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>Maintaining a parent-subsidiary listing that fails to ensure the interests of minority shareholders indicates that the parent company is willing to tolerate dysfunctional corporate governance of the subsidiary.</li>
<li>Parent-Subsidiary listings drain the profits of profitable subsidiaries from the parent company, reducing profits and corporate value. The solution to this problem is to eliminate parent-subsidiary listings.</li>
<li>The elimination of parent-subsidiary listings through TOB will reduce market inefficiencies and improve the quality of TSE-listed companies.</li>
</ul>


Maintaining a parent-subsidiary listing that fails to ensure the interests of minority shareholders indicates that the parent company is willing to tolerate dysfunctional corporate governance of the subsidiary.
Parent-Subsidiary listings drain the profits of profitable subsidiaries from the parent company, reducing profits and corporate value. The solution to this problem is to eliminate parent-subsidiary listings.
The elimination of parent-subsidiary listings through TOB will reduce market inefficiencies and improve the quality of TSE-listed companies.


Still Many "Parent-Subsidiary Listings" Keep to Provide Investment Opportunities for Inefficiencies

<ul>
<li>The fact that many IPO companies either don't need to raise capital or don't share the same goal of going public is the crux of the problem.</li>
<li>It would be conducive to improving quality of TSE as a whole if companies that cannot share the objectives of a listed company with shareholders are delisted through an MBO.</li>
<li>An MBO by the founding family would open the door to investment for companies that have been unable to invest for fear of falling into the "value trap.”</li>
</ul>


The fact that many IPO companies either don't need to raise capital or don't share the same goal of going public is the crux of the problem.
It would be conducive to improving quality of TSE as a whole if companies that cannot share the objectives of a listed company with shareholders are delisted through an MBO.
An MBO by the founding family would open the door to investment for companies that have been unable to invest for fear of falling into the "value trap.”


MBOs Would Open the Door to Investment for Companies that Weren’t Invested for Fear Of "Value Trap"

<ul>
<li>The "minimum majority of outside directors" is an eye catcher, but it does't affect most companies because the 1/3 outside director ratio applies if a nominating committee is in place.</li>
<li>Since companies with majority of independent directors are 12.1% in prime market, the objective becomes to achieve the minimum requirement (1/3 INEDs), and few companies engage in further improving practices.</li>
<li>Companies with over 50% independent director have extremely superior market values in capitalization, ROE, ROA, and Tobin's Q. Therefore, the acceleration of increasing independent director ratios should be seriously implemented.</li>
</ul>


The "minimum majority of outside directors" is an eye catcher, but it does't affect most companies because the 1/3 outside director ratio applies if a nominating committee is in place.
Since companies with majority of independent directors are 12.1% in prime market, the objective becomes to achieve the minimum requirement (1/3 INEDs), and few companies engage in further improving practices.
Companies with over 50% independent director have extremely superior market values in capitalization, ROE, ROA, and Tobin's Q. Therefore, the acceleration of increasing independent director ratios should be seriously implemented.


Headline Is Eye Catching, but the Revised Voting Criteria Do Not Affect Most Companies

<ul>
<li>Since there's little opposition to the argument that quarterly securities reports should no longer be mandatory, securities reports in 1Q/3Q are almost identical content to the disclosures to TSE.</li>
<li>To ensure the reliability of the financial statements submitted to TSE, which are replacing current statutory documents, the requirement of review by auditor could be a solution to the problem.</li>
<li>In this review, the addition of the cash flow statement and segment information in 1Q and 3Q financial statements is very useful and a step forward.</li>
</ul>


Since there's little opposition to the argument that quarterly securities reports should no longer be mandatory, securities reports in 1Q/3Q are almost identical content to the disclosures to TSE.
To ensure the reliability of the financial statements submitted to TSE, which are replacing current statutory documents, the requirement of review by auditor could be a solution to the problem.
In this review, the addition of the cash flow statement and segment information in 1Q and 3Q financial statements is very useful and a step forward.


Unification of Quarterly Securities Reports with Financial Summary to TSE Is Generally Appropriate

<ul>
<li>The carryback of pension obligations and expenses resulting from higher bond yields is a factor in the increase in operating profit.</li>
<li>While this'll lead to higher EPS, which should lead to higher dividends and more room for stock price appreciation, there's concern that inflating the B/S will lead to stagnant ROE.</li>
<li>In addition, since FY3/2024 profits will be boosted by pension financing factors unrelated to the core business, lower profit growth rate in FY3/2025 will put pressure on the stock price.</li>
</ul>


The carryback of pension obligations and expenses resulting from higher bond yields is a factor in the increase in operating profit.
While this'll lead to higher EPS, which should lead to higher dividends and more room for stock price appreciation, there's concern that inflating the B/S will lead to stagnant ROE.
In addition, since FY3/2024 profits will be boosted by pension financing factors unrelated to the core business, lower profit growth rate in FY3/2025 will put pressure on the stock price.


Investors Will Again Demand Concrete Measures to Raise ROE and Boost Shareholder Returns in FY3/2025

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)

Still Many "Parent-Subsidiary Listings" Keep to Provide Investment Opportunities for Inefficiencies

I would like to discuss the issues on the November 8 Nikkei Newspaper article, "FUJISOFT to Make Four Listed Subsidiaries Wholly Owned Subsidiaries...

Metrical Inc

MBOs Would Open the Door to Investment for Companies that Weren’t Invested for Fear Of "Value Trap"

I would like to discuss the issues on the November 10 Nikkei Shimbun article, Benesse to Rebuild 'Shinkenzemi' in Largest-ever MBO."

Metrical Inc

Headline Is Eye Catching, but the Revised Voting Criteria Do Not Affect Most Companies

I would like to discuss the issues on the November 1 Nikkei article, "Nomura Asset Management Revises Voting Criteria to Include a Majority of...

Metrical Inc

Unification of Quarterly Securities Reports with Financial Summary to TSE Is Generally Appropriate

I would like to discuss the issues on the TSE's October 27th disclosure of the "Practical Policy on Review of Quarterly Disclosures (Draft)."

Metrical Inc

Investors Will Again Demand Concrete Measures to Raise ROE and Boost Shareholder Returns in FY3/2025

I would like to discuss the issues on the October 24 Nikkei article, Corporate Pension Burden to Decrease by 6 Trillion Yen in FY2022 as Rising...

Metrical Inc