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>Companies had expected detailed rules, as with various disclosure documents, but was puzzled by government's guidelines, which were conceptual and didn't provide guidance on what to disclose and how much.</li>
<li>It is likely that the disclosure in annual securities reports, which are legal documents, will fill the space by disclosing items that are specifically identified and easy to show quantitatively.</li>
<li>Companies that cannot clearly explain their policies on investment in human capital and human resource strategies in their management strategies are unlikely to attract human resources.</li>
</ul>


Companies had expected detailed rules, as with various disclosure documents, but was puzzled by government's guidelines, which were conceptual and didn't provide guidance on what to disclose and how much.
It is likely that the disclosure in annual securities reports, which are legal documents, will fill the space by disclosing items that are specifically identified and easy to show quantitatively.
Companies that cannot clearly explain their policies on investment in human capital and human resource strategies in their management strategies are unlikely to attract human resources.


Companies Should Communicate Their Human Resources Strategy Rather than Detailed Disclosure Rules

<ul>
<li>Given the increased stock market volatility, it's not surprising that activist investment strategies are a good fit for investors seeking investment strategies that are less correlated with stock market fluctuations.</li>
<li>Japanese companies that have lower valuations, less effective steps to maximize their corporate value, and face many challenges in their governance practices are are well suited to activist investor approach.</li>
<li>Unlike passive investors who have an impact on the overall stock market, activist investors' purchases will have a limited impact on the overall market, but their presence will be significant.</li>
</ul>


Given the increased stock market volatility, it's not surprising that activist investment strategies are a good fit for investors seeking investment strategies that are less correlated with stock market fluctuations.
Japanese companies that have lower valuations, less effective steps to maximize their corporate value, and face many challenges in their governance practices are are well suited to activist investor approach.
Unlike passive investors who have an impact on the overall stock market, activist investors' purchases will have a limited impact on the overall market, but their presence will be significant.


Activist Investors Will Grow Their Presence, as Japanese Equities Would Be Good Fit for The Approach

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>Quiddity's "Who is Ready" series of insights aims to objectively identify names listed on the Tokyo Stock Exchange that are potential additions to the TOPIX Index in future.</li>
<li>This insight is a follow-up to <a href="https://www.smartkarma.com/insights/topix-inclusions-who-is-ready-aug-2022" target="_blank" data-smartkarma-citation="insights:74615" rel="noopener">TOPIX Inclusions: Who Is Ready (Aug 2022)</a> </li>
<li>At present, there are 53 names that satisfy all of these conditions and there are more names that are close to being in that group.</li>
</ul>


Quiddity's "Who is Ready" series of insights aims to objectively identify names listed on the Tokyo Stock Exchange that are potential additions to the TOPIX Index in future.
This insight is a follow-up to TOPIX Inclusions: Who Is Ready (Aug 2022) 
At present, there are 53 names that satisfy all of these conditions and there are more names that are close to being in that group.


TOPIX Inclusions: Who Is Ready (Oct 2022)

<ul>
<li>With the revision of Corporate Governance Code in 2021 and its listing criteria on prime market, the groundwork has been laid to some degree to facilitate functioning of compensation committee.</li>
<li>Meanwhile, there are not many companies with voluntary nominating and compensation committees that disclose the authority of their nominating and compensation committees in their annual securities reports.</li>
<li>Many companies, even large companies, do not even have a compensation policy in place, indicating that individual director compensation is a much lower priority to consider.</li>
</ul>


With the revision of Corporate Governance Code in 2021 and its listing criteria on prime market, the groundwork has been laid to some degree to facilitate functioning of compensation committee.
Meanwhile, there are not many companies with voluntary nominating and compensation committees that disclose the authority of their nominating and compensation committees in their annual securities reports.
Many companies, even large companies, do not even have a compensation policy in place, indicating that individual director compensation is a much lower priority to consider.


Move to Company with Statutory Committees Is Shortcut to Make the Compensation Committee Functional

<ul>
<li>Changes in Tobin's q were closely related to increases in foreign ownership. Companies with increases in Tobin's q reduced cash equivalents and total assets, suggesting they used assets more effectively.</li>
<li>No significant correlation was shown between Tobin's q and board practices, but companies with large increases in Tobin's q improved in % independent directors and the independence of compensation committees.</li>
<li>Companies with increases in Tobin's q showed superior values in Key Actions: change in growth policy score, dividend policy score, cash holdings score, frequency of share retirements, AGM/IR disclosure scores.</li>
</ul>


Changes in Tobin's q were closely related to increases in foreign ownership. Companies with increases in Tobin's q reduced cash equivalents and total assets, suggesting they used assets more effectively.
No significant correlation was shown between Tobin's q and board practices, but companies with large increases in Tobin's q improved in % independent directors and the independence of compensation committees.
Companies with increases in Tobin's q showed superior values in Key Actions: change in growth policy score, dividend policy score, cash holdings score, frequency of share retirements, AGM/IR disclosure scores.


What Initiatives Are Being Taken by Companies that Have Increased 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)

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Move to Company with Statutory Committees Is Shortcut to Make the Compensation Committee Functional

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What Initiatives Are Being Taken by Companies that Have Increased Valuations?

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