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>Listed subsidiaries decrease but increase if equity method listed companies are included. Many companies haven't fully exercised treatment of subsidiaries, selling only a little of their shares to below 50%.</li>
<li>Many parent companies that own listed subsidiaries and equity-method listed companies have placed cash in subsidiaries or equity-method companies without increasing their own stock prices.</li>
<li>Although companies have changed their mindset somewhat, they haven’t changed their management to effectively use cash to create value, which is the reason for the low valuations of Japanese stocks.</li>
</ul>


Listed subsidiaries decrease but increase if equity method listed companies are included. Many companies haven't fully exercised treatment of subsidiaries, selling only a little of their shares to below 50%.
Many parent companies that own listed subsidiaries and equity-method listed companies have placed cash in subsidiaries or equity-method companies without increasing their own stock prices.
Although companies have changed their mindset somewhat, they haven’t changed their management to effectively use cash to create value, which is the reason for the low valuations of Japanese stocks.


Parent-Subsidiary Listings Are a Microcosm of Japanese Stocks: Change to Value-Creation Is Long Away

<ul>
<li>While the move to strengthen shareholder returns is a step forward among companies, there is a concern about whether they are using their cash to invest fully in future growth.</li>
<li>Interestingly, while rising foreign shareholdings are driving companies that can't spend their cash reserves effectively to repurchase shares, overseas investors are overselling Japanese stocks in the first half of FY2024.</li>
<li>There has been focus on measures to reduce the denominator of ROE, but the current pace of reduction of policy shareholdings and cash reserves isn't sufficient to significantly boost ROE.</li>
</ul>


While the move to strengthen shareholder returns is a step forward among companies, there is a concern about whether they are using their cash to invest fully in future growth.
Interestingly, while rising foreign shareholdings are driving companies that can't spend their cash reserves effectively to repurchase shares, overseas investors are overselling Japanese stocks in the first half of FY2024.
There has been focus on measures to reduce the denominator of ROE, but the current pace of reduction of policy shareholdings and cash reserves isn't sufficient to significantly boost ROE.


Overseas Investors' Net Sale of Japanese Stocks Imply Priority of Profit Growth over Share Buybacks

<ul>
<li>Companies that have been identified by investors as having issues with their policy shareholdings have included in annual securities reports a direction to reduce them a year ahead of schedule.</li>
<li>It's progress to disclose in annual securities reports the policy. However, the focus is on whether the policy is reasonable and whether the speed and milestones of reduction are sufficient.</li>
<li>The slow pace of the company's policy of “reducing” cross-shareholdings is no longer reasonable, as both the elimination of cross-shareholdings and the improvement of ROE have been slow in pace.</li>
</ul>


Companies that have been identified by investors as having issues with their policy shareholdings have included in annual securities reports a direction to reduce them a year ahead of schedule.
It's progress to disclose in annual securities reports the policy. However, the focus is on whether the policy is reasonable and whether the speed and milestones of reduction are sufficient.
The slow pace of the company's policy of “reducing” cross-shareholdings is no longer reasonable, as both the elimination of cross-shareholdings and the improvement of ROE have been slow in pace.


Facing the Fundamental Issue that Policy Shareholdings Have Delayed Management Improvement Is Key

<ul>
<li>TSE's policy this time is to further raise the simultaneous disclosure of Japanese and English, which is less than 50% even for financial statements disclosed in English the most.</li>
<li>The challenges are that high-demand documents aren't disclosed in English, only a part of the original text is translated, and there is time lag until they are disclosed in English.</li>
<li>Differences in English language disclosure efforts are related to the percentage of shares held by overseas investors and are reflected in differences in valuations.</li>
</ul>


TSE's policy this time is to further raise the simultaneous disclosure of Japanese and English, which is less than 50% even for financial statements disclosed in English the most.
The challenges are that high-demand documents aren't disclosed in English, only a part of the original text is translated, and there is time lag until they are disclosed in English.
Differences in English language disclosure efforts are related to the percentage of shares held by overseas investors and are reflected in differences in valuations.


Simultaneous Disclosure in Japanese and English Is the Immediate Goal

<ul>
<li>It is a high hurdle to achieve “30% female board members” in the remaining five years from the current estimated ratio of around 15%.</li>
<li>Increasingly, female managerial positions are being recruited from outside the company to raise the low ratio of female managerial positions (about 10%) and to create female board member candidates.</li>
<li>If companies are busy matching numbers, deviating from the original purpose of ensuring board diversity, no matter how good the goals are, substantial management improvement is not likely to result.</li>
</ul>


It is a high hurdle to achieve “30% female board members” in the remaining five years from the current estimated ratio of around 15%.
Increasingly, female managerial positions are being recruited from outside the company to raise the low ratio of female managerial positions (about 10%) and to create female board member candidates.
If companies are busy matching numbers, deviating from the original purpose of ensuring board diversity, no matter how good the goals are, substantial management improvement is not likely to result.


The Board Diversity Also Reminds Us of the Saying, “It Just Has the Form but Not the Spirit"

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)

Parent-Subsidiary Listings Are a Microcosm of Japanese Stocks: Change to Value-Creation Is Long Away

I would like to discuss the issues on the materials and the issues raised at the TSE's 6th “Study Group on Minority Shareholder Protection in...

Metrical Inc

Facing the Fundamental Issue that Policy Shareholdings Have Delayed Management Improvement Is Key

I would like to discuss the issues on the October 8 Nikkei article, “15% of companies disclosed policy shareholding policy in 2024 annual...

Metrical Inc

Simultaneous Disclosure in Japanese and English Is the Immediate Goal

I would like to discuss the outline of the document “Provision of Contents for Expansion of English Disclosure” disclosed by the TSE on October 7.

Metrical Inc

The Board Diversity Also Reminds Us of the Saying, “It Just Has the Form but Not the Spirit"

I would like to discuss the October 3 Nikkei Newspaper article, “Female Board Directors Halt at 10% of In-House Promotions: Raise Up Talented Women...

Metrical Inc

Parent-Subsidiary Listings Are a Microcosm of Japanese Stocks: Change to Value-Creation Is Long Away

I would like to discuss the issues on the materials and the issues raised at the TSE's 6th “Study Group on Minority Shareholder Protection in...

Metrical Inc

Overseas Investors' Net Sale of Japanese Stocks Imply Priority of Profit Growth over Share Buybacks

I would like to discuss the issues on the October 10 Nikkei article, “Share Buybacks on pace to double in FY2023, Absorbing Overseas Investors'...

Metrical Inc

Facing the Fundamental Issue that Policy Shareholdings Have Delayed Management Improvement Is Key

I would like to discuss the issues on the October 8 Nikkei article, “15% of companies disclosed policy shareholding policy in 2024 annual...

Metrical Inc

Simultaneous Disclosure in Japanese and English Is the Immediate Goal

I would like to discuss the outline of the document “Provision of Contents for Expansion of English Disclosure” disclosed by the TSE on October 7.

Metrical Inc

The Board Diversity Also Reminds Us of the Saying, “It Just Has the Form but Not the Spirit"

I would like to discuss the October 3 Nikkei Newspaper article, “Female Board Directors Halt at 10% of In-House Promotions: Raise Up Talented Women...

Metrical Inc