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>The revised Corporate Governance Code and the inclusion of prime market listing criteria have resulted in significant improvements in % of independent directors and in the practices of Nominating/Compensation Committee.</li>
<li>Meanwhile, the chairmanship of the board of directors and the ratio of female directors, for which the Code didn't specify improvements or provide numerical target, are improving at modest pace.</li>
<li>There is the issue of whether the board/committees require independent directors to function fully independently, and the % of female directors indicates the seriousness of improving management and governance.</li>
</ul>


The revised Corporate Governance Code and the inclusion of prime market listing criteria have resulted in significant improvements in % of independent directors and in the practices of Nominating/Compensation Committee.
Meanwhile, the chairmanship of the board of directors and the ratio of female directors, for which the Code didn't specify improvements or provide numerical target, are improving at modest pace.
There is the issue of whether the board/committees require independent directors to function fully independently, and the % of female directors indicates the seriousness of improving management and governance.


How Far Has Corporate Governance Progressed in 2021? (1) ~ Board Practices Section

<ul>
<li>Since many companies struggle to meet quorum requirements for AGMs, many companies mail accompanying documents along with the voting form in paper form, even though Companies Act has been amended.</li>
<li>The use of DX, such as hybrid shareholder meetings and online voting, comes to mind to meet quorum requirements for shareholder meetings, and this will help reduce administrative costs.</li>
<li>The fundamental issue, however, is that there are many conventional AGMs with little appeal and little substance, such as few managers whom we would really like to hear speak live.</li>
</ul>


Since many companies struggle to meet quorum requirements for AGMs, many companies mail accompanying documents along with the voting form in paper form, even though Companies Act has been amended.
The use of DX, such as hybrid shareholder meetings and online voting, comes to mind to meet quorum requirements for shareholder meetings, and this will help reduce administrative costs.
The fundamental issue, however, is that there are many conventional AGMs with little appeal and little substance, such as few managers whom we would really like to hear speak live.


Is the Solution to the Problem to Make the AGM Attractive?

<ul>
<li>The government's application of human capital disclosure starting with FY3/2023 companies runs the risk of omitting process of fully discussing and internalizing concept of human capital with company's management strategy.</li>
<li>The government's policy change to make disclosure of quarterly financial results voluntary in exchange for mandatory disclosure of human capital will likely lead to a setback in information disclosure.</li>
<li>Various issues will likely emerge in the future: whether the 3 indicators mandated for disclosure correctly reflect the company's human capital approach and whether they can be compared among companies.</li>
</ul>


The government's application of human capital disclosure starting with FY3/2023 companies runs the risk of omitting process of fully discussing and internalizing concept of human capital with company's management strategy.
The government's policy change to make disclosure of quarterly financial results voluntary in exchange for mandatory disclosure of human capital will likely lead to a setback in information disclosure.
Various issues will likely emerge in the future: whether the 3 indicators mandated for disclosure correctly reflect the company's human capital approach and whether they can be compared among companies.


Isn't FSA Too Forward-Thinking to Keep up with the Global Trend in Human Capital Disclosure?

<ul>
<li>The government's policy to expand small investment tax exemption program is expected to lead to increase in stock investments. Individuals are keen to invest in stocks with higher performance potential.</li>
<li>Trading in U.S. equities is prominent among under-40s generation. It is a rational investment for these generations with higher risk tolerance to invest in foreign equities with higher expected returns.</li>
<li>Individuals no longer have a single choice of Japanese equities as they did during the bubble economy, but have begun to select their investment targets as one of global equities.</li>
</ul>


The government's policy to expand small investment tax exemption program is expected to lead to increase in stock investments. Individuals are keen to invest in stocks with higher performance potential.
Trading in U.S. equities is prominent among under-40s generation. It is a rational investment for these generations with higher risk tolerance to invest in foreign equities with higher expected returns.
Individuals no longer have a single choice of Japanese equities as they did during the bubble economy, but have begun to select their investment targets as one of global equities.


Japanese Companies Will Be Selected as One of Global Stocks for Individual Investors in near Future

<ul>
<li>The less frequently information is disclosed, the greater the impact of single disclosure on stock prices. Fewer quarterly disclosure reduces trading volume, which will have negative impact on stock valuations.</li>
<li>Companies listed on U.S. market will continue quarterly disclosure, while companies with limited human resources won't adopt quarterly disclosure. Even within the same sector, companies may adopt different disclosure attitudes.</li>
<li>Metrical's analysis shows that the IR factor is highly positively correlated with Tobin's q. Also, different disclosure stances may emerge depending on the ratio of foreign shareholders.</li>
</ul>


The less frequently information is disclosed, the greater the impact of single disclosure on stock prices. Fewer quarterly disclosure reduces trading volume, which will have negative impact on stock valuations.
Companies listed on U.S. market will continue quarterly disclosure, while companies with limited human resources won't adopt quarterly disclosure. Even within the same sector, companies may adopt different disclosure attitudes.
Metrical's analysis shows that the IR factor is highly positively correlated with Tobin's q. Also, different disclosure stances may emerge depending on the ratio of foreign shareholders.


The Attitude Toward Information Disclosure May Make a Further Difference in Stock Valuations

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)

How Far Has Corporate Governance Progressed in 2021? (1) ~ Board Practices Section

This year, continuing on from last year, I would like to examine how far companies have progressed in their corporate governance efforts over the...

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Is the Solution to the Problem to Make the AGM Attractive?

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Isn't FSA Too Forward-Thinking to Keep up with the Global Trend in Human Capital Disclosure?

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Japanese Companies Will Be Selected as One of Global Stocks for Individual Investors in near Future

I would like to discuss the issues on the Nikkei article, "Aging Individual Shareholders of Japanese Companies, Over 70s Hold 40%, Young Eyes...

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The Attitude Toward Information Disclosure May Make a Further Difference in Stock Valuations

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Metrical Inc