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>The fact that 59.2% of companies have March fiscal year-end and concentrate AGMs in the last week of June, preventing shareholders from attending AGMs, is a fundamental corporate governance issue.</li>
<li>Companies with foreign shareholdings of over 30% represent 17.4% of prime market. Most companies continue to run without a sense of urgency and without much influence from overseas investors.</li>
<li>While the number of listed subsidiaries has decreased over the past decade, the number of equity method affiliates has increased significantly. The business portfolio has not yet been fundamentally restructured.</li>
</ul>


The fact that 59.2% of companies have March fiscal year-end and concentrate AGMs in the last week of June, preventing shareholders from attending AGMs, is a fundamental corporate governance issue.
Companies with foreign shareholdings of over 30% represent 17.4% of prime market. Most companies continue to run without a sense of urgency and without much influence from overseas investors.
While the number of listed subsidiaries has decreased over the past decade, the number of equity method affiliates has increased significantly. The business portfolio has not yet been fundamentally restructured.


Governance Issues Have Not Been Resolved as Far as Profiles of TSE-Listed Companies Shows

<ul>
<li>The reason why many companies have previously rejected requests by overseas investors to meet with outside directors is that they've prioritized information control over constructive dialogue with shareholders and investors.</li>
<li>The fact that companies begun to provide opportunities for communication with outside directors will hopefully lead to shifts in value-creating management, but it'll not easy to spread to many companies.</li>
<li>Even if more companies provide opportunities for communication between outside directors and investors in the future, dialogue with unskilled outside directors will not be fruitful.</li>
</ul>


The reason why many companies have previously rejected requests by overseas investors to meet with outside directors is that they've prioritized information control over constructive dialogue with shareholders and investors.
The fact that companies begun to provide opportunities for communication with outside directors will hopefully lead to shifts in value-creating management, but it'll not easy to spread to many companies.
Even if more companies provide opportunities for communication between outside directors and investors in the future, dialogue with unskilled outside directors will not be fruitful.


A Dialogue with a Skilled Outside Director Will Create Value. This Premise Is Important

<ul>
<li>From the standpoint of endorsing parent-subsidiary listings, TSE intends to provide better disclosure guidance to ensure that the interests of minority shareholders of listed subsidiaries are adequately secured.</li>
<li>While investors expect early resolution, parent-subsidiary listings continue to be a long-lived theme and investment opportunity, thanks to the TSE giving them time to dissolve their parent-subsidiary listings.</li>
<li>As for the parent-subsidiary listings, the key is the percentage of foreign holdings, with some companies initiating restructuring of their business portfolios and many others not.</li>
</ul>


From the standpoint of endorsing parent-subsidiary listings, TSE intends to provide better disclosure guidance to ensure that the interests of minority shareholders of listed subsidiaries are adequately secured.
While investors expect early resolution, parent-subsidiary listings continue to be a long-lived theme and investment opportunity, thanks to the TSE giving them time to dissolve their parent-subsidiary listings.
As for the parent-subsidiary listings, the key is the percentage of foreign holdings, with some companies initiating restructuring of their business portfolios and many others not.


Thanks to TSE's Guidance, Parent-Subsidiary Listings Remain a Long-Lasting Investment Opportunity

<ul>
<li>Improvements in OP margin and Sales/Total Assets have been slow to improve ROE. More companies are including DOE in their dividend policy against the backdrop of increasing cash on hand.</li>
<li>With costs expected to increase amid rising prices, sales and gross margins need to be raised, and therefore the component costs of investment and high-margin operations need to be raised.</li>
<li>Restructuring the business portfolio later to determine cash allocation will not result in effective investment and must result in limited improvement in profit margins on sales.</li>
</ul>


Improvements in OP margin and Sales/Total Assets have been slow to improve ROE. More companies are including DOE in their dividend policy against the backdrop of increasing cash on hand.
With costs expected to increase amid rising prices, sales and gross margins need to be raised, and therefore the component costs of investment and high-margin operations need to be raised.
Restructuring the business portfolio later to determine cash allocation will not result in effective investment and must result in limited improvement in profit margins on sales.


Many Companies Are in Stage of Setting Caps to Ensure that Cash on Hand Grows No More than Necessary

<ul>
<li>The driver of higher stock valuations is overseas investors, and engagement by overseas investors is likely to have a positive effect on return on capital and stock valuations.</li>
<li>In many aspects, companies seem to be unwilling to face shareholders. If they don't confront shareholders and proceed with management reforms, they will not be able to implement serious initiatives.</li>
<li>It can be hypothesized that the behavior of prioritizing control over the AGM over engaging with shareholders provides a clue as to the seriousness of a company's efforts.</li>
</ul>


The driver of higher stock valuations is overseas investors, and engagement by overseas investors is likely to have a positive effect on return on capital and stock valuations.
In many aspects, companies seem to be unwilling to face shareholders. If they don't confront shareholders and proceed with management reforms, they will not be able to implement serious initiatives.
It can be hypothesized that the behavior of prioritizing control over the AGM over engaging with shareholders provides a clue as to the seriousness of a company's efforts.


One of the Clues to Know How Serious a Company Is About Shifting to Management that Creates Value

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)

Governance Issues Have Not Been Resolved as Far as Profiles of TSE-Listed Companies Shows

I would like to discuss the issues on the “Corporate Governance White Paper 2025” material disclosed by the TSE on May 26.

Metrical Inc

A Dialogue with a Skilled Outside Director Will Create Value. This Premise Is Important

I would like to discuss the issues on the May 22 Nikkei article, “Dialogue between Outside Directors and Investors Doubles in Three Years. NEC,...

Metrical Inc

Thanks to TSE's Guidance, Parent-Subsidiary Listings Remain a Long-Lasting Investment Opportunity

I would like to discuss the May 14 Nikkei article, “NTT and Mitsubishi Corporation...Parent and Subsidiary Dissolve Listing, Who's Next? The market...

Metrical Inc

Many Companies Are in Stage of Setting Caps to Ensure that Cash on Hand Grows No More than Necessary

I would like to discuss the issues on the May 16th Nikkei Newspaper article, “Ten Years of Corporate Governance Reform, Wealth Distribution...

Metrical Inc

One of the Clues to Know How Serious a Company Is About Shifting to Management that Creates Value

I would like to discuss the issues on the April 21 Nikkei article, “DNP Stock with ‘Elliott Loss’: Market Questions True Value of Reform."

Metrical Inc