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>At June AGMs held by over 1,700 companies, out of 114 companies that received shareholder proposals, 7 were approved. The fact is that proposals aren't approved without high foreign ownerships.</li>
<li>At the end of March 2024, institutional investors' shareholding surpassed the combined shareholding of corporate and financial institutions. Companies are expected to listen to the opinions of their shareholders.</li>
<li>Although technical guidance from FSA and TSE is unlikely to directly lead to management improvements, it's expected to serve as a basis for supporting dialogue between overseas investors and companies.</li>
</ul>


At June AGMs held by over 1,700 companies, out of 114 companies that received shareholder proposals, 7 were approved. The fact is that proposals aren't approved without high foreign ownerships.
At the end of March 2024, institutional investors' shareholding surpassed the combined shareholding of corporate and financial institutions. Companies are expected to listen to the opinions of their shareholders.
Although technical guidance from FSA and TSE is unlikely to directly lead to management improvements, it's expected to serve as a basis for supporting dialogue between overseas investors and companies.


Revision of Corporate Governance Code Will Support Dialogue Between Overseas Investors and Companies

<ul>
<li>Financial Services Agency is planning to revise the Corporate Governance Code because corporate governance reforms aimed at achieving sustainable growth and medium- to long-term corporate value have not been achieved.</li>
<li>The essence of the problem is that many managers have little interest in the goal of expanding shareholder profits, which is the purpose of a listed company.</li>
<li>When shareholders hold management accountable for continuing measures that do not raise stock prices or increase corporate value, it becomes catalyst for a return to shareholder-oriented management.</li>
</ul>


Financial Services Agency is planning to revise the Corporate Governance Code because corporate governance reforms aimed at achieving sustainable growth and medium- to long-term corporate value have not been achieved.
The essence of the problem is that many managers have little interest in the goal of expanding shareholder profits, which is the purpose of a listed company.
When shareholders hold management accountable for continuing measures that do not raise stock prices or increase corporate value, it becomes catalyst for a return to shareholder-oriented management.


Catalyst for Value-Creating Management Isn't the Revision of Corporate Governance Code, but Rather..

<ul>
<li>With many companies unable to increase their ROE, the company also intends to demonstrate its commitment to improving ROE by strengthening shareholder returns through the adoption of DOE.</li>
<li>The increase in the number of companies adopting DOE may be a reflection of the fact that many companies are forecasting lower profits this fiscal year.</li>
<li>Of course, returning excess cash on hand while considering ROE isn't a bad thing, but it's also a concern that few companies are taking steps to ensure medium-to-long-term growth.</li>
</ul>


With many companies unable to increase their ROE, the company also intends to demonstrate its commitment to improving ROE by strengthening shareholder returns through the adoption of DOE.
The increase in the number of companies adopting DOE may be a reflection of the fact that many companies are forecasting lower profits this fiscal year.
Of course, returning excess cash on hand while considering ROE isn't a bad thing, but it's also a concern that few companies are taking steps to ensure medium-to-long-term growth.


To Companies that Adopt DOE: It's Good to Consider ROE, but Are They Falling into Short-Termism?

<ul>
<li>As global companies changing to increase the proportion of variable compensation from the perspective of securing human resources, the proportion of fixed compensation is gradually declining, but still high. </li>
<li>Since only executives who receive compensation of 100 million yen or more are required to be disclosed in annual securities reports, few companies disclose the compensation of all directors individually. </li>
<li>In addition to the inability to verify whether the remuneration paid was appropriate,　investors have doubts about the independence of the process by which the Remuneration Committee determines executive remuneration.</li>
</ul>


As global companies changing to increase the proportion of variable compensation from the perspective of securing human resources, the proportion of fixed compensation is gradually declining, but still high. 
Since only executives who receive compensation of 100 million yen or more are required to be disclosed in annual securities reports, few companies disclose the compensation of all directors individually. 
In addition to the inability to verify whether the remuneration paid was appropriate,　investors have doubts about the independence of the process by which the Remuneration Committee determines executive remuneration.


The Ratio of Fixed Compensation in Executive Compensation Has Gradually Declined, but Remains High

<ul>
<li>For asset management companies that mainly use passive funds, it is difficult to have sufficient dialogue with all portfolio companies equally in the environment where AGMs are concentrated in June.</li>
<li>As more companies focus on meeting formal voting guidelines, there is a risk that the goal of improving corporate value through management reforms will be put aside.</li>
<li>Solving individual management issues will lead to increased corporate value. However, due to physical reasons, not many companies engage in dialogue regarding individual management issues.</li>
</ul>


For asset management companies that mainly use passive funds, it is difficult to have sufficient dialogue with all portfolio companies equally in the environment where AGMs are concentrated in June.
As more companies focus on meeting formal voting guidelines, there is a risk that the goal of improving corporate value through management reforms will be put aside.
Solving individual management issues will lead to increased corporate value. However, due to physical reasons, not many companies engage in dialogue regarding individual management issues.


With Passive Funds Dominating Markets Today, Proxy Voting Tends to Be Limited to Formalities

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)

Revision of Corporate Governance Code Will Support Dialogue Between Overseas Investors and Companies

I would like to discuss the Nikkei newspaper article dated July 4, titled “Record number of shareholder proposals approved, activists dispatch a...

Metrical Inc

Catalyst for Value-Creating Management Isn't the Revision of Corporate Governance Code, but Rather..

I would like to discuss the Nikkei newspaper article dated June 30, “Financial Services Agency to establish meetings to strengthen board of...

Metrical Inc

To Companies that Adopt DOE: It's Good to Consider ROE, but Are They Falling into Short-Termism?

I would like to discuss the issues on the Nikkei newspaper article dated July 2, titled “Record Number of Companies Disclose New Dividend Payout...

Metrical Inc

The Ratio of Fixed Compensation in Executive Compensation Has Gradually Declined, but Remains High

I would like to discuss the July 4 Nikkei article, “Number of companies with executive compensation of over 100 million yen reaches record high of...

Metrical Inc

With Passive Funds Dominating Markets Today, Proxy Voting Tends to Be Limited to Formalities

I would like to discuss the issues on the Nikkei newspaper article dated June 26, titled “Criticism of Formality in the Exercise of Proxy Voting...

Metrical Inc