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.

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.

<ul>
<li>There're signs, with domestic institutional investors gradually becoming more willing to consider shareholder proposals. However, the hurdle to passage is still high, as shareholder proposals weren't approved at March AGMs.</li>
<li>Regarding proposals that are easy for domestic institutional investors to mechanically approve/disapprove, such as the number of independent directors and female directors, companies are expected to raise the level formally.</li>
<li>Since the announcement effect of shareholder proposals is significant, it is expected that companies that did not pass shareholder proposals this time will launch initiatives to strengthen shareholder returns.</li>
</ul>


There're signs, with domestic institutional investors gradually becoming more willing to consider shareholder proposals. However, the hurdle to passage is still high, as shareholder proposals weren't approved at March AGMs.
Regarding proposals that are easy for domestic institutional investors to mechanically approve/disapprove, such as the number of independent directors and female directors, companies are expected to raise the level formally.
Since the announcement effect of shareholder proposals is significant, it is expected that companies that did not pass shareholder proposals this time will launch initiatives to strengthen shareholder returns.


Hurdles to Shareholder Proposal Passage Are Still High, but the Announcement Effect Is Significant

<ul>
<li>Although it'll take some time for quality of existing listed companies to improve, a gradual improvement in quality of companies is likely for the time being as more companies delist.</li>
<li>The TSE's “request” was not only for activist investors, but also for other investors who shared the view that the stock market should not be left in the doldrums.</li>
<li>A certain number of companies that fail to meet TSE listing criteria will move to the regional stock exchanges, leading to a gradual improvement in the quality of the TSE.</li>
</ul>


Although it'll take some time for quality of existing listed companies to improve, a gradual improvement in quality of companies is likely for the time being as more companies delist.
The TSE's “request” was not only for activist investors, but also for other investors who shared the view that the stock market should not be left in the doldrums.
A certain number of companies that fail to meet TSE listing criteria will move to the regional stock exchanges, leading to a gradual improvement in the quality of the TSE.


Expect Gradual Improvement in the Quality of Listed Companies as More Companies Go Private

<ul>
<li>While the absolute amount of share repurchases has increased, many companies face challenges in using cash, given the slow growth in ROE and depth of equity capital over a decade.</li>
<li>While growth investment should increase corporate value, it's important for managers to manage to earn returns commensurate with investment risk, and to return cash to shareholders without taking unnecessary risks.</li>
<li>The question is not whether investment in growth or shareholder return is better, but whether the company was managing its business in a shareholder-friendly manner.</li>
</ul>


While the absolute amount of share repurchases has increased, many companies face challenges in using cash, given the slow growth in ROE and depth of equity capital over a decade.
While growth investment should increase corporate value, it's important for managers to manage to earn returns commensurate with investment risk, and to return cash to shareholders without taking unnecessary risks.
The question is not whether investment in growth or shareholder return is better, but whether the company was managing its business in a shareholder-friendly manner.


It Is Not a Question of Whether Investment in Growth or Shareholder Return Is Better

<ul>
<li>In many cases, women are promoted as non-statutory executive officers, and there're very few women in positions where they can be involved in making decisions about the company's management policies.</li>
<li>The bias toward women in family work, such as childbirth and child rearing, leads to women leaving workforce, and their shorter tenure has resulted in fewer women in managerial positions.</li>
<li>Female executives who have been appointed after overcoming various difficulties and gaining “experience” are loss to the company, as they face the wall of homogeneity of the senior male community.</li>
</ul>


In many cases, women are promoted as non-statutory executive officers, and there're very few women in positions where they can be involved in making decisions about the company's management policies.
The bias toward women in family work, such as childbirth and child rearing, leads to women leaving workforce, and their shorter tenure has resulted in fewer women in managerial positions.
Female executives who have been appointed after overcoming various difficulties and gaining “experience” are loss to the company, as they face the wall of homogeneity of the senior male community.


The Key Is to Solve the Root Problem of Women Leaving Their Jobs Due to the Bias of Family Work

<ul>
<li>It's not desirable for shareholders to have outside directors who are comfortable and remain in office for a long period of time while they are expected to fulfill their duties.</li>
<li>The high demand for outside directors of the same senior generation as inside directors has led to a situation in which senior outside directors hold positions at several companies.</li>
<li>There are few competent young talents to take on the job of outside director among the senior, all-male, internal board directors who are under strong peer pressure.</li>
</ul>


It's not desirable for shareholders to have outside directors who are comfortable and remain in office for a long period of time while they are expected to fulfill their duties.
The high demand for outside directors of the same senior generation as inside directors has led to a situation in which senior outside directors hold positions at several companies.
There are few competent young talents to take on the job of outside director among the senior, all-male, internal board directors who are under strong peer pressure.


The Bigger Issue than the Lack of Higher Compensation for Outside Board Directors Is...

Executive Director, Co-head of CG Research, Metrical Inc.
METRICAL INC. is a corporate governance(CG)research, investment research and consulting firm in Japan, offering a full service CG research and solutions to investors, public companies and other wide range of organizations globally. http://www.metrical.co.jp/

Aki Matsumoto
Executive Director
• Metrical Inc

Hurdles to Shareholder Proposal Passage Are Still High, but the Announcement Effect Is Significant

I would like to discuss the issues on the March 28 Nikkei article, “Stock Market Presses Companies to Reform Governance: Most Shareholder Proposals...

Metrical Inc

Expect Gradual Improvement in the Quality of Listed Companies as More Companies Go Private

I would like to discuss the issues on the Nikkei Shimbun article of March 17, “Delistings to Remain at Highest Pace in 2025, with One Year Left in...

Metrical Inc

It Is Not a Question of Whether Investment in Growth or Shareholder Return Is Better

I would like to discuss the March 17 Nikkei article, “Aim for the Growth Stage, which discusses the dangerous trend of “investment is good,...

Metrical Inc

The Key Is to Solve the Root Problem of Women Leaving Their Jobs Due to the Bias of Family Work

I would like to discuss the issues on the March 17 Nikkei article, “Female Born and Bred Executives Increased 1.5 Times."

Metrical Inc

The Bigger Issue than the Lack of Higher Compensation for Outside Board Directors Is...

I would like to discuss the Nikkei article of March 15, “Outside Board Directors: 10% of Directors Close to 10 Years in Office; Monitoring Lax."

Metrical Inc