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>METI's survey confirms that "the number of outside directors has increased, but they aren’t completely independent, as they're sometimes appointed by people with ties to the company" isn't incorrect statement.</li>
<li>The reality is that the parent companies of Japan's large asset management companies are financial institutions, and it's high hurdle to vote against proposals by clients of the parent company.</li>
<li>The BOJ is a major shareholder in many companies through its ETF holdings. If the exercise of those voting rights changes, the management of listed companies in Japan should change.</li>
</ul>


METI's survey confirms that "the number of outside directors has increased, but they aren’t completely independent, as they're sometimes appointed by people with ties to the company" isn't incorrect statement.
The reality is that the parent companies of Japan's large asset management companies are financial institutions, and it's high hurdle to vote against proposals by clients of the parent company.
The BOJ is a major shareholder in many companies through its ETF holdings. If the exercise of those voting rights changes, the management of listed companies in Japan should change.


Shortcut to Tension in Japanese Company Management Is Change in Voting Power of BOJ ETFs

<ul>
<li>Japanese companies need to resolve these issues in future, as evidenced by the fact that they have only just begun to resolve issues related to human rights and human capital.</li>
<li>There is risk that less accurate disclosure of ESG initiatives may emerge in future. Attention will be focused on annual securities reports that have mandate to include sustainability-related information.</li>
<li>The slow growth in ROE raises concerns that ESG efforts are not progressing as expected or are being formally mended, but have not improved enough to positively impact corporate value.</li>
</ul>


Japanese companies need to resolve these issues in future, as evidenced by the fact that they have only just begun to resolve issues related to human rights and human capital.
There is risk that less accurate disclosure of ESG initiatives may emerge in future. Attention will be focused on annual securities reports that have mandate to include sustainability-related information.
The slow growth in ROE raises concerns that ESG efforts are not progressing as expected or are being formally mended, but have not improved enough to positively impact corporate value.


If ESG Is Related to Improved Corporate Value, Doesn't Slow ROE Imply Stalled in Real ESG Efforts?

<ul>
<li>Forcing companies to submit ROE targets as measure to counter the fact that half of companies languish below 1x P/B is like a teacher asking students to submit an assignment.</li>
<li>If that motivates the management, good for them. However, in our experience, only a small percentage of students are motivated by the teacher's words and see their performance improve.</li>
<li>If companies are asked to submit ROE targets, they shouldn't simply meet them by changing capital structure through shareholder returns, but should achieve them through investments for future earnings growth.</li>
</ul>


Forcing companies to submit ROE targets as measure to counter the fact that half of companies languish below 1x P/B is like a teacher asking students to submit an assignment.
If that motivates the management, good for them. However, in our experience, only a small percentage of students are motivated by the teacher's words and see their performance improve.
If companies are asked to submit ROE targets, they shouldn't simply meet them by changing capital structure through shareholder returns, but should achieve them through investments for future earnings growth.


A Few Students Were Motivated by Assignments from Their Teachers, and They Performed Differently

<ul>
<li>TSE will probably settle on a compromise: "transitional measures will be completed as soon as possible," while "measures to minimize negative impacts will also be adopted.</li>
<li>Of 271 companies that failed to meet prime market listing criteria and are allowed to list under transitional measures, 227 (98%) don’t have tradable market capitalization of 10 billion yen.</li>
<li>The market capitalization of companies that disclosed plans to meet listing criteria within 3 years increased, while those that stated that they would meet criteria in over 3 years decreased.</li>
</ul>


TSE will probably settle on a compromise: "transitional measures will be completed as soon as possible," while "measures to minimize negative impacts will also be adopted.
Of 271 companies that failed to meet prime market listing criteria and are allowed to list under transitional measures, 227 (98%) don’t have tradable market capitalization of 10 billion yen.
The market capitalization of companies that disclosed plans to meet listing criteria within 3 years increased, while those that stated that they would meet criteria in over 3 years decreased.


Transitional Measures Will End in 2-3 Years, but Will Prime Market Listing Criteria Remain the Same?

<ul>
<li>People who can make business strategy decisions that are economic sense should be hired to serve on the board, not necessarily investors or financial experts.</li>
<li>If the motivation to increase corporate value is weak, linking the compensation of directors to the expansion of corporate value or granting them the company's stock is an alternative.</li>
<li>Investors aren’t necessarily the only ones with conflicts of interest with shareholders. Founders hold significant shares, and the same problem can be assumed for directors from financial institutions with cross-shareholdings.</li>
</ul>


People who can make business strategy decisions that are economic sense should be hired to serve on the board, not necessarily investors or financial experts.
If the motivation to increase corporate value is weak, linking the compensation of directors to the expansion of corporate value or granting them the company's stock is an alternative.
Investors aren’t necessarily the only ones with conflicts of interest with shareholders. Founders hold significant shares, and the same problem can be assumed for directors from financial institutions with cross-shareholdings.


It's Not Who The Directors Come From, but Their Skills and Ability to Fulfill Their Fiduciary Duties

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)

Shortcut to Tension in Japanese Company Management Is Change in Voting Power of BOJ ETFs

I would like to disscuss the December 28 Nikkei article, "Interview with CG-Net Chairman: "Investors should choose the president" regarding a...

Metrical Inc

A Few Students Were Motivated by Assignments from Their Teachers, and They Performed Differently

I have considered the Nikkei article on December 19, "TSE Opens 'Pandora's Box': Begins Discussing Issues of P/B Below 1x."

Metrical Inc

Transitional Measures Will End in 2-3 Years, but Will Prime Market Listing Criteria Remain the Same?

I would like to discuss a summary of the materials disclosed by the TSE on November 25 for "The 4th Follow-up Meeting on the Revision of Market...

Metrical Inc

It's Not Who The Directors Come From, but Their Skills and Ability to Fulfill Their Fiduciary Duties

I would like to discuss the issues on the Nikkei article, "METI proposes 'investors as outside directors' to promote mutual understanding with the...

Metrical Inc

Shortcut to Tension in Japanese Company Management Is Change in Voting Power of BOJ ETFs

I would like to disscuss the December 28 Nikkei article, "Interview with CG-Net Chairman: "Investors should choose the president" regarding a...

Metrical Inc

If ESG Is Related to Improved Corporate Value, Doesn't Slow ROE Imply Stalled in Real ESG Efforts?

I would like to discussed the December 23 Nikkei article, "ESG ""Growth potential": Room for improvement in investor dialogue and ESG evaluation."

Metrical Inc

A Few Students Were Motivated by Assignments from Their Teachers, and They Performed Differently

I have considered the Nikkei article on December 19, "TSE Opens 'Pandora's Box': Begins Discussing Issues of P/B Below 1x."

Metrical Inc

Transitional Measures Will End in 2-3 Years, but Will Prime Market Listing Criteria Remain the Same?

I would like to discuss a summary of the materials disclosed by the TSE on November 25 for "The 4th Follow-up Meeting on the Revision of Market...

Metrical Inc

It's Not Who The Directors Come From, but Their Skills and Ability to Fulfill Their Fiduciary Duties

I would like to discuss the issues on the Nikkei article, "METI proposes 'investors as outside directors' to promote mutual understanding with the...

Metrical Inc