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 many companies struggle to meet quorum requirements for AGMs, many companies mail accompanying documents along with the voting form in paper form, even though Companies Act has been amended.</li>
<li>The use of DX, such as hybrid shareholder meetings and online voting, comes to mind to meet quorum requirements for shareholder meetings, and this will help reduce administrative costs.</li>
<li>The fundamental issue, however, is that there are many conventional AGMs with little appeal and little substance, such as few managers whom we would really like to hear speak live.</li>
</ul>


Since many companies struggle to meet quorum requirements for AGMs, many companies mail accompanying documents along with the voting form in paper form, even though Companies Act has been amended.
The use of DX, such as hybrid shareholder meetings and online voting, comes to mind to meet quorum requirements for shareholder meetings, and this will help reduce administrative costs.
The fundamental issue, however, is that there are many conventional AGMs with little appeal and little substance, such as few managers whom we would really like to hear speak live.


Is the Solution to the Problem to Make the AGM Attractive?

<ul>
<li>The government's application of human capital disclosure starting with FY3/2023 companies runs the risk of omitting process of fully discussing and internalizing concept of human capital with company's management strategy.</li>
<li>The government's policy change to make disclosure of quarterly financial results voluntary in exchange for mandatory disclosure of human capital will likely lead to a setback in information disclosure.</li>
<li>Various issues will likely emerge in the future: whether the 3 indicators mandated for disclosure correctly reflect the company's human capital approach and whether they can be compared among companies.</li>
</ul>


The government's application of human capital disclosure starting with FY3/2023 companies runs the risk of omitting process of fully discussing and internalizing concept of human capital with company's management strategy.
The government's policy change to make disclosure of quarterly financial results voluntary in exchange for mandatory disclosure of human capital will likely lead to a setback in information disclosure.
Various issues will likely emerge in the future: whether the 3 indicators mandated for disclosure correctly reflect the company's human capital approach and whether they can be compared among companies.


Isn't FSA Too Forward-Thinking to Keep up with the Global Trend in Human Capital Disclosure?

<ul>
<li>The government's policy to expand small investment tax exemption program is expected to lead to increase in stock investments. Individuals are keen to invest in stocks with higher performance potential.</li>
<li>Trading in U.S. equities is prominent among under-40s generation. It is a rational investment for these generations with higher risk tolerance to invest in foreign equities with higher expected returns.</li>
<li>Individuals no longer have a single choice of Japanese equities as they did during the bubble economy, but have begun to select their investment targets as one of global equities.</li>
</ul>


The government's policy to expand small investment tax exemption program is expected to lead to increase in stock investments. Individuals are keen to invest in stocks with higher performance potential.
Trading in U.S. equities is prominent among under-40s generation. It is a rational investment for these generations with higher risk tolerance to invest in foreign equities with higher expected returns.
Individuals no longer have a single choice of Japanese equities as they did during the bubble economy, but have begun to select their investment targets as one of global equities.


Japanese Companies Will Be Selected as One of Global Stocks for Individual Investors in near Future

<ul>
<li>The less frequently information is disclosed, the greater the impact of single disclosure on stock prices. Fewer quarterly disclosure reduces trading volume, which will have negative impact on stock valuations.</li>
<li>Companies listed on U.S. market will continue quarterly disclosure, while companies with limited human resources won't adopt quarterly disclosure. Even within the same sector, companies may adopt different disclosure attitudes.</li>
<li>Metrical's analysis shows that the IR factor is highly positively correlated with Tobin's q. Also, different disclosure stances may emerge depending on the ratio of foreign shareholders.</li>
</ul>


The less frequently information is disclosed, the greater the impact of single disclosure on stock prices. Fewer quarterly disclosure reduces trading volume, which will have negative impact on stock valuations.
Companies listed on U.S. market will continue quarterly disclosure, while companies with limited human resources won't adopt quarterly disclosure. Even within the same sector, companies may adopt different disclosure attitudes.
Metrical's analysis shows that the IR factor is highly positively correlated with Tobin's q. Also, different disclosure stances may emerge depending on the ratio of foreign shareholders.


The Attitude Toward Information Disclosure May Make a Further Difference in Stock Valuations

<ul>
<li>Both Kappa Kreate and ATOM are almost completely controlled by their parent company, ColoWide, and we cannot expect corporate governance practices that would actually be a relief to minority shareholders.</li>
<li>With the parent company in full control, the subsidiary's minority shareholders are likely to be aware that the interests of the parent take precedence over those of the minority shareholders.</li>
<li>Parent company shareholders shouldn't tolerate continuing to own subsidiaries that damage their interests. The problem isn't a problem of the interests of the subsidiary's shareholders, but of the parent's shareholders.</li>
</ul>


Both Kappa Kreate and ATOM are almost completely controlled by their parent company, ColoWide, and we cannot expect corporate governance practices that would actually be a relief to minority shareholders.
With the parent company in full control, the subsidiary's minority shareholders are likely to be aware that the interests of the parent take precedence over those of the minority shareholders.
Parent company shareholders shouldn't tolerate continuing to own subsidiaries that damage their interests. The problem isn't a problem of the interests of the subsidiary's shareholders, but of the parent's shareholders.


The Problem Isn’t for the Subsidiary Shareholders but for the Parent Company Shareholders

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)

Is the Solution to the Problem to Make the AGM Attractive?

I would like to discuss the Nikkei article, "About half of listed companies will still mail convocation notices of AGMs accompanying documents as...

Metrical Inc

Isn't FSA Too Forward-Thinking to Keep up with the Global Trend in Human Capital Disclosure?

I would like to discuss the issues on the Nikkei article, "Human Capital Disclosure to Begin in Fiscal Year Ending March 31, 2023 for 4,000 Listed...

Metrical Inc

Japanese Companies Will Be Selected as One of Global Stocks for Individual Investors in near Future

I would like to discuss the issues on the Nikkei article, "Aging Individual Shareholders of Japanese Companies, Over 70s Hold 40%, Young Eyes...

Metrical Inc

The Attitude Toward Information Disclosure May Make a Further Difference in Stock Valuations

I would like to discuss the issues on the Nikkei Shimbun article, " FSA Proposal to Make Quarterly Financial Statements Voluntary, Timely...

Metrical Inc

The Problem Isn’t for the Subsidiary Shareholders but for the Parent Company Shareholders

I would like to discuss the issues on the Nikkei article about "Mr. Go Yamakado, president of Atom, another revolving sushi chain, has been...

Metrical Inc