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>Until now, listed companies have been reluctant to even lower the minimum shareholder purchase amount for reasons of economic rationality and administrative costs.</li>
<li>The same issues underlie reluctance of companies in lowering amount to purchase shares, online AGMs, electronic delivery of text in notice of convocations, and pre-AGM disclosure of annual securities reports.</li>
<li>Companies have been focused on controlling AGM rather than facing shareholders to increase their interests. This practice is problem that can lead to slower ROE and excessive cash on hand.</li>
</ul>


Until now, listed companies have been reluctant to even lower the minimum shareholder purchase amount for reasons of economic rationality and administrative costs.
The same issues underlie reluctance of companies in lowering amount to purchase shares, online AGMs, electronic delivery of text in notice of convocations, and pre-AGM disclosure of annual securities reports.
Companies have been focused on controlling AGM rather than facing shareholders to increase their interests. This practice is problem that can lead to slower ROE and excessive cash on hand.


A Reluctance to Confront Shareholders Is at the Root of Many Problems

<ul>
<li>The background for raising the maintaining listing criteria was that the current criteria are loose and that many companies aren't motivated to grow because they consider IPO to be goal.</li>
<li>Too long time horizons and previous listing maintenance criteria that might have been manageable did not create a sense of urgency for the company to grow.</li>
<li>There's concern that quality of standard market, to which companies that fail the criteria migrate, will deteriorate, and the entire market will need metabolism and replacement of management through M&amp;A.</li>
</ul>


The background for raising the maintaining listing criteria was that the current criteria are loose and that many companies aren't motivated to grow because they consider IPO to be goal.
Too long time horizons and previous listing maintenance criteria that might have been manageable did not create a sense of urgency for the company to grow.
There's concern that quality of standard market, to which companies that fail the criteria migrate, will deteriorate, and the entire market will need metabolism and replacement of management through M&amp;A.


What the Tokyo Market Needs Is a Metabolism and Replacement with Motivated Managers

<ul>
<li>While TSE will require companies to have IR staff, but most companies disclose that they have IR staff, there is gap with investors who believe that IR is not functioning.</li>
<li>The issue is the substance issue, as most companies have disclosed that they have already conducted the information meetings included in the implementation of specific IR activities expected by TSE.</li>
<li>The reason why many companies still do not make IR function may be because they do not realize the effect of IR in terms of higher stock valuations.</li>
</ul>


While TSE will require companies to have IR staff, but most companies disclose that they have IR staff, there is gap with investors who believe that IR is not functioning.
The issue is the substance issue, as most companies have disclosed that they have already conducted the information meetings included in the implementation of specific IR activities expected by TSE.
The reason why many companies still do not make IR function may be because they do not realize the effect of IR in terms of higher stock valuations.


Success Experiences Will Be Necessary for IR to Function

<ul>
<li>While offering non-serious TOB prices, knowing that the likelihood of TOBs by the activist fund is low, the aim to extract concessions from the REIT and sponsor companies was successful.</li>
<li>The governance problem is the composition of the company, which continues to manage off-balance sheet real estate through its subsidiary REIT asset management company.</li>
<li>So far, however, governance issues have not received much attention, only confirming the sponsor companies' willingness to continue REIT control and investors' benefit from higher REIT stock prices by TOBs.</li>
</ul>


While offering non-serious TOB prices, knowing that the likelihood of TOBs by the activist fund is low, the aim to extract concessions from the REIT and sponsor companies was successful.
The governance problem is the composition of the company, which continues to manage off-balance sheet real estate through its subsidiary REIT asset management company.
So far, however, governance issues have not received much attention, only confirming the sponsor companies' willingness to continue REIT control and investors' benefit from higher REIT stock prices by TOBs.


Governance Issues Were Not Highlighted and the Win-Win by REIT Sponsors and Investors Continues

<ul>
<li>The reason behind “TSE's request to lower minimum investment amount to around JPY100,000” is to increase stocks that can be purchased with monthly 100,000 yen of NISA's installment investment limit.</li>
<li>While the share unit system has allowed listed companies to reduce various costs, it has neglected the equal rights of shareholders who own less than one unit of stock.</li>
<li>Now that advances in shareholder administrative tools can reduce administrative costs, shareholders could be trade as few as one share and be granted the same rights as a single shareholder.</li>
</ul>


The reason behind “TSE's request to lower minimum investment amount to around JPY100,000” is to increase stocks that can be purchased with monthly 100,000 yen of NISA's installment investment limit.
While the share unit system has allowed listed companies to reduce various costs, it has neglected the equal rights of shareholders who own less than one unit of stock.
Now that advances in shareholder administrative tools can reduce administrative costs, shareholders could be trade as few as one share and be granted the same rights as a single shareholder.


Could It Be that the Unit Share System Has Helped to Turn Away from Growing Shareholder Interests?

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)

A Reluctance to Confront Shareholders Is at the Root of Many Problems

I would like to discuss the issues on the May 6 Nikkei article, “Minimum Investment Amount Reduction Adds Depth to the Stock Market."

Metrical Inc

What the Tokyo Market Needs Is a Metabolism and Replacement with Motivated Managers

I would like to discuss the issues in the “New Criteria for Maintaining TSE Growth Listings” document released by the TSE on May 2.

Metrical Inc

Success Experiences Will Be Necessary for IR to Function

I would like to discuss the issues of the issues of the material disclosed by the TSE on April 30, “Responses and Points to Consider Regarding the...

Metrical Inc

Governance Issues Were Not Highlighted and the Win-Win by REIT Sponsors and Investors Continues

I would like to discuss the April 24 Nikkei article, “REIT Market Reforms Fail to Work, Deepening Conflicts of Interest Concerns."

Metrical Inc

A Reluctance to Confront Shareholders Is at the Root of Many Problems

I would like to discuss the issues on the May 6 Nikkei article, “Minimum Investment Amount Reduction Adds Depth to the Stock Market."

Metrical Inc

What the Tokyo Market Needs Is a Metabolism and Replacement with Motivated Managers

I would like to discuss the issues in the “New Criteria for Maintaining TSE Growth Listings” document released by the TSE on May 2.

Metrical Inc

Success Experiences Will Be Necessary for IR to Function

I would like to discuss the issues of the issues of the material disclosed by the TSE on April 30, “Responses and Points to Consider Regarding the...

Metrical Inc

Governance Issues Were Not Highlighted and the Win-Win by REIT Sponsors and Investors Continues

I would like to discuss the April 24 Nikkei article, “REIT Market Reforms Fail to Work, Deepening Conflicts of Interest Concerns."

Metrical Inc

Could It Be that the Unit Share System Has Helped to Turn Away from Growing Shareholder Interests?

I would like to discuss the issues on the April 23 Nikkei article, “TSE Asks All Listed Companies to Reduce Minimum Investment Amount for Stock...

Metrical Inc