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>It’s debatable whether to view the gradual increase in the percentage of female executives as a positive or a negative that it is so much lower than in other countries.</li>
<li>This issue should be considered from the shareholder's perspective, and the ratio of female board members should be increased if it is considered positive for the company's management.</li>
<li>While there are many things that companies should do to increase the ratio of female managers, there are also significant issues that society as a whole needs to address.</li>
</ul>


It’s debatable whether to view the gradual increase in the percentage of female executives as a positive or a negative that it is so much lower than in other countries.
This issue should be considered from the shareholder's perspective, and the ratio of female board members should be increased if it is considered positive for the company's management.
While there are many things that companies should do to increase the ratio of female managers, there are also significant issues that society as a whole needs to address.


Better than Zero? But Limitations of One Female Board Member to Influence Board Decision-Making

<ul>
<li>Despite disclosing "improvement measures," many companies have yet to see their stock prices rise sufficiently, which is one reason why an increasing number of companies announce enhanced shareholder returns.</li>
<li>2003 and 2013 were the starting point for monetary easing and excess liquidity helped raise P/B. Whether BOJ will head for the exit or continue easing is a major factor.</li>
<li>Since this stock price rally was brought about by an increase in P/E multiples, further stock price appreciation will require continued profit growth, i.e., an increase in ROE.</li>
</ul>


Despite disclosing "improvement measures," many companies have yet to see their stock prices rise sufficiently, which is one reason why an increasing number of companies announce enhanced shareholder returns.
2003 and 2013 were the starting point for monetary easing and excess liquidity helped raise P/B. Whether BOJ will head for the exit or continue easing is a major factor.
Since this stock price rally was brought about by an increase in P/E multiples, further stock price appreciation will require continued profit growth, i.e., an increase in ROE.


Higher P/E Is Driver for This Stock Rally. Profit Growth Is Necessary for Further Stock Rally

<ul>
<li>It's necessary to clearly present cash allocation policy to investors and communicate with them, but unless this policy is convincing and feasible, investors cannot envision an increase in corporate value.</li>
<li>Companies that use ROE or ROIC as KPIs and disclose their cost of capital are still limited. The low return on cash flow may be the reason behind this.</li>
<li>As TOPIX is correlating more rapidly with nominal GDP than with P/B after 2020, there's increasing need to communicate to investors that free cash flow will grow through cash allocation.</li>
</ul>


It's necessary to clearly present cash allocation policy to investors and communicate with them, but unless this policy is convincing and feasible, investors cannot envision an increase in corporate value.
Companies that use ROE or ROIC as KPIs and disclose their cost of capital are still limited. The low return on cash flow may be the reason behind this.
As TOPIX is correlating more rapidly with nominal GDP than with P/B after 2020, there's increasing need to communicate to investors that free cash flow will grow through cash allocation.


The Essence of the Matter Is the Low Return on Cash Flow Generated by the Company's Business

<ul>
<li>Metrical's research shows that % of female board members has significant positive correlation with ROE(2019), with ROA(2020), with ROA and Tobin's Q(2021), and with ROE, ROA and Tobin's Q(June 2023).</li>
<li>A measure of a company's seriousness about diversity is the ratio of internal executive directors. Female directors rely heavily on outside directors and are rarely promoted from within the company.</li>
<li>To bring value to a company, diversity must be built in at every workplace level, but fewer female employees than male are promoted to managerial positions in two-thirds of companies.</li>
</ul>


Metrical's research shows that % of female board members has significant positive correlation with ROE(2019), with ROA(2020), with ROA and Tobin's Q(2021), and with ROE, ROA and Tobin's Q(June 2023).
A measure of a company's seriousness about diversity is the ratio of internal executive directors. Female directors rely heavily on outside directors and are rarely promoted from within the company.
To bring value to a company, diversity must be built in at every workplace level, but fewer female employees than male are promoted to managerial positions in two-thirds of companies.


For Diversity to Be Perceived as Not Special, Managers' Recognition Needs to Move Toward DE&I

<ul>
<li>Metrical's past analysis also shows that a company's capital allocation to investors is effective in raising valuations, so a proper allocation between investment and shareholder return is a baseline.</li>
<li>The correlation analysis between TOPIX and nominal GDP suggests that the shift from deflation to inflation has triggered overseas investors to focus on the further expansion of company profits.</li>
<li>While average P/B and ROE have remained flat, the rise in P/E has boosted the stock recently. This suggests that further share price appreciation will require an increase in profits.</li>
</ul>


Metrical's past analysis also shows that a company's capital allocation to investors is effective in raising valuations, so a proper allocation between investment and shareholder return is a baseline.
The correlation analysis between TOPIX and nominal GDP suggests that the shift from deflation to inflation has triggered overseas investors to focus on the further expansion of company profits.
While average P/B and ROE have remained flat, the rise in P/E has boosted the stock recently. This suggests that further share price appreciation will require an increase in profits.


Companies Should Show a Path to Accelerated Profit Growth Rather than Shareholder Returns

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)

Better than Zero? But Limitations of One Female Board Member to Influence Board Decision-Making

I would like to discuss the issues on the August 4 Nikkei Shimbun article, "68 Prime Market Listed Companies with More than 30% of Female...

Metrical Inc

Higher P/E Is Driver for This Stock Rally. Profit Growth Is Necessary for Further Stock Rally

I would like to discuss the issues on the August 7 Nikkei article, "Summer of Stocking Up on Super Undervalued Stocks: Stronger Shareholder Returns...

Metrical Inc

The Essence of the Matter Is the Low Return on Cash Flow Generated by the Company's Business

I would like to discuss the issues on the August 9 Nikkei Newspaper article, "Deloitte Launches Specialized Team to Support P/B Improvement for...

Metrical Inc

For Diversity to Be Perceived as Not Special, Managers' Recognition Needs to Move Toward DE&I

I would like to discuss the issues on the July 9 Nikkei Newspaper article, "Money for Companies with Active Women's Activities."

Metrical Inc

Companies Should Show a Path to Accelerated Profit Growth Rather than Shareholder Returns

I would like discuss the issues on the July 24 Nikkei article, Companies Improve Value by Honing the Art of Interacting with the Market."

Metrical Inc