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>Considering that about half of the listed companies had P/Bs below 1x, the fact that 13% of the companies that published medium-term management plans mentioned P/Bs is too small.</li>
<li>More companies should mention ROE in mid-term business plans, but the reason they don't is because they recognize that the company isn't generating return that exceeds its cost of capital.</li>
<li>While P/B is rising due to rising stock prices, foreign ownership is increasing. In exchange, managers must realize that they need to develop measures for sustainable expansion of corporate value.</li>
</ul>


Considering that about half of the listed companies had P/Bs below 1x, the fact that 13% of the companies that published medium-term management plans mentioned P/Bs is too small.
More companies should mention ROE in mid-term business plans, but the reason they don't is because they recognize that the company isn't generating return that exceeds its cost of capital.
While P/B is rising due to rising stock prices, foreign ownership is increasing. In exchange, managers must realize that they need to develop measures for sustainable expansion of corporate value.


Why Do Only 13% of Companies Mention P/B in Mid-Term Management Plans While Half Had P/Bs Below 1x?

<ul>
<li>Largest 500 companies in prime market of 1,800 companies account for 90% of the market capitalization, which shows how low the listing standard of JPY10 billion tradable market capitalization is.</li>
<li>It's more important to implement measures that will grow corporate value over the medium-t0-long term than whether or not the market capitalization standard can be achieved by March 2025.</li>
<li>Since companies that choose standard market at market reclassification include companies that don't want to resolve corporate governance issues, more companies in standard market won't be proactive in corporate governance.</li>
</ul>


Largest 500 companies in prime market of 1,800 companies account for 90% of the market capitalization, which shows how low the listing standard of JPY10 billion tradable market capitalization is.
It's more important to implement measures that will grow corporate value over the medium-t0-long term than whether or not the market capitalization standard can be achieved by March 2025.
Since companies that choose standard market at market reclassification include companies that don't want to resolve corporate governance issues, more companies in standard market won't be proactive in corporate governance.


Growth in Corporate Value over Longer Term Is More Important than Meeting Immediate Listing Criteria

<ul>
<li>Even if attendance increases somewhat since 92.1% of AGMs in 2022 had less than 100 attendees, the reluctance to hold an online voting AGM due to technical issues isn't reasonable.</li>
<li>With 84.8% of companies having Q&amp;A sessions lasting less than 30 minutes, many companies want to end their Q&amp;A sessions in as short a time as possible.</li>
<li>Companies that want to keep Q&amp;A sessions short tend to hold hybrid on-site and online sessions that can prioritize questions from on-site attendees and limit questions from online participants.</li>
</ul>


Even if attendance increases somewhat since 92.1% of AGMs in 2022 had less than 100 attendees, the reluctance to hold an online voting AGM due to technical issues isn't reasonable.
With 84.8% of companies having Q&amp;A sessions lasting less than 30 minutes, many companies want to end their Q&amp;A sessions in as short a time as possible.
Companies that want to keep Q&amp;A sessions short tend to hold hybrid on-site and online sessions that can prioritize questions from on-site attendees and limit questions from online participants.


The Format of the AGM Also Reveals a Part of the Company's Attitude Toward Its Shareholders

<ul>
<li>The policy of extending retirement age to 65 is a measure to solve the immediate labor shortage, but it may lack the perspective of a mid-to-long-term human resource utilization strategy.</li>
<li>Since most employees in their 60s are male employees, this may slow down the fading of the traditionally male-centric corporate culture. A more diverse workforce is required.</li>
<li>Although seniors are still a promising market based on demographic composition, from the perspective of creating new value, it’s necessary to have more discussions about creating society that ensures diversity.</li>
</ul>


The policy of extending retirement age to 65 is a measure to solve the immediate labor shortage, but it may lack the perspective of a mid-to-long-term human resource utilization strategy.
Since most employees in their 60s are male employees, this may slow down the fading of the traditionally male-centric corporate culture. A more diverse workforce is required.
Although seniors are still a promising market based on demographic composition, from the perspective of creating new value, it’s necessary to have more discussions about creating society that ensures diversity.


Isn't Long-Term Human Resource Strategy More Necessary than Immediate Solution to Labor Shortage?

<ul>
<li>Nominating Committee's main activity is the selection of individual director candidates, and the Nominating Committee tends to be less involved in issues related to top management appointments, including succession planning.</li>
<li>Although most companies have a majority of independent directors as members of the nominating committee, the nominating committee may in fact be a body that approves top management's proposals.</li>
<li>Companies focus only on prime market listing criteria of "committee establishment and committee member composition" and overlook original intent. The problem is that it's all about achieving the formal criteria.</li>
</ul>


Nominating Committee's main activity is the selection of individual director candidates, and the Nominating Committee tends to be less involved in issues related to top management appointments, including succession planning.
Although most companies have a majority of independent directors as members of the nominating committee, the nominating committee may in fact be a body that approves top management's proposals.
Companies focus only on prime market listing criteria of "committee establishment and committee member composition" and overlook original intent. The problem is that it's all about achieving the formal criteria.


Nominating Committee Also Has Problems Achieving Only Formal Criteria of Corporate Governance Code

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)

Why Do Only 13% of Companies Mention P/B in Mid-Term Management Plans While Half Had P/Bs Below 1x?

I would like to discuss the issues on the June 15 Nikkei article, "Companies Mentioning P/B in Mid-Term Management Plans Quadruple Year-Over-Year."

Metrical Inc

Growth in Corporate Value over Longer Term Is More Important than Meeting Immediate Listing Criteria

I would like to discuss the June 18 Nikkei Shimbun article, "Wave of Standard Transition: Special Provisions for Failure to Meet Prime Market...

Metrical Inc

The Format of the AGM Also Reveals a Part of the Company's Attitude Toward Its Shareholders

I would like to discuss the issues on the June 11 Nikkei article, "Shareholder meetings far from being fully online: 'Delivery only' exceeds 90%."

Metrical Inc

Isn't Long-Term Human Resource Strategy More Necessary than Immediate Solution to Labor Shortage?

I would like to discuss the issues on the Nikkei article on June 10, "Stock Prices to Change with Employment in the 60s."

Metrical Inc

Nominating Committee Also Has Problems Achieving Only Formal Criteria of Corporate Governance Code

I would like to discuss the June 6 Nikkei article, "Discussion of Succession Planning for Companies Remains 56%, Leaving Challenges for Stable...

Metrical Inc