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>If TSE were to require companies with low P/Bs to disclose improvement measures, more companies are likely to take immediate action to increase shareholder returns.</li>
<li>Reducing equity capital is effective in raising ROE, but simply draining cash accumulated from the past through shareholder returns will not lead to long-term stock price outperformance.</li>
<li>Among the components of ROE, ROA improvement is required rather than immediate increase in financial leverage. Companies should disclose their more detailed plans to increase ROA over the medium term.</li>
</ul>


If TSE were to require companies with low P/Bs to disclose improvement measures, more companies are likely to take immediate action to increase shareholder returns.
Reducing equity capital is effective in raising ROE, but simply draining cash accumulated from the past through shareholder returns will not lead to long-term stock price outperformance.
Among the components of ROE, ROA improvement is required rather than immediate increase in financial leverage. Companies should disclose their more detailed plans to increase ROA over the medium term.


Concrete Measures to Raise ROA Are Needed to Achieve Medium-Term Stock Price Outperformance

<ul>
<li>Except for the fact that companies with higher ROA tended to have higher ratios of independent directors, there were no significant correlations with many board practices.</li>
<li>Companies with high ROA are expected to increase ROA by reducing cross-shareholdings in future, and by improving cash allocation to achieve further growth and shareholder returns on growing cash flow.</li>
<li>Companies with high ROA tend to have a high ratio of foreign shareholders, and these companies' corporate governance is expected to gradually improve in the future, further increasing ROA.</li>
</ul>


Except for the fact that companies with higher ROA tended to have higher ratios of independent directors, there were no significant correlations with many board practices.
Companies with high ROA are expected to increase ROA by reducing cross-shareholdings in future, and by improving cash allocation to achieve further growth and shareholder returns on growing cash flow.
Companies with high ROA tend to have a high ratio of foreign shareholders, and these companies' corporate governance is expected to gradually improve in the future, further increasing ROA.


Companies with High ROA Have High Potential for Corporate Governance and Further ROA Improvement

<ul>
<li>While this was a major step forward, it did not adequately explain how Fujitsu would invest the cash from the sale of these non-core businesses in its core businesses.</li>
<li>The investment strategy of buying listed subsidiaries with parent-subsidiary listings was shown to be reasonable. The exit risk may be lower when the parent makes the subsidiary a wholly-owned subsidiary.</li>
<li>If valuations are enhanced by expectations of increased corporate value through reviews of the parent's business portfolio, the dissolution of the parent-subsidiary listing is a powerful way to enhance valuations.</li>
</ul>


While this was a major step forward, it did not adequately explain how Fujitsu would invest the cash from the sale of these non-core businesses in its core businesses.
The investment strategy of buying listed subsidiaries with parent-subsidiary listings was shown to be reasonable. The exit risk may be lower when the parent makes the subsidiary a wholly-owned subsidiary.
If valuations are enhanced by expectations of increased corporate value through reviews of the parent's business portfolio, the dissolution of the parent-subsidiary listing is a powerful way to enhance valuations.


Dissolving the Parent-Subsidiary Listing Is a Powerful Way to Increase Valuations?

<ul>
<li>Since companies are in the process of raising their own human capital efforts, it's good to use  ISO 30414 certification as an opportunity to see how well they are doing.</li>
<li>Many companies may believe that ISO will share the risk of information at the time of disclosure with respect to the accuracy of the disclosed information.</li>
<li>Since perfect information doesn't seem to be required in the Annual Securities Report for FY3/2023, the information will actually be available for intercompany comparisons starting with that for FY3/2024.</li>
</ul>


Since companies are in the process of raising their own human capital efforts, it's good to use  ISO 30414 certification as an opportunity to see how well they are doing.
Many companies may believe that ISO will share the risk of information at the time of disclosure with respect to the accuracy of the disclosed information.
Since perfect information doesn't seem to be required in the Annual Securities Report for FY3/2023, the information will actually be available for intercompany comparisons starting with that for FY3/2024.


Expected More Companies to Obtain ISO Certification, Which Would Share Disclosure Information Risk

<ul>
<li>The number of shareholder proposals in June 2022 was 241, significant increase from 136 in June 2021. It's expected that the number of shareholder proposals will increase again this year.</li>
<li>The increase in the percentage of shareholder proposals recommended by voting advisors can be considered an increase in shareholder proposals that are quite reasonable from the shareholder's point of view.</li>
<li>The percentage of overseas investors in favor of shareholder proposals increased, while that of domestic institutional investors remained unchanged at 7%, the same as the previous year.</li>
</ul>


The number of shareholder proposals in June 2022 was 241, significant increase from 136 in June 2021. It's expected that the number of shareholder proposals will increase again this year.
The increase in the percentage of shareholder proposals recommended by voting advisors can be considered an increase in shareholder proposals that are quite reasonable from the shareholder's point of view.
The percentage of overseas investors in favor of shareholder proposals increased, while that of domestic institutional investors remained unchanged at 7%, the same as the previous year.


Different Criteria for Exercising Voting Rights for Overseas and Domestic Institutional Investors

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)

Concrete Measures to Raise ROA Are Needed to Achieve Medium-Term Stock Price Outperformance

I would like to discuss the issues on the Nikkei article of January 26th, "TSE to Request More Disclosure from Low P/B Companies to Press Them to...

Metrical Inc

Companies with High ROA Have High Potential for Corporate Governance and Further ROA Improvement

I would like to explore how companies with higher ROAs tend to correlate with corporate governance practices, foreign ownership ratios, and stock...

Metrical Inc

Dissolving the Parent-Subsidiary Listing Is a Powerful Way to Increase Valuations?

I would like to discuss the January 23 Nikkei article, "Parent-subsidiary delisting is a trap for 'buy': Investment funds flinch at share price...

Metrical Inc

Different Criteria for Exercising Voting Rights for Overseas and Domestic Institutional Investors

I would like to discuss the issues on the date of "Status of Approval Rates for Shareholder Proposals by Proposal" published by the TSE on January...

Metrical Inc

Concrete Measures to Raise ROA Are Needed to Achieve Medium-Term Stock Price Outperformance

I would like to discuss the issues on the Nikkei article of January 26th, "TSE to Request More Disclosure from Low P/B Companies to Press Them to...

Metrical Inc

Companies with High ROA Have High Potential for Corporate Governance and Further ROA Improvement

I would like to explore how companies with higher ROAs tend to correlate with corporate governance practices, foreign ownership ratios, and stock...

Metrical Inc

Dissolving the Parent-Subsidiary Listing Is a Powerful Way to Increase Valuations?

I would like to discuss the January 23 Nikkei article, "Parent-subsidiary delisting is a trap for 'buy': Investment funds flinch at share price...

Metrical Inc

Expected More Companies to Obtain ISO Certification, Which Would Share Disclosure Information Risk

In summary, I would like to discuss the issue on the Nikkei article, "Human Capital" Disclosure, Acquisition of International Certification One...

Metrical Inc

Different Criteria for Exercising Voting Rights for Overseas and Domestic Institutional Investors

I would like to discuss the issues on the date of "Status of Approval Rates for Shareholder Proposals by Proposal" published by the TSE on January...

Metrical Inc