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>Domestic investment managers are expected to show a higher percentage in favor of shareholder proposals, but life insurances still face a high hurdle in voting in favor of shareholder proposals.</li>
<li>It is relatively easy to decide for or against a proposal based on quantitative criteria such as the level of ROE or whether there are zero female directors.</li>
<li>Few institutional investors adequately disclose the reasons for approval or disapproval of individual proposals. Disclosure of reasons for approval or disapproval is required for company proposals that are controversial.</li>
</ul>


Domestic investment managers are expected to show a higher percentage in favor of shareholder proposals, but life insurances still face a high hurdle in voting in favor of shareholder proposals.
It is relatively easy to decide for or against a proposal based on quantitative criteria such as the level of ROE or whether there are zero female directors.
Few institutional investors adequately disclose the reasons for approval or disapproval of individual proposals. Disclosure of reasons for approval or disapproval is required for company proposals that are controversial.


Rather More Proposals that Have to Be Considered for or Against on a Qualitative, Case-By-Case Basis

<ul>
<li>Employee motivation is reflected in the fact that employee salaries have barely increased in 10 years (employee engagement in Japan has been 5% for four consecutive years).</li>
<li>First, employee salaries must be increased. Even during deflation, the consumption tax has been raised twice in the past decade, and the national burden rate has also increased.</li>
<li>When introducing employee stock compensation plan, it will be necessary to make sure that the plan is not only designed to supplement employee pay, but also to increase employee engagement.</li>
</ul>


Employee motivation is reflected in the fact that employee salaries have barely increased in 10 years (employee engagement in Japan has been 5% for four consecutive years).
First, employee salaries must be increased. Even during deflation, the consumption tax has been raised twice in the past decade, and the national burden rate has also increased.
When introducing employee stock compensation plan, it will be necessary to make sure that the plan is not only designed to supplement employee pay, but also to increase employee engagement.


Employee Stock Compensation Plans Need to Be Designed to Increase Employee Engagement

<ul>
<li>Unless 10% male/female of lawmakers, is changed, the quota system cannot be expected to be introduced. It's not easy to replace male incumbents who have vested interests with female candidates.</li>
<li>Gender wage gap relies on the low number of female managers, but there's no sense of acceleration in the government's goal of achieving 30% of female managers by 2030.</li>
<li>The gender gap in higher education is affecting female managers and the gender wage gap. It’s important to solve this fundamental problem by providing equal higher educational opportunities through scholarships.</li>
</ul>


Unless 10% male/female of lawmakers, is changed, the quota system cannot be expected to be introduced. It's not easy to replace male incumbents who have vested interests with female candidates.
Gender wage gap relies on the low number of female managers, but there's no sense of acceleration in the government's goal of achieving 30% of female managers by 2030.
The gender gap in higher education is affecting female managers and the gender wage gap. It’s important to solve this fundamental problem by providing equal higher educational opportunities through scholarships.


Solving Gender Gap in Higher Education Is Key, as Political Leadership Can’t Be Count On

<ul>
<li>Considering that about half of the listed companies had P/Bs below 1x, the fact that 13% of the companies that published medium-term management plans mentioned P/Bs is too small.</li>
<li>More companies should mention ROE in mid-term business plans, but the reason they don't is because they recognize that the company isn't generating return that exceeds its cost of capital.</li>
<li>While P/B is rising due to rising stock prices, foreign ownership is increasing. In exchange, managers must realize that they need to develop measures for sustainable expansion of corporate value.</li>
</ul>


Considering that about half of the listed companies had P/Bs below 1x, the fact that 13% of the companies that published medium-term management plans mentioned P/Bs is too small.
More companies should mention ROE in mid-term business plans, but the reason they don't is because they recognize that the company isn't generating return that exceeds its cost of capital.
While P/B is rising due to rising stock prices, foreign ownership is increasing. In exchange, managers must realize that they need to develop measures for sustainable expansion of corporate value.


Why Do Only 13% of Companies Mention P/B in Mid-Term Management Plans While Half Had P/Bs Below 1x?

<ul>
<li>Largest 500 companies in prime market of 1,800 companies account for 90% of the market capitalization, which shows how low the listing standard of JPY10 billion tradable market capitalization is.</li>
<li>It's more important to implement measures that will grow corporate value over the medium-t0-long term than whether or not the market capitalization standard can be achieved by March 2025.</li>
<li>Since companies that choose standard market at market reclassification include companies that don't want to resolve corporate governance issues, more companies in standard market won't be proactive in corporate governance.</li>
</ul>


Largest 500 companies in prime market of 1,800 companies account for 90% of the market capitalization, which shows how low the listing standard of JPY10 billion tradable market capitalization is.
It's more important to implement measures that will grow corporate value over the medium-t0-long term than whether or not the market capitalization standard can be achieved by March 2025.
Since companies that choose standard market at market reclassification include companies that don't want to resolve corporate governance issues, more companies in standard market won't be proactive in corporate governance.


Growth in Corporate Value over Longer Term Is More Important than Meeting Immediate Listing Criteria

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)

Rather More Proposals that Have to Be Considered for or Against on a Qualitative, Case-By-Case Basis

I would like to discuss the issues on the June 29th Nikkei article, "Shareholders' Meetings are the Starting Point for Dialogue to Enhance...

Metrical Inc

Employee Stock Compensation Plans Need to Be Designed to Increase Employee Engagement

I would like to discuss 2 articles, "Executive Compensation Increases 20% in 10 Years, Widening Gap with Employees," and "Employees Engagement in...

Metrical Inc

Solving Gender Gap in Higher Education Is Key, as Political Leadership Can’t Be Count On

I would like to discuss the issues on Japan's ranking in the Gender Gap Index released by the World Economic Forum on June 21.

Metrical Inc

Why Do Only 13% of Companies Mention P/B in Mid-Term Management Plans While Half Had P/Bs Below 1x?

I would like to discuss the issues on the June 15 Nikkei article, "Companies Mentioning P/B in Mid-Term Management Plans Quadruple Year-Over-Year."

Metrical Inc

Growth in Corporate Value over Longer Term Is More Important than Meeting Immediate Listing Criteria

I would like to discuss the June 18 Nikkei Shimbun article, "Wave of Standard Transition: Special Provisions for Failure to Meet Prime Market...

Metrical Inc