce dividend increases or share buybacks at the time of their 3Q or 4Q financial results announcement in order to avoid wrangling at the voting stage. However, what shareholders are most interested in is how the company uses its profits and cash flow, and this policy is something that institutional investors always ask the company management to confirm in their engagement. I have discussed capital allocation several times in previous articles, but I would like to consider this issue again from the perspective of exercising voting rights.

Japan's Governance: Proposed Appropriation of Surplus at the Annual General Meeting of Shareholders

After the financial reporting is over, June is the season for annual shareholders meetings of companies with fiscal year end in March. Since the majority of listed companies ends their fiscal year in March, institutional investors who exercise their voting rights have a lot of work to do during this period of time when the shareholders' meetings are concentrated. In this issue, I would like to discuss information disclosure related to shareholder meetings.

After the financial reporting is over, June is the season for annual shareholders meetings of companies with fiscal year end in March. Since the majority of listed companies ends their fiscal year in March, institutional investors who exercise their voting rights have a lot of work to do during this period of time when the shareholders' meetings are concentrated. In this issue, I would like to discuss information disclosure related to shareholder meetings.

Japan's Governance: Disclosure of Information at General Meetings of Shareholders

In analyzing corporate governance in Japan, it is very important to analyze not only the usual board practices, but also the unique Japanese criteria. Issues unique to Japanese listed companies such as cross-shareholdings, excessive cash on hand due to unclear capital allocation policy, and parent-subsidiary listings etc. have been pointed out in the past. In addition, many companies have been making small improvements to their board practices to make them look better, but the pace of real improvement has been much slower than expected. I believe that it is very important to analyze whether there are any discrepancies with the policies that these companies have stated in their annual reports (yuho) and corporate governance reports, along with the actions that they are actually taking. In this article, I would like to show how the "Actions" they are actually taking are affecting value creation.

In analyzing corporate governance in Japan, it is very important to analyze not only the usual board practices, but also the unique Japanese criteria. Issues unique to Japanese listed companies such as cross-shareholdings, excessive cash on hand due to unclear capital allocation policy, and parent-subsidiary listings etc. have been pointed out in the past. In addition, many companies have been making small improvements to their board practices to make them look better, but the pace of real improvement has been much slower than expected. I believe that it is very important to analyze whether there are any discrepancies with the policies that these companies have stated in their annual reports (yuho) and corporate governance reports, along with the actions that they are actually taking. In this article, I would like to show how the "Actions" they are actually taking are affecting value creation.

Japan's Governance: Correlation Between Actions and Value Creation Indicators

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)

Japan's Governance: Major Shareholder Factor

In Japan, it’s common for a parent company to list its subsidiaries and affiliates while maintaining a certain level of equity stake. In this...

Metrical Inc

Japan's Governance: Revision of Corporate Governance Code and Ratio of Independent Outside Directors

In respond to the TSE market reclassification and the change of the composites of TOPIX, more companies will either increase the number of outside...

Metrical Inc

Japan's Governance: Proposed Appropriation of Surplus at the Annual General Meeting of Shareholders

The proposed appropriation of surplus is not simply a matter of considering the dividend payout ratio, but a conclusion that should be reached...

Metrical Inc

Japan's Governance: Disclosure of Information at General Meetings of Shareholders

Information disclosure on AGM has improved year by year. Further disclosure is expected as AGM/IR disclosure shows positive correlation with value...

Metrical Inc

Japan's Governance: Correlation Between Actions and Value Creation Indicators

In analyzing corporate governance in Japan, to analyze not only the usual board practices, but also the unique Japanese criteria is useful. I will...

Metrical Inc