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>8 years after the introduction of Corporate Governance Code and "Ito Report," which showed the relationship between P/B and ROE as the cornerstone of management, few companies improved their management.</li>
<li>Companies with sustained share price growth were executing excellent growth policies and IR disclosures that were likely learned from their engagement with overseas investors.</li>
<li>It takes a certain period of time for a company to learn through engagement, for the results to show up in improved management, and for other investors to notice it.</li>
</ul>


8 years after the introduction of Corporate Governance Code and "Ito Report," which showed the relationship between P/B and ROE as the cornerstone of management, few companies improved their management.
Companies with sustained share price growth were executing excellent growth policies and IR disclosures that were likely learned from their engagement with overseas investors.
It takes a certain period of time for a company to learn through engagement, for the results to show up in improved management, and for other investors to notice it.


Learning Through Engagement Takes a Certain Period of Time to Show Results

<ul>
<li>The TSE is in a long-term battle to improve the quality of the prime market while maintaining lax listing standards that do not fit the prime market concept.</li>
<li>If passive funds move to JPX Prime 150 Index, which would increase the divergence between stock prices of high quality and low quality companies, it might motivate the companies more.</li>
<li>If there is little difference between performance of TOPIX and JPX Prime 150, the passive funds will be satisfied with this index, and the TOPIX engagement problem will be eliminated.</li>
</ul>


The TSE is in a long-term battle to improve the quality of the prime market while maintaining lax listing standards that do not fit the prime market concept.
If passive funds move to JPX Prime 150 Index, which would increase the divergence between stock prices of high quality and low quality companies, it might motivate the companies more.
If there is little difference between performance of TOPIX and JPX Prime 150, the passive funds will be satisfied with this index, and the TOPIX engagement problem will be eliminated.


Having Ended Its Traditional Role, TOPIX Faces Several Challenges

<ul>
<li>While many listed companies have already established formal standards, TSE plans to establish rules with higher hurdles to ensure the independence of listed subsidiaries and other dependent companies.</li>
<li>It would make more sense for TSE to question why the parent company maintains the subsidiary's listing, and minority shareholders of both parent and subsidiary would be more interested.</li>
<li>Certainly TSE's "independence criteria" for independent directors is loose, which has negatively impacted the operation of the Board of Directors, so it would be effective to re-establish the criteria.</li>
</ul>


While many listed companies have already established formal standards, TSE plans to establish rules with higher hurdles to ensure the independence of listed subsidiaries and other dependent companies.
It would make more sense for TSE to question why the parent company maintains the subsidiary's listing, and minority shareholders of both parent and subsidiary would be more interested.
Certainly TSE's "independence criteria" for independent directors is loose, which has negatively impacted the operation of the Board of Directors, so it would be effective to re-establish the criteria.


Independence of BOD Is Necessary, but Can Independence of Subordinate Companies Really Be Ensured?

<ul>
<li>The few positive disclosures suggest that there are few positive companies. The question is how much progress companies will make in efforts on gender gap disparity over the next year.</li>
<li>To eliminate this gap, companies need to quickly realize that human resources are valued fairly as human capital, without gender distinction, and used as a resource for growth.</li>
<li>Now that stock prices have become a key measure of management, pressure from investors influencing stock prices is more effective. Deep analysis of human capital disclosures is required of investors.</li>
</ul>


The few positive disclosures suggest that there are few positive companies. The question is how much progress companies will make in efforts on gender gap disparity over the next year.
To eliminate this gap, companies need to quickly realize that human resources are valued fairly as human capital, without gender distinction, and used as a resource for growth.
Now that stock prices have become a key measure of management, pressure from investors influencing stock prices is more effective. Deep analysis of human capital disclosures is required of investors.


Less Positive Disclosure Regarding the Gender Wage Gap Is Evidence of Less Positive Reasons

<ul>
<li>The "appointment of one female director at prime market company," which 80% of companies have achieved, is an easy goal, but it’s impossible to ensure board diversity with one woman.</li>
<li>There is concern that this "effort target without penalty" will give companies an escape route for not promoting board diversity, even with the lax target of 30% by 2030.</li>
<li>Half of companies that set goals regarding female employees, but a few companies set goals regarding the %/number of board members and disclose "diversity" in skill-matrix for appointing board members.</li>
</ul>


The "appointment of one female director at prime market company," which 80% of companies have achieved, is an easy goal, but it’s impossible to ensure board diversity with one woman.
There is concern that this "effort target without penalty" will give companies an escape route for not promoting board diversity, even with the lax target of 30% by 2030.
Half of companies that set goals regarding female employees, but a few companies set goals regarding the %/number of board members and disclose "diversity" in skill-matrix for appointing board members.


Few Companies Are Serious About Ensuring Board Diversity, Spoiled by Lax "Effort Targets"

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)

Learning Through Engagement Takes a Certain Period of Time to Show Results

I would like to discuss the issues on the May 29 Nikkei article on "Will the Activist Market Last Only One Year? Corporate Reforms Must Start with...

Metrical Inc

Having Ended Its Traditional Role, TOPIX Faces Several Challenges

I would like to discuss the outline of the material disclosed by the TSE on May 26, "Publication of Component Issues and Calculation Procedure for...

Metrical Inc

Independence of BOD Is Necessary, but Can Independence of Subordinate Companies Really Be Ensured?

I would like to discuss the issues on the materials of the TSE's third "Study Group on Minority Shareholder Protection in Dependent Listed...

Metrical Inc

Less Positive Disclosure Regarding the Gender Wage Gap Is Evidence of Less Positive Reasons

I would like to discuss the issues on the May 21 Nikkei article, " Shading in Companies' Explanations of Reasons for Gender Wage Gap:...

Metrical Inc

Few Companies Are Serious About Ensuring Board Diversity, Spoiled by Lax "Effort Targets"

I would like to discuss the issues on the May 21 Nikkei Newspaper article, "Government's New Goal for Companies Listed on TSE Prime: At Least One...

Metrical Inc