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>Even if annual securities reports are filed earlier, a few days before the AGM, there is not enough time for institutional investors to use them for proxy voting.</li>
<li>Many companies believe that they could control the AGM by two things: diversifying shareholder attention by holding the AGM on the same day and not providing sufficient information to shareholders.</li>
<li>In its next request, FSA plans to encourage companies to move AGM to later date by changing “record date.” However, it’ll take time to come to a compromise with companies.</li>
</ul>


Even if annual securities reports are filed earlier, a few days before the AGM, there is not enough time for institutional investors to use them for proxy voting.
Many companies believe that they could control the AGM by two things: diversifying shareholder attention by holding the AGM on the same day and not providing sufficient information to shareholders.
In its next request, FSA plans to encourage companies to move AGM to later date by changing “record date.” However, it’ll take time to come to a compromise with companies.


Substantial “pre AGM Filing of Annual Securities Reports” Will Be After 2027

<ul>
<li>It's progress that more companies are including ROE and ROIC as KPIs in mid-term management plans. On the other hand, it's true that many disclosures are misaligned with investors' perspectives.</li>
<li>As a result of not taking action on problem businesses, it’s often the case that deteriorating environment increases losses of the business, leading to revision of the “medium-term management plan.”</li>
<li>Investors are more likely to portray corporate value if a company provides measures for problem solving and growth, and reliable execution, rather than goals that are uncertain to be achieved.</li>
</ul>


It's progress that more companies are including ROE and ROIC as KPIs in mid-term management plans. On the other hand, it's true that many disclosures are misaligned with investors' perspectives.
As a result of not taking action on problem businesses, it’s often the case that deteriorating environment increases losses of the business, leading to revision of the “medium-term management plan.”
Investors are more likely to portray corporate value if a company provides measures for problem solving and growth, and reliable execution, rather than goals that are uncertain to be achieved.


A Guide May Be Offered to Disclose MTPs that Focus More on Strategy Rather than Matching Numbers

<ul>
<li>There're signs, with domestic institutional investors gradually becoming more willing to consider shareholder proposals. However, the hurdle to passage is still high, as shareholder proposals weren't approved at March AGMs.</li>
<li>Regarding proposals that are easy for domestic institutional investors to mechanically approve/disapprove, such as the number of independent directors and female directors, companies are expected to raise the level formally.</li>
<li>Since the announcement effect of shareholder proposals is significant, it is expected that companies that did not pass shareholder proposals this time will launch initiatives to strengthen shareholder returns.</li>
</ul>


There're signs, with domestic institutional investors gradually becoming more willing to consider shareholder proposals. However, the hurdle to passage is still high, as shareholder proposals weren't approved at March AGMs.
Regarding proposals that are easy for domestic institutional investors to mechanically approve/disapprove, such as the number of independent directors and female directors, companies are expected to raise the level formally.
Since the announcement effect of shareholder proposals is significant, it is expected that companies that did not pass shareholder proposals this time will launch initiatives to strengthen shareholder returns.


Hurdles to Shareholder Proposal Passage Are Still High, but the Announcement Effect Is Significant

<ul>
<li>Although it'll take some time for quality of existing listed companies to improve, a gradual improvement in quality of companies is likely for the time being as more companies delist.</li>
<li>The TSE's “request” was not only for activist investors, but also for other investors who shared the view that the stock market should not be left in the doldrums.</li>
<li>A certain number of companies that fail to meet TSE listing criteria will move to the regional stock exchanges, leading to a gradual improvement in the quality of the TSE.</li>
</ul>


Although it'll take some time for quality of existing listed companies to improve, a gradual improvement in quality of companies is likely for the time being as more companies delist.
The TSE's “request” was not only for activist investors, but also for other investors who shared the view that the stock market should not be left in the doldrums.
A certain number of companies that fail to meet TSE listing criteria will move to the regional stock exchanges, leading to a gradual improvement in the quality of the TSE.


Expect Gradual Improvement in the Quality of Listed Companies as More Companies Go Private

<ul>
<li>While the absolute amount of share repurchases has increased, many companies face challenges in using cash, given the slow growth in ROE and depth of equity capital over a decade.</li>
<li>While growth investment should increase corporate value, it's important for managers to manage to earn returns commensurate with investment risk, and to return cash to shareholders without taking unnecessary risks.</li>
<li>The question is not whether investment in growth or shareholder return is better, but whether the company was managing its business in a shareholder-friendly manner.</li>
</ul>


While the absolute amount of share repurchases has increased, many companies face challenges in using cash, given the slow growth in ROE and depth of equity capital over a decade.
While growth investment should increase corporate value, it's important for managers to manage to earn returns commensurate with investment risk, and to return cash to shareholders without taking unnecessary risks.
The question is not whether investment in growth or shareholder return is better, but whether the company was managing its business in a shareholder-friendly manner.


It Is Not a Question of Whether Investment in Growth or Shareholder Return Is Better

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)

Substantial “pre AGM Filing of Annual Securities Reports” Will Be After 2027

I would like to discuss the issues on the March 28 Nikkei article, “Annual securities report disclosure ‘at least before AGM requested in the name...

Metrical Inc

A Guide May Be Offered to Disclose MTPs that Focus More on Strategy Rather than Matching Numbers

I would like to discuss March 28 Nikkei article, “Medium-Term Management Plan Established, Record Number of Companies Abolish Them Due to Awareness...

Metrical Inc

Hurdles to Shareholder Proposal Passage Are Still High, but the Announcement Effect Is Significant

I would like to discuss the issues on the March 28 Nikkei article, “Stock Market Presses Companies to Reform Governance: Most Shareholder Proposals...

Metrical Inc

Expect Gradual Improvement in the Quality of Listed Companies as More Companies Go Private

I would like to discuss the issues on the Nikkei Shimbun article of March 17, “Delistings to Remain at Highest Pace in 2025, with One Year Left in...

Metrical Inc

It Is Not a Question of Whether Investment in Growth or Shareholder Return Is Better

I would like to discuss the March 17 Nikkei article, “Aim for the Growth Stage, which discusses the dangerous trend of “investment is good,...

Metrical Inc