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>11 of 14 corporate governance criteria confirmed the significance of % foreign shareholder. In particular, 9 of 14 criteria showed progress in their efforts due to engagement of overseas investors.</li>
<li>Overseas investors are concerned about whether the interests of minority shareholders can be secured in companies with large shareholders, such as listed subsidiaries, and whether governance will function properly.</li>
<li>As for the independence of the Nominating and Compensation Committee, which didn't show significant correlation with % of foreign shareholders, it's still beyond the power of engagement by overseas investors.</li>
</ul>


11 of 14 corporate governance criteria confirmed the significance of % foreign shareholder. In particular, 9 of 14 criteria showed progress in their efforts due to engagement of overseas investors.
Overseas investors are concerned about whether the interests of minority shareholders can be secured in companies with large shareholders, such as listed subsidiaries, and whether governance will function properly.
As for the independence of the Nominating and Compensation Committee, which didn't show significant correlation with % of foreign shareholders, it's still beyond the power of engagement by overseas investors.


Overseas Investors Have Done a Great Deal to Improve the Governance of Japanese Companies, But...

<ul>
<li>Fujikura and JVC Kenwood, which could generate cash flow by restructuring their business portfolios, were evaluated as "value stocks" due to the gap between their corporate value and stock prices.</li>
<li>Fujikura and JVC Kenwood haven't posted record profits in 17 and 11 years, respectively. The key to solving why it took so long may be the change in top management.</li>
<li>If management doesn't listen, structural reforms won't be implemented, even if shareholders repeatedly suggest restructuring business portfolio. This is why it's important for shareholders to replace management that continues underperforming.</li>
</ul>


Fujikura and JVC Kenwood, which could generate cash flow by restructuring their business portfolios, were evaluated as "value stocks" due to the gap between their corporate value and stock prices.
Fujikura and JVC Kenwood haven't posted record profits in 17 and 11 years, respectively. The key to solving why it took so long may be the change in top management.
If management doesn't listen, structural reforms won't be implemented, even if shareholders repeatedly suggest restructuring business portfolio. This is why it's important for shareholders to replace management that continues underperforming.


Could the Turnaround Be Due to a Change in Management?

Pan-Asia Index Flows & Special Situations, Quiddity Advisors

Janaghan Jeyakumar, CFA

Pan-Asia Index Flows & Special Situations

Quiddity Advisors

Pan-Asia Catalysts/Events

Event-Driven

<ul>
<li>The Tokyo Stock Exchange (TSE) calculates Free-Float Weight (FFW) for each listed company and uses this value as a key component of TOPIX Index Calculation. </li>
<li>For companies with "low liquidity" the FFW will be multiplied by a fixed liquidity factor of 0.75 to derive the final FFW used for index calculation. </li>
<li>Every April, the application of this liquidity factor is reviewed by the TSE. In this insight, we take an early look at what could happen in April 2023.</li>
</ul>


The Tokyo Stock Exchange (TSE) calculates Free-Float Weight (FFW) for each listed company and uses this value as a key component of TOPIX Index Calculation. 
For companies with "low liquidity" the FFW will be multiplied by a fixed liquidity factor of 0.75 to derive the final FFW used for index calculation. 
Every April, the application of this liquidity factor is reviewed by the TSE. In this insight, we take an early look at what could happen in April 2023.


TOPIX Index Upweights: An Early Preview Of "The Big April Basket" 2023

<ul>
<li>While shareholder proposals, including those from activist investors, should be considered from independent perspective, it's clear that even companies with high-% independent directors don't necessarily get along with activist investors.</li>
<li>Board independence is not a question of the number or ratio of independent directors; rather, it is a question of whether independent directors are truly functioning on the board.</li>
<li>If the loss of cash results in missed investment opportunities to expand corporate value, this would conflict with interests of shareholders, so subsequent increases in market capitalization should be verified.</li>
</ul>


While shareholder proposals, including those from activist investors, should be considered from independent perspective, it's clear that even companies with high-% independent directors don't necessarily get along with activist investors.
Board independence is not a question of the number or ratio of independent directors; rather, it is a question of whether independent directors are truly functioning on the board.
If the loss of cash results in missed investment opportunities to expand corporate value, this would conflict with interests of shareholders, so subsequent increases in market capitalization should be verified.


Board Independence Is Demonstrated by Whether It Is Aligned with Common Shareholder Goal

<ul>
<li>The fact that TSE, which has revised Corporate Governance Code several times, is now discussing improving the quality of corporate governance shows that the governance practices have become a formality.</li>
<li>Regarding the expansion of English-language disclosure, there is need to eliminate the mismatch between the documents that companies translate into English and those that overseas investors demand to be translated.</li>
<li>Asset owners should keep encouraging asset managers to follow Stewardship Code. Appropriate action by asset managers to deal with the BOJ owned ETFs will encourage changes in the companies.</li>
</ul>


The fact that TSE, which has revised Corporate Governance Code several times, is now discussing improving the quality of corporate governance shows that the governance practices have become a formality.
Regarding the expansion of English-language disclosure, there is need to eliminate the mismatch between the documents that companies translate into English and those that overseas investors demand to be translated.
Asset owners should keep encouraging asset managers to follow Stewardship Code. Appropriate action by asset managers to deal with the BOJ owned ETFs will encourage changes in the companies.


Looking Forward to Discussion on How to Improve the Quality of Corporate Governance Practices

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)

Overseas Investors Have Done a Great Deal to Improve the Governance of Japanese Companies, But...

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Could the Turnaround Be Due to a Change in Management?

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TOPIX Index Upweights: An Early Preview Of "The Big April Basket" 2023

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Janaghan Jeyakumar, CFA

Board Independence Is Demonstrated by Whether It Is Aligned with Common Shareholder Goal

I would like to discuss the issues regarding the January 5 Nikkei article, "Are Other Shareholders Satisfied with Eviction Fees for Activist...

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Looking Forward to Discussion on How to Improve the Quality of Corporate Governance Practices

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Metrical Inc