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>If the ISS ROE criteria, which seems somewhat slow, were to be resumed, many companies would still be below 5%. However, how many companies are feeling threatened?</li>
<li>About 40% of the companies have large shareholders holding more than 20% of their shares, which is one reason why many companies do not feel a sense of threat.</li>
<li>Domestic institutional investors should apply the Proxy Voting Guidelines more strictly to companies that do not make maximum efforts to increase their ROE.</li>
</ul>


If the ISS ROE criteria, which seems somewhat slow, were to be resumed, many companies would still be below 5%. However, how many companies are feeling threatened?
About 40% of the companies have large shareholders holding more than 20% of their shares, which is one reason why many companies do not feel a sense of threat.
Domestic institutional investors should apply the Proxy Voting Guidelines more strictly to companies that do not make maximum efforts to increase their ROE.


To Raise ROE, Breaking Away from Familiar Relationships and Creating Tension in Management Is Key

<ul>
<li>Looking at BOJ's fund flows for private non-financial corporations for 4 cumulative quarters, Cash and Deposits have increased, and Outward Direct Investment has increased steadily as a destination for cash.</li>
<li>The average dividend payout ratio for listed companies has remained flat, while both ROE and DOE have declined slightly, which may reinforce the view that shareholder returns are not sufficient.</li>
<li>With cash on hand still increasing while capital expenditures have not grown much, the use of cash is expected to remain a focus of discussion next fiscal year.</li>
</ul>


Looking at BOJ's fund flows for private non-financial corporations for 4 cumulative quarters, Cash and Deposits have increased, and Outward Direct Investment has increased steadily as a destination for cash.
The average dividend payout ratio for listed companies has remained flat, while both ROE and DOE have declined slightly, which may reinforce the view that shareholder returns are not sufficient.
With cash on hand still increasing while capital expenditures have not grown much, the use of cash is expected to remain a focus of discussion next fiscal year.


Is the Deflationary Mindset of Managers Still Prevailing?

<ul>
<li>It will be useful for investors if timely disclosure information, which has large market impact but is still disclosed in English by half of companies, is disclosed in English simultaneously.</li>
<li>By limiting the TSE policy to documents that are already disclosed in English by many companies, there is concern that other high-demand documents may not be disclosed in English.</li>
<li>An analysis of English disclosure status and value creation indicators shows that many companies, even those with high profitability and high stock valuation, are not ready for disclosure in English.</li>
</ul>


It will be useful for investors if timely disclosure information, which has large market impact but is still disclosed in English by half of companies, is disclosed in English simultaneously.
By limiting the TSE policy to documents that are already disclosed in English by many companies, there is concern that other high-demand documents may not be disclosed in English.
An analysis of English disclosure status and value creation indicators shows that many companies, even those with high profitability and high stock valuation, are not ready for disclosure in English.


TSE Policy Seems to Be that Disclosure in English Is Left to the Companies' Own Initiative

<ul>
<li>It is premature to start discussions on stopping raising the hurdles of the Corporate Governance Code when Japan's boards are not dominated by a majority of independent directors.</li>
<li>If listed companies are left to voluntarily improve their corporate governance practices, differences in corporate governance practice efforts among listed companies are expected to widen.</li>
<li>Companies with high percentage of foreign shareholders, primarily those with large market capitalization, are expected to continue to improve their corporate governance practices through engagement by overseas investors. vice versa</li>
</ul>


It is premature to start discussions on stopping raising the hurdles of the Corporate Governance Code when Japan's boards are not dominated by a majority of independent directors.
If listed companies are left to voluntarily improve their corporate governance practices, differences in corporate governance practice efforts among listed companies are expected to widen.
Companies with high percentage of foreign shareholders, primarily those with large market capitalization, are expected to continue to improve their corporate governance practices through engagement by overseas investors. vice versa


Size of Market Capitalization Will Make a Difference in Corporate Governance and Value Creation

<ul>
<li>Government ministries, agencies and the TSE want to raise the value of the Tokyo market, even if it means using the opinions of overseas investors, including activist investors.</li>
<li>Companies with high foreign ownership and large market capitalization are proactive in corporate governance efforts, while many other companies are passive, indicating that differences in efforts among companies are significant.</li>
<li>Thanks to the revision of the Corporate Governance Code, corporate governance practices have improved mainly in terms of formal criteria, and now substantive improvements are required.</li>
</ul>


Government ministries, agencies and the TSE want to raise the value of the Tokyo market, even if it means using the opinions of overseas investors, including activist investors.
Companies with high foreign ownership and large market capitalization are proactive in corporate governance efforts, while many other companies are passive, indicating that differences in efforts among companies are significant.
Thanks to the revision of the Corporate Governance Code, corporate governance practices have improved mainly in terms of formal criteria, and now substantive improvements are required.


CG Watch, Which Made Great Strides Will Be Tested Next Time for Substantial Governance Improvements

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)

To Raise ROE, Breaking Away from Familiar Relationships and Creating Tension in Management Is Key

I would like to discuss the issues on the December 21 Nikkei article, "U.S. Proxy Voting Advisor ISS to Restore ROE Criteria; Objections to...

Metrical Inc

Is the Deflationary Mindset of Managers Still Prevailing?

I would like to discuss the issues on the December 20 Nikkei article, "Weak Yen and M&A Effects Lead to Highest Corporate Financial Assets, Likely...

Metrical Inc

TSE Policy Seems to Be that Disclosure in English Is Left to the Companies' Own Initiative

I would like to discuss the issues on the TSE's December 18 disclosure on the "Expansion of English Disclosure in the Prime Market."

Metrical Inc

Size of Market Capitalization Will Make a Difference in Corporate Governance and Value Creation

I would like to discuss the issues on the December 12 Nikkei article, "Corporate Governance Reform Focusing on Substance.”

Metrical Inc

CG Watch, Which Made Great Strides Will Be Tested Next Time for Substantial Governance Improvements

I would like to discuss the issues on the December 15 Nikkei article, "Japan's Corporate Governance Ranks Second in Asia in Challenges, Rated 'High...

Metrical Inc