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>It is expected that there will be cases where investors and companies will have different views on “what constitutes constructive dialogue,” which will be added to the revised Stewardship Code. </li>
<li>This revision would be unfortunate if it is used only to secure affirmative votes for company agendas and to seek a compromise on shareholder proposals.</li>
<li>Before starting constructive dialogue with investors, a company must have business strategy that is “conducive to sustainable growth” or engagement will be waste of time and will not help management.</li>
</ul>


It is expected that there will be cases where investors and companies will have different views on “what constitutes constructive dialogue,” which will be added to the revised Stewardship Code. 
This revision would be unfortunate if it is used only to secure affirmative votes for company agendas and to seek a compromise on shareholder proposals.
Before starting constructive dialogue with investors, a company must have business strategy that is “conducive to sustainable growth” or engagement will be waste of time and will not help management.


Management Strategy Before Starting a Constructive Dialogue with Investors

<ul>
<li>There are two possible ways to improve the quality of the TSE: one is to exit the market and the other is to improve quality in existing companies.</li>
<li>While few companies are still exiting through de-listing, fewer companies will migrate to other markets going forward, so the quality of existing listed companies must be improved.</li>
<li>Two years after the “TSE's request,” the number of companies with P/Bs of less than 1x has not yet noticeably decreased, indicating that quality improvement is still a ways off.</li>
</ul>


There are two possible ways to improve the quality of the TSE: one is to exit the market and the other is to improve quality in existing companies.
While few companies are still exiting through de-listing, fewer companies will migrate to other markets going forward, so the quality of existing listed companies must be improved.
Two years after the “TSE's request,” the number of companies with P/Bs of less than 1x has not yet noticeably decreased, indicating that quality improvement is still a ways off.


With Transitional Measures Ending, Improving the Quality of Existing Listed Companies Will Be Key

<ul>
<li>The reason for slower reforming Growth Market seems to weigh on consideration for companies undergoing IPO review and coordination with stakeholders in IPO business. The investor's perspective is missing here.</li>
<li>Growth market listed companies that do not receive overseas investor engagement have more difficulty than prime market companies in raising their market capitalization to meet listing retention criteria.</li>
<li>Behind the failure to grow after IPOs are many managers who view IPO as place to cash in their equity rather than place to obtain the capital needed for growth.</li>
</ul>


The reason for slower reforming Growth Market seems to weigh on consideration for companies undergoing IPO review and coordination with stakeholders in IPO business. The investor's perspective is missing here.
Growth market listed companies that do not receive overseas investor engagement have more difficulty than prime market companies in raising their market capitalization to meet listing retention criteria.
Behind the failure to grow after IPOs are many managers who view IPO as place to cash in their equity rather than place to obtain the capital needed for growth.


Common Attitudes Toward IPOs Are Found in Parent-Subsidiary Listings

<ul>
<li>The dissolution of parent-subsidiary listing was achieved through the sale of a portion of the listed subsidiary's equity interest. The postponement of this issue is noted as an investment opportunity.</li>
<li>The status change of the listed subsidiary doesn't address concerns regarding the interests of the subsidiary's minority shareholders, nor does it implement restructuring of the parent company's entire business portfolio.</li>
<li>While investors are disappointed that the problem has been postponed, it also means that there are still many investment opportunities remaining, including for listed affiliates.</li>
</ul>


The dissolution of parent-subsidiary listing was achieved through the sale of a portion of the listed subsidiary's equity interest. The postponement of this issue is noted as an investment opportunity.
The status change of the listed subsidiary doesn't address concerns regarding the interests of the subsidiary's minority shareholders, nor does it implement restructuring of the parent company's entire business portfolio.
While investors are disappointed that the problem has been postponed, it also means that there are still many investment opportunities remaining, including for listed affiliates.


The Postponement of the Parent-Subsidiary Listing Issue Provides Further Investment Opportunities

<ul>
<li>Based on experience with "TSE's request,” it's impossible to request the same level of disclosure from every company. Companies that overseas investors can target should be requested to disclose proactively.</li>
<li>This “FSA's request” is expected to potentially cause companies to lose the effectiveness of the tactics they have used to control AGMs. Future steps are expected.</li>
<li>The slowdown in profit margin growth may also increase calls for improved corporate governance practices, with more companies reducing cross-shareholdings and launching stronger shareholder returns.</li>
</ul>


Based on experience with "TSE's request,” it's impossible to request the same level of disclosure from every company. Companies that overseas investors can target should be requested to disclose proactively.
This “FSA's request” is expected to potentially cause companies to lose the effectiveness of the tactics they have used to control AGMs. Future steps are expected.
The slowdown in profit margin growth may also increase calls for improved corporate governance practices, with more companies reducing cross-shareholdings and launching stronger shareholder returns.


Pre AGM Annual Securities Report Disclosure as a Clue to a True Dialogue with Investors

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)

Management Strategy Before Starting a Constructive Dialogue with Investors

I would like to discuss the issues on the March 5 Nikkei article, “Shareholders Collaborate in Dialogue to Encourage Corporate Growth."

Metrical Inc

With Transitional Measures Ending, Improving the Quality of Existing Listed Companies Will Be Key

I would like to discuss the issues on the Nikkei Shimbun article of March 31, “Delisting Risk for Over 200 Companies on TSE: ‘Transitional...

Metrical Inc

Common Attitudes Toward IPOs Are Found in Parent-Subsidiary Listings

I would like to discuss the issues in the April 3, the Nikkei article “70% of Companies Listed on TSE Growth Market Fail to Meet New Criteria. Low...

Metrical Inc

The Postponement of the Parent-Subsidiary Listing Issue Provides Further Investment Opportunities

I would like to discuss the issues on the Nikkei Shimbun article of March 31, “Parent-subsidiary dissolution trade has a way into play. TSE's...

Metrical Inc

Pre AGM Annual Securities Report Disclosure as a Clue to a True Dialogue with Investors

I would like to discuss the issues on the March 27 Nikkei article, “Disclosure of annual securities reports ‘possible a few days in advance.’...

Metrical Inc