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>Since there's little opposition to the argument that quarterly securities reports should no longer be mandatory, securities reports in 1Q/3Q are almost identical content to the disclosures to TSE.</li>
<li>To ensure the reliability of the financial statements submitted to TSE, which are replacing current statutory documents, the requirement of review by auditor could be a solution to the problem.</li>
<li>In this review, the addition of the cash flow statement and segment information in 1Q and 3Q financial statements is very useful and a step forward.</li>
</ul>


Since there's little opposition to the argument that quarterly securities reports should no longer be mandatory, securities reports in 1Q/3Q are almost identical content to the disclosures to TSE.
To ensure the reliability of the financial statements submitted to TSE, which are replacing current statutory documents, the requirement of review by auditor could be a solution to the problem.
In this review, the addition of the cash flow statement and segment information in 1Q and 3Q financial statements is very useful and a step forward.


Unification of Quarterly Securities Reports with Financial Summary to TSE Is Generally Appropriate

<ul>
<li>The carryback of pension obligations and expenses resulting from higher bond yields is a factor in the increase in operating profit.</li>
<li>While this'll lead to higher EPS, which should lead to higher dividends and more room for stock price appreciation, there's concern that inflating the B/S will lead to stagnant ROE.</li>
<li>In addition, since FY3/2024 profits will be boosted by pension financing factors unrelated to the core business, lower profit growth rate in FY3/2025 will put pressure on the stock price.</li>
</ul>


The carryback of pension obligations and expenses resulting from higher bond yields is a factor in the increase in operating profit.
While this'll lead to higher EPS, which should lead to higher dividends and more room for stock price appreciation, there's concern that inflating the B/S will lead to stagnant ROE.
In addition, since FY3/2024 profits will be boosted by pension financing factors unrelated to the core business, lower profit growth rate in FY3/2025 will put pressure on the stock price.


Investors Will Again Demand Concrete Measures to Raise ROE and Boost Shareholder Returns in FY3/2025

<ul>
<li>The same problem underlies the fact that women are more likely to be part-time/ non-regular workers, as well as the lower percentage of management positions and shorter length of service.</li>
<li>Setting targets and implementing measures for % of female managerial positions is important, since the higher ratio will narrow the gender wage gap, but this alone is not sufficient.</li>
<li>It's necessary to ensure that women have the same position in workplace even if they leave the workforce, and to change social systems and people's mindset to support child care.</li>
</ul>


The same problem underlies the fact that women are more likely to be part-time/ non-regular workers, as well as the lower percentage of management positions and shorter length of service.
Setting targets and implementing measures for % of female managerial positions is important, since the higher ratio will narrow the gender wage gap, but this alone is not sufficient.
It's necessary to ensure that women have the same position in workplace even if they leave the workforce, and to change social systems and people's mindset to support child care.


Women's Many Part-Time Jobs, Few Managerial Positions, and Short Tenure Are the Same Rooted Problems

<ul>
<li>Since the list of companies disclosing information based on TSE's request only shows "whether they disclosed," more companies will disclose the information in their corporate governance reports by December anyway.</li>
<li>Good practices published by TSE will provide hints for companies to improve their future disclosures. Investors will also be more likely to demand improvements from companies based on good practices.</li>
<li>The next step after disclosing the cost of capital is whether companies can disclose measures to fill gap between cost of capital and actual return and to raise return further.</li>
</ul>


Since the list of companies disclosing information based on TSE's request only shows "whether they disclosed," more companies will disclose the information in their corporate governance reports by December anyway.
Good practices published by TSE will provide hints for companies to improve their future disclosures. Investors will also be more likely to demand improvements from companies based on good practices.
The next step after disclosing the cost of capital is whether companies can disclose measures to fill gap between cost of capital and actual return and to raise return further.


Companies Are Finally at the Starting Line of Taking the First Steps to Improve ROE

<ul>
<li>TSE suggests presenting management strategies without sticking to the medium-term management plan, but the "medium-term management plan briefing" is the only opportunity to hear management policies from the company.</li>
<li>The primary reason why companies whose stock prices outperform even though they don't publish medium-term management plan are founding-family companies is that their interests align with those of their shareholders.</li>
<li>To align management with shareholders, it was also necessary to require CEOs with low stock ownership to increase the ratio of variable compensation and adopt stock grants in director compensation.</li>
</ul>


TSE suggests presenting management strategies without sticking to the medium-term management plan, but the "medium-term management plan briefing" is the only opportunity to hear management policies from the company.
The primary reason why companies whose stock prices outperform even though they don't publish medium-term management plan are founding-family companies is that their interests align with those of their shareholders.
To align management with shareholders, it was also necessary to require CEOs with low stock ownership to increase the ratio of variable compensation and adopt stock grants in director compensation.


Alignment of Management and Shareholder Interests Could Be the Beginning of Happiness

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)

Unification of Quarterly Securities Reports with Financial Summary to TSE Is Generally Appropriate

I would like to discuss the issues on the TSE's October 27th disclosure of the "Practical Policy on Review of Quarterly Disclosures (Draft)."

Metrical Inc

Investors Will Again Demand Concrete Measures to Raise ROE and Boost Shareholder Returns in FY3/2025

I would like to discuss the issues on the October 24 Nikkei article, Corporate Pension Burden to Decrease by 6 Trillion Yen in FY2022 as Rising...

Metrical Inc

Women's Many Part-Time Jobs, Few Managerial Positions, and Short Tenure Are the Same Rooted Problems

I would like to discuss the issues on the October 17 Nikkei article, "Gender Wage Gap Still Twice the Average of Developed Countries, Slowing Pace...

Metrical Inc

Companies Are Finally at the Starting Line of Taking the First Steps to Improve ROE

I would like to discuss TSE's material on October 26th "Publication of the List of Disclosed Companies Regarding "Measures to Achieve Management...

Metrical Inc

Alignment of Management and Shareholder Interests Could Be the Beginning of Happiness

I would like to discuss the issues on the October 20 Nikkei article, "Companies without Mid-Term Management Plans See Their Stock Prices Rise."

Metrical Inc