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>There's gap in timelines for results between many companies that started to incorporate the cost of capital into their management and investors who are looking for results in investment performance.</li>
<li>If this gap surfaces, investor expectations will be stripped away. Companies that determine that it will take a long time to achieve results can be expected to consider going private.</li>
<li>For a company to seek access to institutional investors, it must first produce results. The race is on to achieve results within limited timeframes and faster than other companies.</li>
</ul>


There's gap in timelines for results between many companies that started to incorporate the cost of capital into their management and investors who are looking for results in investment performance.
If this gap surfaces, investor expectations will be stripped away. Companies that determine that it will take a long time to achieve results can be expected to consider going private.
For a company to seek access to institutional investors, it must first produce results. The race is on to achieve results within limited timeframes and faster than other companies.


After TSE's Request, the Key Is Whether the Company Can Deliver While Investors Are Still Hopeful

<ul>
<li>Business portfolio reforms are lagging and improving profitability, the driver of ROE, will take more time. Further Reducing policy shareholdings and cash on hand are needed to improve capital profitability.</li>
<li>In days of cross-shareholdings, management tended to be less conscious of the goal of sustainable growth in shareholder interests because they need not listen to opinions of other minority shareholders.</li>
<li>Cross-Shareholdings have decreased, and management is now required to be more conscious of capital profitability. ”TSE's request” will hopefully prevent this change from going backwards.</li>
</ul>


Business portfolio reforms are lagging and improving profitability, the driver of ROE, will take more time. Further Reducing policy shareholdings and cash on hand are needed to improve capital profitability.
In days of cross-shareholdings, management tended to be less conscious of the goal of sustainable growth in shareholder interests because they need not listen to opinions of other minority shareholders.
Cross-Shareholdings have decreased, and management is now required to be more conscious of capital profitability. ”TSE's request” will hopefully prevent this change from going backwards.


Reducing Cross-Shareholdings Returns Companies to Basics of Sustained Growth in Shareholder Returns

<ul>
<li>A comparison of two surveys shows progress in disclosing GHG emissions over half-year, with small increase in Scope 1 and Scope 2, while little progress was made in Scope 3.</li>
<li>Many companies are cautious about disclosing in annual securities reports, even if they are certified by a third-party certification body or stated in their own integrated reports.</li>
<li>However, FSA will require companies with over 3 trillion yen in market capitalization to disclose to Scope 3 in FY3/2027, and most companies are likely to comply with this requirement.</li>
</ul>


A comparison of two surveys shows progress in disclosing GHG emissions over half-year, with small increase in Scope 1 and Scope 2, while little progress was made in Scope 3.
Many companies are cautious about disclosing in annual securities reports, even if they are certified by a third-party certification body or stated in their own integrated reports.
However, FSA will require companies with over 3 trillion yen in market capitalization to disclose to Scope 3 in FY3/2027, and most companies are likely to comply with this requirement.


Companies' Interest in Lowering Market Cap Threshold and Timing of Scope 3 Disclosure Requirements

<ul>
<li>Policy shareholdings don't create tension in management and ensure the interests of minority shareholders. Secondly, holding shares that don't create value can burden capital profitability and undermine shareholder interests.</li>
<li>The increase in foreign ownership only changed the mindset of some company managers, but “TSE's request” was enough to awake managers who had become accustomed to being protected by cross-shareholdings.</li>
<li>If reducing policy shareholdings is viewed as HR issues related to the director election agenda, it makes sense why improvements haven't progressed similarly to the unclear nomination process for directors.</li>
</ul>


Policy shareholdings don't create tension in management and ensure the interests of minority shareholders. Secondly, holding shares that don't create value can burden capital profitability and undermine shareholder interests.
The increase in foreign ownership only changed the mindset of some company managers, but “TSE's request” was enough to awake managers who had become accustomed to being protected by cross-shareholdings.
If reducing policy shareholdings is viewed as HR issues related to the director election agenda, it makes sense why improvements haven't progressed similarly to the unclear nomination process for directors.


Slow Policy Shareholdings Reduction Is Similar Backdrop to Unclear Nomination Process for Directors

<ul>
<li>TSE's classification translates into three groups: companies which can independently increase capital profitability, companies which haven't yet fully implemented plans, and companies which haven't yet responded to “TSE's request.”</li>
<li>Mock engagements by TSE, which doesn't have voting rights, will be focused on whether they actually make the company think about management strategies and implement them, thereby increasing corporate value.</li>
<li>To help companies effectively implement “TSE's request,” an idea would be to offer time-limited discount on listing fee paid to TSE by companies that have significantly increased their market capitalization.</li>
</ul>


TSE's classification translates into three groups: companies which can independently increase capital profitability, companies which haven't yet fully implemented plans, and companies which haven't yet responded to “TSE's request.”
Mock engagements by TSE, which doesn't have voting rights, will be focused on whether they actually make the company think about management strategies and implement them, thereby increasing corporate value.
To help companies effectively implement “TSE's request,” an idea would be to offer time-limited discount on listing fee paid to TSE by companies that have significantly increased their market capitalization.


Will TSE's Mock Engagement Measures Work?

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)

After TSE's Request, the Key Is Whether the Company Can Deliver While Investors Are Still Hopeful

I would like to discuss the TSE's August 30 disclosure “Future Measures Concerning ‘Measures to Achieve Management Conscious of Cost of Capital and...

Metrical Inc

Reducing Cross-Shareholdings Returns Companies to Basics of Sustained Growth in Shareholder Returns

I would like to discuss the issues on the August 28 Nikkei Shimbun article, “Policy shareholding sales top 3.6 trillion yen; Toyota and Hitachi...

Metrical Inc

Companies' Interest in Lowering Market Cap Threshold and Timing of Scope 3 Disclosure Requirements

I would like to discuss the issues on the August 21 Nikkei article, “Greenhouse Gas Disclosure, Only 4% of ‘Scope 3’ Reported, According to...

Metrical Inc

Slow Policy Shareholdings Reduction Is Similar Backdrop to Unclear Nomination Process for Directors

I would like to discuss the issues on the August 22 Nikkei Shimbun article, “FSA Expands Disclosure Requirement to Prevent ‘Formal Dissolution’ of...

Metrical Inc

Will TSE's Mock Engagement Measures Work?

I would like to discuss the disclosure by TSE on August 19, “Current Status and Future TSE Measures Regarding ‘Measures to Achieve Management...

Metrical Inc