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 Kankeiren intends to prevent further increases in the ratio of independent directors because of the small number of candidates for outside directors.</li>
<li>One reason why the substance of the Corporate Governance Code has not improved is that independent directors are a minority on the board.</li>
<li>The company is also responsible for not developing female internal executive director candidates, relying on outside directors for female directors, and not appointing foreign talent to the board.</li>
</ul>


The Kankeiren intends to prevent further increases in the ratio of independent directors because of the small number of candidates for outside directors.
One reason why the substance of the Corporate Governance Code has not improved is that independent directors are a minority on the board.
The company is also responsible for not developing female internal executive director candidates, relying on outside directors for female directors, and not appointing foreign talent to the board.


Manager's Real Intent to Prevent Further Increase in Ratio of Independent Directors Is Revealed

Index Rebal Trades & Special Situations, Quiddity Advisors

Janaghan Jeyakumar, CFA

Index Rebal Trades & Special Situations

Quiddity Advisors

Pan-Asia Catalysts/Events

Event-Driven

<ul>
<li>Quiddity's "Who is Ready" series of insights aims to objectively identify names listed on the Tokyo Stock Exchange that are potential additions to the TOPIX Index in future.</li>
<li>Since my last insight, <a href="https://www.smartkarma.com/entities/cellsource-co-ltd" target="_blank" data-smartkarma-citation="entities:40144:1" rel="noopener">CellSource (4880 JP)</a> and <a href="https://www.smartkarma.com/entities/kasumigaseki-capital-co-ltd" target="_blank" data-smartkarma-citation="entities:40162:1" rel="noopener">Kasumigaseki Capital (3498 JP)</a> have confirmed they will move to TSE Prime which means they will be included in TOPIX at end-November.</li>
<li>
<a href="https://www.smartkarma.com/entities/fp-partner-inc" target="_blank" data-smartkarma-citation="entities:40040:1" rel="noopener">FP Partner (7388 JP)</a> and <a href="https://www.smartkarma.com/entities/i-ne-co-ltd" target="_blank" data-smartkarma-citation="entities:40117:1" rel="noopener">I-NE (4933 JP)</a> will get included in TOPIX at the end of October.</li>
</ul>


Quiddity's "Who is Ready" series of insights aims to objectively identify names listed on the Tokyo Stock Exchange that are potential additions to the TOPIX Index in future.
Since my last insight, CellSource (4880 JP) and Kasumigaseki Capital (3498 JP) have confirmed they will move to TSE Prime which means they will be included in TOPIX at end-November.

FP Partner (7388 JP) and I-NE (4933 JP) will get included in TOPIX at the end of October.


TOPIX Inclusions: Who Is Ready (Oct 2023)

<ul>
<li>Japan has the largest number of TCFD endorsing institutions in the world, and the number of listed companies endorsing the TCFD has increased by 350 since last year.</li>
<li>It's hoped that more companies will follow the example of those that disclosed specific climate change impact estimates under certain conditions, and that other companies will attempt to do so.</li>
<li>There are many companies that have endorsed TCFD, but have only endorsed it and not disclosed it, so the issue isn’t about endorsing TCFD, but about the content of disclosure.</li>
</ul>


Japan has the largest number of TCFD endorsing institutions in the world, and the number of listed companies endorsing the TCFD has increased by 350 since last year.
It's hoped that more companies will follow the example of those that disclosed specific climate change impact estimates under certain conditions, and that other companies will attempt to do so.
There are many companies that have endorsed TCFD, but have only endorsed it and not disclosed it, so the issue isn’t about endorsing TCFD, but about the content of disclosure.


Issues with Content of Disclosures, Not Keyword Searches in TCFD

<ul>
<li>TSE market reorganization triggered the reduction of policy shareholdings, and now the test will be whether policy shareholdings can be reduced in order to raise ROE, which is sluggishly growing.</li>
<li>Companies that maintain excessive policy shareholdings should provide a rational explanation of their holding policies and the reasons for each shareholding in their corporate governance reports and annual securities reports.</li>
<li>Improving OP Margin, which is highly correlated with ROE, is a shortcut to raising ROE. Policy shareholdings, should not be accumulated in cash on hand, but used for profitable investments.</li>
</ul>


TSE market reorganization triggered the reduction of policy shareholdings, and now the test will be whether policy shareholdings can be reduced in order to raise ROE, which is sluggishly growing.
Companies that maintain excessive policy shareholdings should provide a rational explanation of their holding policies and the reasons for each shareholding in their corporate governance reports and annual securities reports.
Improving OP Margin, which is highly correlated with ROE, is a shortcut to raising ROE. Policy shareholdings, should not be accumulated in cash on hand, but used for profitable investments.


Policy Shareholdings, if Reduced, Should Be Used for Profitable Investments

<ul>
<li>Overseas investors feel that the disclosure of English documents by Japanese companies is slow-paced and the majority of overseas investors are not satisfied with the English disclosure.</li>
<li>Without sufficient disclosures in English, it is impossible to conduct a detailed analysis of the portfolio company. This also casts a shadow over engagement.</li>
<li>Given the narrowing coverage of sell-side analysts, companies should proactively disclose English-language materials at the earliest possible time. For long-term investors, English-language disclosures such as annual securities reports are also useful.</li>
</ul>


Overseas investors feel that the disclosure of English documents by Japanese companies is slow-paced and the majority of overseas investors are not satisfied with the English disclosure.
Without sufficient disclosures in English, it is impossible to conduct a detailed analysis of the portfolio company. This also casts a shadow over engagement.
Given the narrowing coverage of sell-side analysts, companies should proactively disclose English-language materials at the earliest possible time. For long-term investors, English-language disclosures such as annual securities reports are also useful.


Gap in Response to Disclosures in English Compared to the Growing Presence of Overseas Investors

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)

Manager's Real Intent to Prevent Further Increase in Ratio of Independent Directors Is Revealed

I would like to discuss the September 11 Nikkei article, "Kankeiren Proposes Revisions to Corporate Governance Code, Making Appointment of Outside...

Metrical Inc

TOPIX Inclusions: Who Is Ready (Oct 2023)

There are currently 67 names that satisfy all 6 key Segment Transfer requirements based on current data. Celsys (3663 JP) continues to be the top...

Janaghan Jeyakumar, CFA

Issues with Content of Disclosures, Not Keyword Searches in TCFD

I would like to discuss the issues of the Nikkei article "Financial Impact of Climate Change: Over 1,000 Companies Mentioned in Annual Securities...

Metrical Inc

Policy Shareholdings, if Reduced, Should Be Used for Profitable Investments

I would like to discuss the issues on the Nikkei Shimbun article of September 8 titled Listed Companies' Policy Stocks Lowest: Hitachi and Others...

Metrical Inc

Gap in Response to Disclosures in English Compared to the Growing Presence of Overseas Investors

I would like to discuss the summary of the materials disclosed by the TSE on August 31 in the material of "English Disclosure Implementation Status...

Metrical Inc