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>Fujitec's board composition was above average of Japanese companies in form. This was an opportunity to see an example of a board that is formally structured but not actually functioning.</li>
<li>Bringing manager's buddy on as an "independent director" is not likely to contribute to sustainable growth in corporate value.</li>
<li>If domestic institutional investors, including passive funds, vote according to the will of the company, it will lead to stagnation of the substance of corporate governance in Japanese companies.</li>
</ul>


Fujitec's board composition was above average of Japanese companies in form. This was an opportunity to see an example of a board that is formally structured but not actually functioning.
Bringing manager's buddy on as an "independent director" is not likely to contribute to sustainable growth in corporate value.
If domestic institutional investors, including passive funds, vote according to the will of the company, it will lead to stagnation of the substance of corporate governance in Japanese companies.


Let Fujitec's Case Be a Lesson to Companies and Investors in Japan

<ul>
<li>While policy holdings have declined, passive funds have appeared among the top shareholders of many companies. The Bank of Japan's ETF purchases have accelerated this growth. </li>
<li>The question is whether the passive funds that have appeared as major shareholders in each company are exercising their voting rights on reasonably reasonable basis that fulfills their fiduciary duties.</li>
<li>In reality, engagement is limited to a few companies due to the large number of portfolio companies and low management fees.This implies that the same is true for proxy voting.</li>
</ul>


While policy holdings have declined, passive funds have appeared among the top shareholders of many companies. The Bank of Japan's ETF purchases have accelerated this growth. 
The question is whether the passive funds that have appeared as major shareholders in each company are exercising their voting rights on reasonably reasonable basis that fulfills their fiduciary duties.
In reality, engagement is limited to a few companies due to the large number of portfolio companies and low management fees.This implies that the same is true for proxy voting.


Passive Funds, Silent Shareholders, Are a Barrier to Corporate Governance

<ul>
<li>Looking at all listed companies over past 10 years, despite the gradual dissolution of cross-holdings, the Total Asset Turnover has not increased and the Equity Ratio level has not changed.</li>
<li>Reducing equity capital through shareholder returns is effective in raising ROE, but ROE is unlikely to rise continuously if the company's cash flow does not continue to increase.</li>
<li>ROA is the product of the ROE components of net sales and asset turnover, excluding financial leverage. ROA is a key factor for increasing valuations.</li>
</ul>


Looking at all listed companies over past 10 years, despite the gradual dissolution of cross-holdings, the Total Asset Turnover has not increased and the Equity Ratio level has not changed.
Reducing equity capital through shareholder returns is effective in raising ROE, but ROE is unlikely to rise continuously if the company's cash flow does not continue to increase.
ROA is the product of the ROE components of net sales and asset turnover, excluding financial leverage. ROA is a key factor for increasing valuations.


Do Companies Tend to Focus on Shareholder Returns Because They Can't Find Investment Opportunities?

<ul>
<li>Surprisingly, about half of shareholders did not vote in favor of the shareholder proposal to remove outside directors who implemented practices that were problematic in terms of corporate governance.</li>
<li>Domestic institutional investors are still unwilling to oppose the company even when, as in this case, there is a clear corporate governance problem with the company.</li>
<li>It’s extremely difficult for these outside directors to fully fulfill their responsibilities as independent directors on a board composed of "independent directors" who are friends brought in by top management.</li>
</ul>


Surprisingly, about half of shareholders did not vote in favor of the shareholder proposal to remove outside directors who implemented practices that were problematic in terms of corporate governance.
Domestic institutional investors are still unwilling to oppose the company even when, as in this case, there is a clear corporate governance problem with the company.
It’s extremely difficult for these outside directors to fully fulfill their responsibilities as independent directors on a board composed of "independent directors" who are friends brought in by top management.


Who Is More Culpable, "Independent" Directors or or Domestic Institutions that Bias To the Company?

Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

TSE Tokyo Price Index TOPIX / Event-Driven

<ul>
<li>Every year it's the same trade. But it isn't really. But it kinda is. This year it is Wednesday and Thursday. There are risks to the analysis - notably allocation.</li>
<li>But, ceteris paribus, it is still possibly a ¥1,580,876,450,407 buying spree to take place on one day into the close later this month. Or something close to it.</li>
<li>And for a two-day period, over the last ten years, the average return is 1.60% on these two days with a 9:1 win ratio. Lots of angles here.</li>
</ul>


Every year it's the same trade. But it isn't really. But it kinda is. This year it is Wednesday and Thursday. There are risks to the analysis - notably allocation.
But, ceteris paribus, it is still possibly a ¥1,580,876,450,407 buying spree to take place on one day into the close later this month. Or something close to it.
And for a two-day period, over the last ten years, the average return is 1.60% on these two days with a 9:1 win ratio. Lots of angles here.


The BIG March 2023 "Wednesday Thursday Trade"

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)

Let Fujitec's Case Be a Lesson to Companies and Investors in Japan

I would like to discuss the issues on the March 2 Nikkei article, "Companies should improve their governance, not run away from activist investors."

Metrical Inc

Passive Funds, Silent Shareholders, Are a Barrier to Corporate Governance

I would like to discuss the issues on the February 28 Nikkei article, "Growing Passive Investment is a Hotbed of Low Corporate Profitability;...

Metrical Inc

Do Companies Tend to Focus on Shareholder Returns Because They Can't Find Investment Opportunities?

I would like to discuss the February 24 Nikkei article, "The Barrenness of the Low P/B Stock Bubble: TSE Distances Itself from 'Denominator...

Metrical Inc

Who Is More Culpable, "Independent" Directors or or Domestic Institutions that Bias To the Company?

I would like to discuss the issues on the February 25 Nikkei article, "Outside Directors' Management Responsibility Questioned: Fujitec's Outside...

Metrical Inc

The BIG March 2023 "Wednesday Thursday Trade"

This year, there is a US$12bn buy to do on 29 March at the close. Historically, performance is pretty good both on a 2-day period, then slumps....

Travis Lundy