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>Share buybacks are likely to increase considerably in FY2023. One of the reasons for this is that the TSE has requested companies with stagnant stock prices to disclose improvement measures.</li>
<li>More important than the amount of share repurchase is how much ROE increased as a result. Whether shareholder returns were adequate for cash reserves and cash flow should be examined.</li>
<li>While Japanese companies today are in a cash cow situation as a whole, they are very cautious about investing aggressively.</li>
</ul>


Share buybacks are likely to increase considerably in FY2023. One of the reasons for this is that the TSE has requested companies with stagnant stock prices to disclose improvement measures.
More important than the amount of share repurchase is how much ROE increased as a result. Whether shareholder returns were adequate for cash reserves and cash flow should be examined.
While Japanese companies today are in a cash cow situation as a whole, they are very cautious about investing aggressively.


Might Consider Creating Mechanism to Allocate Companies' Cash in Cash Cow to Companies that Can Grow

<ul>
<li>Now that percentage of foreign shareholders has reached 30%, other foreign shareholders are more likely to support activist investors' proposals, and companies are paying more attention to communication with investors.</li>
<li>While cross-shareholdings held by banks etc. are declining, foreign shareholders and trust banks are on the rise. The holdings held by trust banks are managed by domestic institutional investors.</li>
<li>Whether their exercise of voting rights changes from the past will be the key to improving governance and moving forward with solutions to issues that have been postponed until now.</li>
</ul>


Now that percentage of foreign shareholders has reached 30%, other foreign shareholders are more likely to support activist investors' proposals, and companies are paying more attention to communication with investors.
While cross-shareholdings held by banks etc. are declining, foreign shareholders and trust banks are on the rise. The holdings held by trust banks are managed by domestic institutional investors.
Whether their exercise of voting rights changes from the past will be the key to improving governance and moving forward with solutions to issues that have been postponed until now.


To Change a Company that Didn't Change when Activist Investors Asked for Solutions to Their Issues

<ul>
<li>The fact that there is a certain correlation between ROE+DOE and TOPIX reconfirms that it's effective to ask management to improve performance in terms of both profitability and shareholder return.</li>
<li>While % change in shareholders' equity moves in line with % of change in net profit, dividend payout moves moves differently. Many companies still adopt a "stable dividend" policy.</li>
<li>If shareholders propose share repurchases, dividend increases, etc., it can be said that management has determined that the shareholder return (ROE+DOE) it has secured is not sufficient.</li>
</ul>


The fact that there is a certain correlation between ROE+DOE and TOPIX reconfirms that it's effective to ask management to improve performance in terms of both profitability and shareholder return.
While % change in shareholders' equity moves in line with % of change in net profit, dividend payout moves moves differently. Many companies still adopt a "stable dividend" policy.
If shareholders propose share repurchases, dividend increases, etc., it can be said that management has determined that the shareholder return (ROE+DOE) it has secured is not sufficient.


Modest ROE Growth Expected to Increase Shareholder Proposals for Higher Shareholder Returns

<ul>
<li>Many companies have worked to ensure labour productivity by curbing personnel costs by reducing work hours and shifting from full-time to part-time workers, as well as by controlling depreciation.</li>
<li>Maintaining labor productivity by converting to part-time and reducing working hours of full-time employees has been an effective measure to ensure operating profits margins, but it also carries risks.</li>
<li>Personnel cost/sales have bottomed out in 2018 and are on the rise. With cost structures changing dramatically after the economic reopening, controlling labor costs will be more difficult than ever.</li>
</ul>


Many companies have worked to ensure labour productivity by curbing personnel costs by reducing work hours and shifting from full-time to part-time workers, as well as by controlling depreciation.
Maintaining labor productivity by converting to part-time and reducing working hours of full-time employees has been an effective measure to ensure operating profits margins, but it also carries risks.
Personnel cost/sales have bottomed out in 2018 and are on the rise. With cost structures changing dramatically after the economic reopening, controlling labor costs will be more difficult than ever.


Maintaining Labor Productivity by Cutting Working Hours Was Effective but Risks Should Be Considered

<ul>
<li>While the shareholding of banks and insurances has dropped significantly, that of foreign shareholders has risen to 30%, making it impossible to ignore the opinions of overseas investors as before.</li>
<li>Since the introduction of the Corporate Governance Code, the concept of governance and ROE has permeated companies, making it possible for them to understand the background of activist investors' proposals.</li>
<li>Besides the close relationship between changes in valuations and changes in foreign shareholding, overseas investors account for 70% of TSE's transactions, forcing management to increasingly listen to overseas investor's voices.</li>
</ul>


While the shareholding of banks and insurances has dropped significantly, that of foreign shareholders has risen to 30%, making it impossible to ignore the opinions of overseas investors as before.
Since the introduction of the Corporate Governance Code, the concept of governance and ROE has permeated companies, making it possible for them to understand the background of activist investors' proposals.
Besides the close relationship between changes in valuations and changes in foreign shareholding, overseas investors account for 70% of TSE's transactions, forcing management to increasingly listen to overseas investor's voices.


Activist Investors Have Been Consistent, but Environment Around Companies Has Changed Significantly

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)

Might Consider Creating Mechanism to Allocate Companies' Cash in Cash Cow to Companies that Can Grow

I would like to discuss the March 31 Nikkei article on "Share Buybacks Highest in 16 Years; Ample Cash to Return to Shareholders Despite Declining...

Metrical Inc

To Change a Company that Didn't Change when Activist Investors Asked for Solutions to Their Issues

I would like to discuss the issues on the March 20 Nikkei article, "Activist Investors Punish Again for Unchanged Corporate 'Governance.'"

Metrical Inc

Modest ROE Growth Expected to Increase Shareholder Proposals for Higher Shareholder Returns

I would like to discuss the March 27 Nikkei article, "Shareholder Proposals Seeking Shareholder Returns Increase at March Shareholders' Meeting,...

Metrical Inc

Maintaining Labor Productivity by Cutting Working Hours Was Effective but Risks Should Be Considered

I would like to discuss the issues regarding the March 26 Nikkei article, "Japan's Wage 'Hourly Rate' Increases; Shorter Hours Ahead, Value-Added...

Metrical Inc

Activist Investors Have Been Consistent, but Environment Around Companies Has Changed Significantly

I would like to discuss the issues on the March 22 Nikkei article entitled "Japan, a Nation of 'Activist Investors': Corporate Value Created by...

Metrical Inc