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>An increase in % of variable compensation in executive compensation, linked to medium-to-long-term performance targets, is expected to foster shareholder-oriented management and lead to growth of shareholder value over time.</li>
<li>Some caution is needed when executive compensation is linked to TSR. The key is to ensure that executive incentive compensation is determined based on combination of medium-to-long-term performance and TSR.</li>
<li>Although the proportion of performance-based and incentive compensation has been gradually increasing, it seems that many executives are still hesitant to take risks to create value.</li>
</ul>


An increase in % of variable compensation in executive compensation, linked to medium-to-long-term performance targets, is expected to foster shareholder-oriented management and lead to growth of shareholder value over time.
Some caution is needed when executive compensation is linked to TSR. The key is to ensure that executive incentive compensation is determined based on combination of medium-to-long-term performance and TSR.
Although the proportion of performance-based and incentive compensation has been gradually increasing, it seems that many executives are still hesitant to take risks to create value.


Although Executive Compensation Has Improved, Many Managers Still Seem Hesitant to Take Risks

<ul>
<li>When a practice that was previously adopted by few companies becomes widely adopted, the impact of that practice tends to diminish.</li>
<li>Cash allocation, which is critical to the growth of corporate value, should be determined based on the company’s cash flow, cash position, and growth plans.</li>
<li>At the same time, recognizing that free cash flow belongs to shareholders, any excess cash remaining after cash allocation decisions have been made should be returned to shareholders.</li>
</ul>


When a practice that was previously adopted by few companies becomes widely adopted, the impact of that practice tends to diminish.
Cash allocation, which is critical to the growth of corporate value, should be determined based on the company’s cash flow, cash position, and growth plans.
At the same time, recognizing that free cash flow belongs to shareholders, any excess cash remaining after cash allocation decisions have been made should be returned to shareholders.


There Aren't Many Companies Where Discipline Is Effectively Applied to Determine Cash Allocation

<ul>
<li>An increase in the approval rate for shareholder proposals and a decrease in the approval rate for management proposals will influence the company’s subsequent policies.</li>
<li>Thanks to TSE's educational initiatives, there’s been an increase in shareholder proposals that address management issues raised by activist investors. This is expected to encourage companies to implement fundamental reforms.</li>
<li>However, with most shareholder proposals being rejected, there may be companies that are buying time by increasing shareholder returns until they can implement radical measures that carry significant risk.</li>
</ul>


An increase in the approval rate for shareholder proposals and a decrease in the approval rate for management proposals will influence the company’s subsequent policies.
Thanks to TSE's educational initiatives, there’s been an increase in shareholder proposals that address management issues raised by activist investors. This is expected to encourage companies to implement fundamental reforms.
However, with most shareholder proposals being rejected, there may be companies that are buying time by increasing shareholder returns until they can implement radical measures that carry significant risk.


While Companies Buy Time Before Executing Fundamental Measures, Shareholder Proposals Keep Rising

<ul>
<li>An increasing number of domestic asset management companies are treating shares reclassified as “shares held for trading” as policy holdings and exercising their voting rights accordingly.</li>
<li>The practice of reclassifying shares as “shares held for trading” to make policy-held shares appear smaller is a phenomenon typical of the transitional period during which cross-shareholdings are being unwound.</li>
<li>As evidenced by the renewed focus on strategic holdings following the revision of the Corporate Governance Code, the issue of cross-shareholdings remains a challenge for listed companies going forward.</li>
</ul>


An increasing number of domestic asset management companies are treating shares reclassified as “shares held for trading” as policy holdings and exercising their voting rights accordingly.
The practice of reclassifying shares as “shares held for trading” to make policy-held shares appear smaller is a phenomenon typical of the transitional period during which cross-shareholdings are being unwound.
As evidenced by the renewed focus on strategic holdings following the revision of the Corporate Governance Code, the issue of cross-shareholdings remains a challenge for listed companies going forward.


For Small to Med-Sized Companies, the Resolution of Cross-Shareholdings Is Just Getting Started

<ul>
<li>“Using digital methods for notice of AGM” benefits both companies and shareholders. Meanwhile, the website—which should contain detailed information—should feature the full set of documents in both Japanese and English.</li>
<li>I don’t believe that simply amending the law will lead to an increase in online AGMs that allow shareholders to ask questions and vote.</li>
<li>Avoiding opportunities for dialogue with shareholders at the AGM not only means forfeiting those opportunities but also amounts to disregarding the AGM, which is the highest decision-making body.</li>
</ul>


“Using digital methods for notice of AGM” benefits both companies and shareholders. Meanwhile, the website—which should contain detailed information—should feature the full set of documents in both Japanese and English.
I don’t believe that simply amending the law will lead to an increase in online AGMs that allow shareholders to ask questions and vote.
Avoiding opportunities for dialogue with shareholders at the AGM not only means forfeiting those opportunities but also amounts to disregarding the AGM, which is the highest decision-making body.


Why Aren’t More AGMs Being Held Online?

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)

Although Executive Compensation Has Improved, Many Managers Still Seem Hesitant to Take Risks

I would like to discuss the issues on the June 17 Nikkei article titled “Executive Compensation: Portion Linked to Mid- to Long-Term Metrics Rises...

Metrical Inc

There Aren't Many Companies Where Discipline Is Effectively Applied to Determine Cash Allocation

I would like to discuss the issues on the May 26 Nikkei article titled “The Fading Magic of Share Buybacks: What the Market Seeks Beyond...

Metrical Inc

While Companies Buy Time Before Executing Fundamental Measures, Shareholder Proposals Keep Rising

I would like to discuss the issues on the June 10 Nikkei article titled “2026 June AGMs: Activist Investors Take a Hard Line on Management;...

Metrical Inc

For Small to Med-Sized Companies, the Resolution of Cross-Shareholdings Is Just Getting Started

I would like to discuss the issues on the June 12 Nikkei article titled “No Tolerance for ‘Fake Reductions’ of Policy Holdings: Asset Managers...

Metrical Inc

Why Aren’t More AGMs Being Held Online?

I would like to discuss the issues on the June 10 Nikkei article titled “Notice of Shareholders’ Meeting: Details Available Online—AOKIHD Cuts...

Metrical Inc