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>P/B's slightly higher valuations in October 2023 while ROE, EPS, and BPS did not change much were due to external factors, not internal factors.</li>
<li>Clearly, improvements in ROE and ROA are effective in improving stock valuations, but valuations have further increased for companies with higher valuations and profitability for the past year.</li>
<li>Some of these companies have begun to use cash more effectively for investment and shareholder returns. The gap in market capitalization between these companies and the rest will increasingly widen.</li>
</ul>


P/B's slightly higher valuations in October 2023 while ROE, EPS, and BPS did not change much were due to external factors, not internal factors.
Clearly, improvements in ROE and ROA are effective in improving stock valuations, but valuations have further increased for companies with higher valuations and profitability for the past year.
Some of these companies have begun to use cash more effectively for investment and shareholder returns. The gap in market capitalization between these companies and the rest will increasingly widen.


Companies with High Stock Valuations and High Profitability Will Increasingly Attract Investment

<ul>
<li>Overseas investors have increased buying Japanese stocks in anticipation of acceleration in profit growth due to the shift to inflation. This is consistent with the trends of ROE and TOPIX.</li>
<li>As far as ROE trends are concerned, neither share buybacks nor dividends are sufficient. It may be said that many managers are still dominated by a deflationary mindset.</li>
<li>Companies with high foreign shareholdings are seeing changes that are starting to use cash more effectively. However, it’ll take time, as most companies will start to move after asking around.</li>
</ul>


Overseas investors have increased buying Japanese stocks in anticipation of acceleration in profit growth due to the shift to inflation. This is consistent with the trends of ROE and TOPIX.
As far as ROE trends are concerned, neither share buybacks nor dividends are sufficient. It may be said that many managers are still dominated by a deflationary mindset.
Companies with high foreign shareholdings are seeing changes that are starting to use cash more effectively. However, it’ll take time, as most companies will start to move after asking around.


When Will Deflationary Mindset of Managers Disappear? Some Companies Have Begun to Change, Though

<ul>
<li>Since many prime market listed companies have already achieved the gender and TCFD criteria, this will unlikely to be a major issue with regard to Glass Lewis' criteria changes.</li>
<li>The ROE for the exception rule for companies with large policy shareholdings should have been even higher, not the same as the TSE's 5-year average ROE of 8%.</li>
<li>The criteria for maximum tenure of outside directors should not have provided magic number, but rather performance and other factors that would determine whether he/she is qualified for the position.</li>
</ul>


Since many prime market listed companies have already achieved the gender and TCFD criteria, this will unlikely to be a major issue with regard to Glass Lewis' criteria changes.
The ROE for the exception rule for companies with large policy shareholdings should have been even higher, not the same as the TSE's 5-year average ROE of 8%.
The criteria for maximum tenure of outside directors should not have provided magic number, but rather performance and other factors that would determine whether he/she is qualified for the position.


Whatever the Proxy Voting Advisor's Criteria, It Is How Investors Actually Conduct Themselves

<ul>
<li>In 2023, % Woman Board Members increased progressively even in companies with lower corporate governance scores. Many companies are unanimous in their commitment to appointing women board members.</li>
<li>Together with the fact that business challenges have not been solved by only having people who think alike, 90% of institutional investors said that information on women's activities is important.</li>
<li>Companies with over 25% women on their boards have superior values in profitability and stock valuation. Managers should implement the promotion of women in order to transition to value-creating management.</li>
</ul>


In 2023, % Woman Board Members increased progressively even in companies with lower corporate governance scores. Many companies are unanimous in their commitment to appointing women board members.
Together with the fact that business challenges have not been solved by only having people who think alike, 90% of institutional investors said that information on women's activities is important.
Companies with over 25% women on their boards have superior values in profitability and stock valuation. Managers should implement the promotion of women in order to transition to value-creating management.


Investors Want to See a Shift in Management to Create Value, Not Just Meet Government Target Numbers

<ul>
<li>There was modest improvements in corporate governance in 2023, without any Code revisions. About two thirds of companies showed little improvement in their corporate governance practices over the past year.</li>
<li>However, the increase in % Woman Board Members, a touchstone for measuring the improvement attitude of some companies that have shown improvement, gives us hope for the future.</li>
<li>Companies with Metrical CG scores rising below 2.5 points and those with declines have challenges with their use of cash, along with their stock repurchase and dividend policies.</li>
</ul>


There was modest improvements in corporate governance in 2023, without any Code revisions. About two thirds of companies showed little improvement in their corporate governance practices over the past year.
However, the increase in % Woman Board Members, a touchstone for measuring the improvement attitude of some companies that have shown improvement, gives us hope for the future.
Companies with Metrical CG scores rising below 2.5 points and those with declines have challenges with their use of cash, along with their stock repurchase and dividend policies.


Governance Improvement in 2023 Was Modest but Saved by a Rise in % Woman Board Members

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)

Companies with High Stock Valuations and High Profitability Will Increasingly Attract Investment

I would like to discuss the issues on the January 10 Nikkei Shimbun article, "Nikkei 225 Stock Price Index at 33-year High, P/B Reforms Successful,...

Metrical Inc

When Will Deflationary Mindset of Managers Disappear? Some Companies Have Begun to Change, Though

I would like to discuss the issues on the Nikkei Shimbun's January 11 report, "Japan's Stock Market Gains Strength; Overseas Investors Purchase 3...

Metrical Inc

Whatever the Proxy Voting Advisor's Criteria, It Is How Investors Actually Conduct Themselves

I would like to discuss the issues on the January 7 Nikkei article, "U.S. Voting Advisory Glass Lewis Eliminates Gender Criteria and Other...

Metrical Inc

Investors Want to See a Shift in Management to Create Value, Not Just Meet Government Target Numbers

I would like to discuss the issues on the December 25 Nikkei Shimbun article, "Prime Minister Declares Female Board Members of Prime Market Listed...

Metrical Inc

Governance Improvement in 2023 Was Modest but Saved by a Rise in % Woman Board Members

I would like to discuss the issues on what companies have improved their corporate governance practices in the year 2023.

Metrical Inc