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>Since it's difficult for all prime market companies to achieve the 30% female board members by 2030, the goal may be achieved by including non-statutory executive officers in board members.</li>
<li>Companies are stuck in matching numbers, and government is unwilling to address the fundamental issues. There's risk that original objective of shifting to value-creating management through ensuring diversity is lost.</li>
<li>Policy changes to create environment where women don't have to leave workforce for childbirth, childcare, etc., and to change people's mindsets are impossible without the leadership of a non-diverse legislature.</li>
</ul>


Since it's difficult for all prime market companies to achieve the 30% female board members by 2030, the goal may be achieved by including non-statutory executive officers in board members.
Companies are stuck in matching numbers, and government is unwilling to address the fundamental issues. There's risk that original objective of shifting to value-creating management through ensuring diversity is lost.
Policy changes to create environment where women don't have to leave workforce for childbirth, childcare, etc., and to change people's mindsets are impossible without the leadership of a non-diverse legislature.


Achieving the % of Female Board Members by Matching Numbers Doesn't Achieve the Original Goal Either

<ul>
<li>The reason companies object to a reduction in the investment unit is the cost of shareholder relations, not the cost paid to the trust bank.</li>
<li>We should discuss whether it is better for the “unit of investment” principle to remain in place for the convenience of companies that want to pass company proposals smoothly.</li>
<li>It will be interesting to see if there will be a discussion on going back to basics and allowing single share holders to exercise their voting rights.</li>
</ul>


The reason companies object to a reduction in the investment unit is the cost of shareholder relations, not the cost paid to the trust bank.
We should discuss whether it is better for the “unit of investment” principle to remain in place for the convenience of companies that want to pass company proposals smoothly.
It will be interesting to see if there will be a discussion on going back to basics and allowing single share holders to exercise their voting rights.


Has the “Unit of Investment” Principle Spoiled the Companies?

<ul>
<li>Information asymmetries between shareholders/investors and board directors, between inside and outside board directors, between inside and outside statutory auditors, and between insiders and the rest are constant challenges.</li>
<li>Statutory auditors cannot be dismissed and have significant powers, including the right to investigate, and since statutory auditors are board members, they can attend and speak at board meetings.</li>
<li>To make statutory auditors function, establish a process for nominating statutory auditors, raise the compensation of outside auditors, and run an open board meeting where board members' comments are respected.</li>
</ul>


Information asymmetries between shareholders/investors and board directors, between inside and outside board directors, between inside and outside statutory auditors, and between insiders and the rest are constant challenges.
Statutory auditors cannot be dismissed and have significant powers, including the right to investigate, and since statutory auditors are board members, they can attend and speak at board meetings.
To make statutory auditors function, establish a process for nominating statutory auditors, raise the compensation of outside auditors, and run an open board meeting where board members' comments are respected.


How to Make a Non-Functioning Statutory Auditor Function

<ul>
<li>Last year's CAPEX plan was also a record high, but ROE growth was limited. We should closely monitor whether the allocation of CAPEX, shareholder returns, and retained earnings is appropriate.</li>
<li>When a company finally begins using cash on hand for investments and lacks reliable track records, it should be monitored to ensure that it’s generating sufficient cash flow from CAPEX.</li>
<li>The trend continues to remain that most investments are directed overseas. Note that many Japanese companies have a history of having difficulty managing their overseas operations.</li>
</ul>


Last year's CAPEX plan was also a record high, but ROE growth was limited. We should closely monitor whether the allocation of CAPEX, shareholder returns, and retained earnings is appropriate.
When a company finally begins using cash on hand for investments and lacks reliable track records, it should be monitored to ensure that it’s generating sufficient cash flow from CAPEX.
The trend continues to remain that most investments are directed overseas. Note that many Japanese companies have a history of having difficulty managing their overseas operations.


Focus on Cash Flow Recovery from Investments as Planned, as Well as Appropriate Cash Allocation

<ul>
<li>Without the driving force to generate cash flow in excess of the discount rate (cost of capital), there is not enough power to push stock valuations higher and higher.</li>
<li>The fact that 8% ROE is the threshold at which valuations change means that investors consider the cost of capital for Japanese equities to be roughly 8% on average.</li>
<li>Little progress has been made since 10 years ago, when the Ito Report advocated "shift to corporate value management with an awareness of capital efficiency" and "engagement of institutional investors.”</li>
</ul>


Without the driving force to generate cash flow in excess of the discount rate (cost of capital), there is not enough power to push stock valuations higher and higher.
The fact that 8% ROE is the threshold at which valuations change means that investors consider the cost of capital for Japanese equities to be roughly 8% on average.
Little progress has been made since 10 years ago, when the Ito Report advocated "shift to corporate value management with an awareness of capital efficiency" and "engagement of institutional investors.”


Will the Challenges that Have Taken a Decade to Make Progress Finally Be Resolved?

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)

Achieving the % of Female Board Members by Matching Numbers Doesn't Achieve the Original Goal Either

I would like to discuss the issues on the August 19 Nikkei article, “Prime: 69 Companies Still Have ‘Zero’ Female Board Members, Down Half from...

Metrical Inc

Has the “Unit of Investment” Principle Spoiled the Companies?

I would like to discuss the issues on the August 16 Nikkei article, “6% Favor Lowering Minimum Investment Unit in QUICK Short-Term Survey."

Metrical Inc

How to Make a Non-Functioning Statutory Auditor Function

I would like to discuss the issues raised in the article "Statutory Auditors: The Lost Weight in Japan.” published in the Nikkei Shimbun on August...

Metrical Inc

Focus on Cash Flow Recovery from Investments as Planned, as Well as Appropriate Cash Allocation

I would like to discuss the issues on the July 26 Nikkei article, ""CAPEX at 33 trillion yen, record high; Toyota tops the list for the first time."

Metrical Inc

Will the Challenges that Have Taken a Decade to Make Progress Finally Be Resolved?

I would like to discuss the issues on the July 24 Nikkei article, "The "1.5x P/B" Wall Stands in the Way of Japanese Stocks."

Metrical Inc