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>When an outside director engages in behavior such as harassment, it is only natural to question whether that person was the right choice for appointment as an independent outside director.</li>
<li>Based on the premise that directors are entrusted with management by shareholders, they owe fiduciary duties. The root of the problem lies in a lack of understanding of this premise.</li>
<li>To fulfill fiduciary duties, outside directors should act accordingly, and nomination committee　members should appoint directors. Neglecting fiduciary duties is considered management that runs counter to the interests of shareholders.</li>
</ul>


When an outside director engages in behavior such as harassment, it is only natural to question whether that person was the right choice for appointment as an independent outside director.
Based on the premise that directors are entrusted with management by shareholders, they owe fiduciary duties. The root of the problem lies in a lack of understanding of this premise.
To fulfill fiduciary duties, outside directors should act accordingly, and nomination committee　members should appoint directors. Neglecting fiduciary duties is considered management that runs counter to the interests of shareholders.


The Root Cause Is Often a Lack of Understanding of the Underlying Premise

<ul>
<li>As for reviewing the overlap between annual securities reports and business reports, since the information will continue to be disclosed in business reports as before, little opposition is expected.</li>
<li>To promote the disclosure of annual securities reports before AGM, FSA plan to review the duplication between annual securities reports and business reports to reduce the workload on companies.</li>
<li>Wouldn’t this end up helping companies formalize their corporate governance practices and build a track record of pre-AGM disclosures in annual securities reports, which they are so eager to achieve?</li>
</ul>


As for reviewing the overlap between annual securities reports and business reports, since the information will continue to be disclosed in business reports as before, little opposition is expected.
To promote the disclosure of annual securities reports before AGM, FSA plan to review the duplication between annual securities reports and business reports to reduce the workload on companies.
Wouldn’t this end up helping companies formalize their corporate governance practices and build a track record of pre-AGM disclosures in annual securities reports, which they are so eager to achieve?


There Is a Risk that the Formalization of Corporate Governance Will Continue to Advance

<ul>
<li>Most companies disclose their annual securities reports several days before their AGMs, and only two companies have postponed their AGMs to July, which deviates from the original intent.</li>
<li>Companies are focusing on streamlining their operations to shorten delivery times, and FSA is considering measures to reduce the workload on companies in an effort to lend a helping hand.</li>
<li>The fact that companies hold AGMs during the peak AGM season—thereby denying shareholders the time to thoroughly review annual securities reports—is the exact opposite of management that prioritizes shareholders’ interests.</li>
</ul>


Most companies disclose their annual securities reports several days before their AGMs, and only two companies have postponed their AGMs to July, which deviates from the original intent.
Companies are focusing on streamlining their operations to shorten delivery times, and FSA is considering measures to reduce the workload on companies in an effort to lend a helping hand.
The fact that companies hold AGMs during the peak AGM season—thereby denying shareholders the time to thoroughly review annual securities reports—is the exact opposite of management that prioritizes shareholders’ interests.


More Companies Are Saying They Want to Focus on Engagement, but Are They Serious?

<ul>
<li>Although growth market-listed companies tend to have more deficiencies in internal control systems, these issues also occur in traditional companies, so it's not a matter of being a young company.</li>
<li>While “deficiencies in financial reporting processes” were the most frequently reported issue, it seems that the root cause was actually the second most common issue: “deficiencies in company-wide internal controls.”</li>
<li>A company is shaped by its top management. Rather than blaming staff shortages or labor shortages for any shortcomings, what matters most is how top management views and implements compliance.</li>
</ul>


Although growth market-listed companies tend to have more deficiencies in internal control systems, these issues also occur in traditional companies, so it's not a matter of being a young company.
While “deficiencies in financial reporting processes” were the most frequently reported issue, it seems that the root cause was actually the second most common issue: “deficiencies in company-wide internal controls.”
A company is shaped by its top management. Rather than blaming staff shortages or labor shortages for any shortcomings, what matters most is how top management views and implements compliance.


There Are Cases in Compliance Where the Form Is There but the Substance Is Lacking

<ul>
<li>“Management reforms focused on governance and capital efficiency” are not progressing as expected. Nevertheless, it appears that investors have expectations that exceed what these reforms can deliver.</li>
<li>Looking at the recent trends among companies, a major difference from the past is that more companies are no longer hesitant to pass on rising costs to their selling prices.</li>
<li>Management reforms will still take some time. Investors are trying to determine whether a company can operate in a way that allows it to pass on rising costs to customers.</li>
</ul>


“Management reforms focused on governance and capital efficiency” are not progressing as expected. Nevertheless, it appears that investors have expectations that exceed what these reforms can deliver.
Looking at the recent trends among companies, a major difference from the past is that more companies are no longer hesitant to pass on rising costs to their selling prices.
Management reforms will still take some time. Investors are trying to determine whether a company can operate in a way that allows it to pass on rising costs to customers.


Investors Are Trying to Assess a Company Through Price Pass-Through

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)

The Root Cause Is Often a Lack of Understanding of the Underlying Premise

I would like to discuss the issues on the article of Nikkei Shimbun on May 14 titled “Beware of Harassing Outside Directors.”

Metrical Inc

There Is a Risk that the Formalization of Corporate Governance Will Continue to Advance

I would like to discuss the issues on the May 18 Nikkei article “FSA to Revise Annual Securities Report Disclosures Starting in FY3/2028;...

Metrical Inc

More Companies Are Saying They Want to Focus on Engagement, but Are They Serious?

I would like to discuss the Nikkei article on May 20 titled “Early Disclosure of Annual Securities Reports: 80% Released Just Before Shareholders’...

Metrical Inc

There Are Cases in Compliance Where the Form Is There but the Substance Is Lacking

I would like to discuss the issues on the Nikkei article dated May 15 titled “41 Listed Companies Report ‘Inadequacies in Internal Controls’ in...

Metrical Inc

Investors Are Trying to Assess a Company Through Price Pass-Through

I would like to discuss the issues on on the April 27 Nikkei article titled “Nikkei Index at 60,000: A Test of Companies’ Sustained Growth Potential.”

Metrical Inc