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>While shareholder proposals, including those from activist investors, should be considered from independent perspective, it's clear that even companies with high-% independent directors don't necessarily get along with activist investors.</li>
<li>Board independence is not a question of the number or ratio of independent directors; rather, it is a question of whether independent directors are truly functioning on the board.</li>
<li>If the loss of cash results in missed investment opportunities to expand corporate value, this would conflict with interests of shareholders, so subsequent increases in market capitalization should be verified.</li>
</ul>


While shareholder proposals, including those from activist investors, should be considered from independent perspective, it's clear that even companies with high-% independent directors don't necessarily get along with activist investors.
Board independence is not a question of the number or ratio of independent directors; rather, it is a question of whether independent directors are truly functioning on the board.
If the loss of cash results in missed investment opportunities to expand corporate value, this would conflict with interests of shareholders, so subsequent increases in market capitalization should be verified.


Board Independence Is Demonstrated by Whether It Is Aligned with Common Shareholder Goal

<ul>
<li>The fact that TSE, which has revised Corporate Governance Code several times, is now discussing improving the quality of corporate governance shows that the governance practices have become a formality.</li>
<li>Regarding the expansion of English-language disclosure, there is need to eliminate the mismatch between the documents that companies translate into English and those that overseas investors demand to be translated.</li>
<li>Asset owners should keep encouraging asset managers to follow Stewardship Code. Appropriate action by asset managers to deal with the BOJ owned ETFs will encourage changes in the companies.</li>
</ul>


The fact that TSE, which has revised Corporate Governance Code several times, is now discussing improving the quality of corporate governance shows that the governance practices have become a formality.
Regarding the expansion of English-language disclosure, there is need to eliminate the mismatch between the documents that companies translate into English and those that overseas investors demand to be translated.
Asset owners should keep encouraging asset managers to follow Stewardship Code. Appropriate action by asset managers to deal with the BOJ owned ETFs will encourage changes in the companies.


Looking Forward to Discussion on How to Improve the Quality of Corporate Governance Practices

<ul>
<li>The problem is that many companies have resources but haven’t taken steps to strengthen their profitability, given that multiples have declined due to lower excess earnings than 50 years ago.</li>
<li>What is required of TSE isn't to keep failing students in prime market and lower the quality of the market, but to promote metabolism and raise the quality of it.</li>
<li>The best catalyst is an MBO. Serious management's consideration of what it should do for shareholders is to enhance profitability by leveraging resources, while the other is an MBO.</li>
</ul>


The problem is that many companies have resources but haven’t taken steps to strengthen their profitability, given that multiples have declined due to lower excess earnings than 50 years ago.
What is required of TSE isn't to keep failing students in prime market and lower the quality of the market, but to promote metabolism and raise the quality of it.
The best catalyst is an MBO. Serious management's consideration of what it should do for shareholders is to enhance profitability by leveraging resources, while the other is an MBO.


Isn't the Best Catalyst to Facilitate MBOs to Increase Market Metabolism?

<ul>
<li>If we read "improved asset efficiency" as "ROA," it would fit better. ROA, along with ROE, correlates with valuation, and higher ROA can be expected to trigger higher stock prices. </li>
<li>Companies with high ROA tend to have advanced corporate governance initiatives. In Metrical Universe of 1,779 companies, ROA (historical 3-year average) for many of corporate governance metrics are significantly correlated.</li>
<li>Whether Japanese stocks are undervalued is another question, but if companies have resources but are neglecting company-wide efforts to increase margins and turnover, activist investors are likely to be interested.</li>
</ul>


If we read "improved asset efficiency" as "ROA," it would fit better. ROA, along with ROE, correlates with valuation, and higher ROA can be expected to trigger higher stock prices. 
Companies with high ROA tend to have advanced corporate governance initiatives. In Metrical Universe of 1,779 companies, ROA (historical 3-year average) for many of corporate governance metrics are significantly correlated.
Whether Japanese stocks are undervalued is another question, but if companies have resources but are neglecting company-wide efforts to increase margins and turnover, activist investors are likely to be interested.


Maybe There Are Many Companies in Japan that Have the Resources but Neglect Efforts to Increase ROA

<ul>
<li>Since simply increasing shareholder returns won't increase corporate value/market cap, it's more natural to present shareholder return policy together with reasonable earnings target, even when such policy is put forth.</li>
<li>In fact, the companies exemplified in the Nikkei article saw share prices rise for companies with positive earnings outlooks and increased conviction that they will meet their medium-term earnings targets.</li>
<li>This is  a more serious and urgent issue for transitional companies, as companies with market cap of less than 10 billion yen in October 2023 will be excluded from TOPIX.</li>
</ul>


Since simply increasing shareholder returns won't increase corporate value/market cap, it's more natural to present shareholder return policy together with reasonable earnings target, even when such policy is put forth.
In fact, the companies exemplified in the Nikkei article saw share prices rise for companies with positive earnings outlooks and increased conviction that they will meet their medium-term earnings targets.
This is  a more serious and urgent issue for transitional companies, as companies with market cap of less than 10 billion yen in October 2023 will be excluded from TOPIX.


The Real Goal of a Company that Wants to Remain in Prime Market Is to Remain in TOPIX

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)

Board Independence Is Demonstrated by Whether It Is Aligned with Common Shareholder Goal

I would like to discuss the issues regarding the January 5 Nikkei article, "Are Other Shareholders Satisfied with Eviction Fees for Activist...

Metrical Inc

Looking Forward to Discussion on How to Improve the Quality of Corporate Governance Practices

I would like to discuss the summary of the material of the 5th Follow-up Meeting on the Review of Market Segmentation disclosed by the TSE on...

Metrical Inc

Isn't the Best Catalyst to Facilitate MBOs to Increase Market Metabolism?

I would like to discuss the Nikkei article of January 3 titled "About P/B Below 1x, TSE's Seriousness Tested for Revival of Japanese Stocks."

Metrical Inc

Maybe There Are Many Companies in Japan that Have the Resources but Neglect Efforts to Increase ROA

I would like to discuss the December 30 Nikkei article, "In 2023, Wake Up 'All-Year Undervalued Stocks': Asset Efficiency Improvements Go Full-Scale."

Metrical Inc

The Real Goal of a Company that Wants to Remain in Prime Market Is to Remain in TOPIX

I would like to discuss the December 10 Nikkei article titled "TSE Reorganization to be Used for Stock Selection, Focusing on Shareholder Returns...

Metrical Inc