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>The reason for increasing MBOs is due to difficulty for family-owned companies to transfer management control to descendants, rising % independent directors and tradable shares, alongside increased burdens of disclosures.</li>
<li>It's natural for the founding family to choose MBO when they believe that, as things stand, they cannot achieve their paramount mission of passing on management control to future generations.</li>
<li>Considering the benefits gained from being listed, the investment has more than paid for itself. Therefore, founder-family companies prioritizing the transfer of management control to descendants will pursue MBOs.</li>
</ul>


The reason for increasing MBOs is due to difficulty for family-owned companies to transfer management control to descendants, rising % independent directors and tradable shares, alongside increased burdens of disclosures.
It's natural for the founding family to choose MBO when they believe that, as things stand, they cannot achieve their paramount mission of passing on management control to future generations.
Considering the benefits gained from being listed, the investment has more than paid for itself. Therefore, founder-family companies prioritizing the transfer of management control to descendants will pursue MBOs.


Background of the Increase in MBOs: Different from the Assumptions at the Time of the IPO

<ul>
<li>Since TSE's request, many companies have introduced share buybacks as a measure, and as a result of investors demanding accountability for how these shares are used, share cancellations have increased.</li>
<li>Companies that frequently cancel treasury stock demonstrate superior capital profitability. Companies with high capital profitability also exhibit strong scores in growth strategy, cash holdings, dividend policy, and treasury stock cancellation.</li>
<li>More companies are expected to consider cash allocation within overall goal of enhancing corporate value, encompassing growth strategy, cash holding policy, and dividend policy, in order to improve capital profitability.</li>
</ul>


Since TSE's request, many companies have introduced share buybacks as a measure, and as a result of investors demanding accountability for how these shares are used, share cancellations have increased.
Companies that frequently cancel treasury stock demonstrate superior capital profitability. Companies with high capital profitability also exhibit strong scores in growth strategy, cash holdings, dividend policy, and treasury stock cancellation.
More companies are expected to consider cash allocation within overall goal of enhancing corporate value, encompassing growth strategy, cash holding policy, and dividend policy, in order to improve capital profitability.


Share Buyback Likely to Grow over Growth Investment Hoped for by Corporate Governance Code Revision

<ul>
<li>Since sustainable growth in corporate value could not be achieved, the revised Corporate Governance Code now focuses on cash allocation practices that are strongly linked to corporate value creation.</li>
<li>To achieve the goal of maximizing shareholder interest, strategic planning and investment are essential, and it's natural to consider the remaining free cash flow as belonging to the owners, shareholders.</li>
<li>Pointing out better disclosure methods won't lead to cash allocation that satisfies investors unless they understand underlying contractual relationship between shareholders and management and the mindset behind executing management decisions.</li>
</ul>


Since sustainable growth in corporate value could not be achieved, the revised Corporate Governance Code now focuses on cash allocation practices that are strongly linked to corporate value creation.
To achieve the goal of maximizing shareholder interest, strategic planning and investment are essential, and it's natural to consider the remaining free cash flow as belonging to the owners, shareholders.
Pointing out better disclosure methods won't lead to cash allocation that satisfies investors unless they understand underlying contractual relationship between shareholders and management and the mindset behind executing management decisions.


Will Companies Change with Cash Allocation Disclosures that Don't Allow Copy-And-Paste Solutions?

<ul>
<li>Following the 2020 revision of Stewardship Code, domestic institutional investors have gradually increased their support for shareholder proposals. However, the rise in approval rates has paused in the 10% range.</li>
<li>Some investors adopt voting policy that allows them to support company proposals if the company's efforts are deemed commendable, even if numerical targets aren't met. This makes shareholder engagement important.</li>
<li>Given that conditions must align where a company has substantial foreign ownership and doesn't implement initiatives desired by investors, the approval rate for shareholder proposals is unlikely to rise significantly.</li>
</ul>


Following the 2020 revision of Stewardship Code, domestic institutional investors have gradually increased their support for shareholder proposals. However, the rise in approval rates has paused in the 10% range.
Some investors adopt voting policy that allows them to support company proposals if the company's efforts are deemed commendable, even if numerical targets aren't met. This makes shareholder engagement important.
Given that conditions must align where a company has substantial foreign ownership and doesn't implement initiatives desired by investors, the approval rate for shareholder proposals is unlikely to rise significantly.


For Both the Company and Investors, Pre-Negotiation Process as SR Is Becoming Increasingly Important

<ul>
<li>In response to calls from overseas investors to eliminate parent-subsidiary dual listings, the number of listed subsidiaries has decreased, while the number of equity-method affiliates has increased.</li>
<li>Some companies that found themselves with no wayout resorted to selling off part of their holdings to transition to equity method affiliates, for the time being, driven by herd mentality.</li>
<li>When considering investment strategies focused on parent-subsidiary listings, in the highly liquid Prime Market, equity method affiliates are more promising investment targets than the limited number of listed subsidiaries.</li>
</ul>


In response to calls from overseas investors to eliminate parent-subsidiary dual listings, the number of listed subsidiaries has decreased, while the number of equity-method affiliates has increased.
Some companies that found themselves with no wayout resorted to selling off part of their holdings to transition to equity method affiliates, for the time being, driven by herd mentality.
When considering investment strategies focused on parent-subsidiary listings, in the highly liquid Prime Market, equity method affiliates are more promising investment targets than the limited number of listed subsidiaries.


Combining Equity Method Affiliates and Founder Family Companies Provide Sufficient Number of Targets

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)

Background of the Increase in MBOs: Different from the Assumptions at the Time of the IPO

I would like to discuss the issues on the Nikkei newspaper article dated October 27, titled “Is That MBO Really Necessary? The Attitude of...

Metrical Inc

Will Companies Change with Cash Allocation Disclosures that Don't Allow Copy-And-Paste Solutions?

I would like to discuss the Nikkei article dated October 22nd titled “Corporate Governance Code Revision Sparks Wave of Selection Among Small and...

Metrical Inc

For Both the Company and Investors, Pre-Negotiation Process as SR Is Becoming Increasingly Important

I would like to discuss the October 22 Nikkei article titled “Major Asset Managers See Shareholder Proposal Approval Rate Drop for First Time in...

Metrical Inc

Combining Equity Method Affiliates and Founder Family Companies Provide Sufficient Number of Targets

I would like to discuss the issues on the Nikkei article on October 20, 2025 “Parent-Subsidiary Listings Move to Next Phase; Overseas Investors...

Metrical Inc

Background of the Increase in MBOs: Different from the Assumptions at the Time of the IPO

I would like to discuss the issues on the Nikkei newspaper article dated October 27, titled “Is That MBO Really Necessary? The Attitude of...

Metrical Inc

Share Buyback Likely to Grow over Growth Investment Hoped for by Corporate Governance Code Revision

I would like to discuss the Nikkei article dated October 23 regarding “Stock Retirement Hits Record High in Jan-Sep; Marui Group and ENEOS...

Metrical Inc

Will Companies Change with Cash Allocation Disclosures that Don't Allow Copy-And-Paste Solutions?

I would like to discuss the Nikkei article dated October 22nd titled “Corporate Governance Code Revision Sparks Wave of Selection Among Small and...

Metrical Inc

For Both the Company and Investors, Pre-Negotiation Process as SR Is Becoming Increasingly Important

I would like to discuss the October 22 Nikkei article titled “Major Asset Managers See Shareholder Proposal Approval Rate Drop for First Time in...

Metrical Inc

Combining Equity Method Affiliates and Founder Family Companies Provide Sufficient Number of Targets

I would like to discuss the issues on the Nikkei article on October 20, 2025 “Parent-Subsidiary Listings Move to Next Phase; Overseas Investors...

Metrical Inc