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>The GPIF employs a "passive enhanced engagement" approach, which is linked to TOPIX and engages in engagement activities with the portfolio companies. This approach should be examined for any challenges.</li>
<li>The challenge is whether GPIF's extremely low management fees can engage in deep engagement with a large number of portfolio companies to reduce tracking error from TOPIX.</li>
<li>GPIF cites its inability to invest in equities in-house and the huge AUM as reasons for its bias toward passive funds. If this is an obstacle, reform should be considered.</li>
</ul>


The GPIF employs a "passive enhanced engagement" approach, which is linked to TOPIX and engages in engagement activities with the portfolio companies. This approach should be examined for any challenges.
The challenge is whether GPIF's extremely low management fees can engage in deep engagement with a large number of portfolio companies to reduce tracking error from TOPIX.
GPIF cites its inability to invest in equities in-house and the huge AUM as reasons for its bias toward passive funds. If this is an obstacle, reform should be considered.


Is Engagement Functioning Well with The "Engagement-Enhanced Passive" Approach Adopted by GPIF?

<ul>
<li>While 4% of the number of companies mentioned in annual securities reports regarding P/B, half of companies have P/B of below 1x, which suggests managers still lack sense of urgency.</li>
<li>Many companies that mention P/B in their annual securities reports rely on share repurchases, and their presentation of strategies to increase cash flow is weak.</li>
<li>Clearly stating the cost of capital will lead to more appropriate ROE and ROIC targets and disclosure of specific measures to achieve them.</li>
</ul>


While 4% of the number of companies mentioned in annual securities reports regarding P/B, half of companies have P/B of below 1x, which suggests managers still lack sense of urgency.
Many companies that mention P/B in their annual securities reports rely on share repurchases, and their presentation of strategies to increase cash flow is weak.
Clearly stating the cost of capital will lead to more appropriate ROE and ROIC targets and disclosure of specific measures to achieve them.


The First Thing Managers Should Do Is Disclose Their Cost of Capital and Their Company's Return

<ul>
<li>Since so many companies have not prepared for internal female talent, the trend of hiring female independent outside directors will continue for the foreseeable future.</li>
<li>Metrical studies have confirmed the tendency for the percentage of female board members to show a more significant positive correlation than the number of female board members. </li>
<li>This is consistent with the expectation that the increased weight of women board members' voices on the board will contribute to value creation. </li>
</ul>


Since so many companies have not prepared for internal female talent, the trend of hiring female independent outside directors will continue for the foreseeable future.
Metrical studies have confirmed the tendency for the percentage of female board members to show a more significant positive correlation than the number of female board members. 
This is consistent with the expectation that the increased weight of women board members' voices on the board will contribute to value creation. 


Diversity Will Work when % of Women and Foreign Directors Exceeds 50%, but It’s Still a Long Way Off

<ul>
<li>The need to obtain investment capital for future business development or the presence of stakeholders with a strong desire to improve asset efficiency may be the catalyst for selling property.</li>
<li>Of course, cash should be used to return to shareholders, but the stock market expects more profit growth, so higher profit margins and ROE are required.</li>
<li>The data from Ministry of Finance indicates that cash still hasn't been spent on investments. Cash appears to be currently being used reluctantly for investments that will generate future profits.</li>
</ul>


The need to obtain investment capital for future business development or the presence of stakeholders with a strong desire to improve asset efficiency may be the catalyst for selling property.
Of course, cash should be used to return to shareholders, but the stock market expects more profit growth, so higher profit margins and ROE are required.
The data from Ministry of Finance indicates that cash still hasn't been spent on investments. Cash appears to be currently being used reluctantly for investments that will generate future profits.


After Selling the Property, There Appears to Be No Set Plan for How the Cash Will Be Used

<ul>
<li>A survey result supports that the fact that women temporarily leave the workplace due to childbirth or childcare is detrimental to their careers.</li>
<li>Since there're issues that require solutions not only for companies but for society, judicial decisions will encourage companies to make female employees subject to the same conditions as male employees.</li>
<li>While more companies may take this ruling as an opportunity to consider conventional HR practices, since cases of employees going to court are rare, some companies may not act immediately.</li>
</ul>


A survey result supports that the fact that women temporarily leave the workplace due to childbirth or childcare is detrimental to their careers.
Since there're issues that require solutions not only for companies but for society, judicial decisions will encourage companies to make female employees subject to the same conditions as male employees.
While more companies may take this ruling as an opportunity to consider conventional HR practices, since cases of employees going to court are rare, some companies may not act immediately.


Judicial Decisions Are Also Important to Clarify the Nature of the Diversity Issues

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)

Is Engagement Functioning Well with The "Engagement-Enhanced Passive" Approach Adopted by GPIF?

I would like to discuss the August 23 Nikkei article, "GPIF to Quantitatively Analyze ESG Investments to Explore Causal Relationship between...

Metrical Inc

The First Thing Managers Should Do Is Disclose Their Cost of Capital and Their Company's Return

I would like to discuss the August 22 Nikkei Shimbun article, "Number of companies that have included P/B in their securities reports reaches...

Metrical Inc

Diversity Will Work when % of Women and Foreign Directors Exceeds 50%, but It’s Still a Long Way Off

I would like to discuss the issues on the August 18 Nikkei Newspaper article, "Female Directors Increase by 17%; In-House Director Growth Stalls."

Metrical Inc

After Selling the Property, There Appears to Be No Set Plan for How the Cash Will Be Used

I would like to discuss the issues on the Nikkei Shimbun on August 16, ""Will 23 Trillion Yen of Unrealized Real Estate Profits Move? Expectations...

Metrical Inc

Judicial Decisions Are Also Important to Clarify the Nature of the Diversity Issues

I would like to discuss the issues on the August 14 Nikkei article, "What Lessons Should Companies Learn from the Two Rulings Focusing on Women's...

Metrical Inc