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>A more direct way to resolve management challenges is to address the structural issue of trading liquidity being significantly lower than market capitalization and thereby attract attention of global investors.</li>
<li>Companies should strive to resolve cross-shareholdings promptly. Prompt elimination of parent-subsidiary listings—in the broad sense—will lead to improved profitability for both the parent company and its affiliates.</li>
<li>This structural issue is the reason why companies that wish to continue operating based on traditional values are still able to hold a majority of voting rights.</li>
</ul>


A more direct way to resolve management challenges is to address the structural issue of trading liquidity being significantly lower than market capitalization and thereby attract attention of global investors.
Companies should strive to resolve cross-shareholdings promptly. Prompt elimination of parent-subsidiary listings—in the broad sense—will lead to improved profitability for both the parent company and its affiliates.
This structural issue is the reason why companies that wish to continue operating based on traditional values are still able to hold a majority of voting rights.


Japanese Stocks' Low Trading Liquidity Has Adversely Affected Management's Shift To Value Creation

<ul>
<li>With the unwinding of cross-shareholdings now irreversible, the company is keen to maintain its defensive stance. This defensive stance is aimed at managing the shareholders’ meeting.</li>
<li>81% of companies with fiscal years ending in March held their AGMs over a four-day period in late June, while only 1.6% of AGMs allowed for online questions and voting.</li>
<li>While calls for AGM disclosures in annual securities reports were expected to help break with past conventions, only two companies changed record dates to postpone AGM dates to July.</li>
</ul>


With the unwinding of cross-shareholdings now irreversible, the company is keen to maintain its defensive stance. This defensive stance is aimed at managing the shareholders’ meeting.
81% of companies with fiscal years ending in March held their AGMs over a four-day period in late June, while only 1.6% of AGMs allowed for online questions and voting.
While calls for AGM disclosures in annual securities reports were expected to help break with past conventions, only two companies changed record dates to postpone AGM dates to July.


This Revision to Corporate Governance Codes Could Be Perceived as Defending Outdated Practices

<ul>
<li>The number of days before AGM a company discloses its annual securities report serves as a litmus test of whether it is conducting management that is accountable to its shareholders.</li>
<li>An activist investor’s shareholder proposal to change the record date to address the pre-AGM disclosure in annual securities reports and the concentration of AGM dates is indeed the right proposal.</li>
<li>This reluctance to engage with shareholders is believed to be the reason why capital profitability—an indicator of growth in shareholder value—is not increasing.</li>
</ul>


The number of days before AGM a company discloses its annual securities report serves as a litmus test of whether it is conducting management that is accountable to its shareholders.
An activist investor’s shareholder proposal to change the record date to address the pre-AGM disclosure in annual securities reports and the concentration of AGM dates is indeed the right proposal.
This reluctance to engage with shareholders is believed to be the reason why capital profitability—an indicator of growth in shareholder value—is not increasing.


Companies that Fail to Be Accountable Raise Concerns About Their Fulfillment of Management Goals

<ul>
<li>The disclosure rules begin as a compromise in response to concerns regarding the burden on listed companies and investor needs. However, it remains unclear what impact these rules will have.</li>
<li>Since there are so many companies with major shareholders,this means that while there are challenges regarding trading liquidity, there are also many investment opportunities.</li>
<li>Institutional investors are expected to discuss with the company the future direction of its listing in a way that promotes the sustainable growth of minority shareholders’ interests.</li>
</ul>


The disclosure rules begin as a compromise in response to concerns regarding the burden on listed companies and investor needs. However, it remains unclear what impact these rules will have.
Since there are so many companies with major shareholders,this means that while there are challenges regarding trading liquidity, there are also many investment opportunities.
Institutional investors are expected to discuss with the company the future direction of its listing in a way that promotes the sustainable growth of minority shareholders’ interests.


Companies with Major Shareholders Holding over 40% Stake Account for 30% of All Listed Companies

<ul>
<li>What are the reasons Japanese companies cannot overcome the drawbacks of traditional management?</li>
<li>In Japan, the concept of fiduciary duty is generally not widely understood, but institutional investors must fulfill their accountability to beneficiaries just as much as management does.</li>
<li>Consequently, AGMs remained concentrated at late June, making it physically difficult to attend, and since annual securities reports couldn't be used as a basis for decision-making, virtually nothing has changed.</li>
</ul>


What are the reasons Japanese companies cannot overcome the drawbacks of traditional management?
In Japan, the concept of fiduciary duty is generally not widely understood, but institutional investors must fulfill their accountability to beneficiaries just as much as management does.
Consequently, AGMs remained concentrated at late June, making it physically difficult to attend, and since annual securities reports couldn't be used as a basis for decision-making, virtually nothing has changed.


What Are the Reasons Japanese Companies Cannot Overcome the Drawbacks of Traditional Management?

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)

Japanese Stocks' Low Trading Liquidity Has Adversely Affected Management's Shift To Value Creation

I would like to discuss the issues on the July 24 Nikkei article titled “Japanese Stocks Too Small, Troubling Overseas Investors: Even Large-Cap...

Metrical Inc

This Revision to Corporate Governance Codes Could Be Perceived as Defending Outdated Practices

I would like to discuss the issues on the July 13 Nikkei article titled “Active Questioning at Listed Companies’ Shareholders’ Meetings: Nearly...

Metrical Inc

Companies that Fail to Be Accountable Raise Concerns About Their Fulfillment of Management Goals

I would like to discuss the issues on the July 22 Nikkei article titled “90% of Annual Securities Reports Disclosed Before AGMs; Average of 1.7...

Metrical Inc

Companies with Major Shareholders Holding over 40% Stake Account for 30% of All Listed Companies

I will discuss the July 19 Nikkei article titled “Corporate Director Appointments: Support Rates Among Minority Shareholders to Be Made Clear—1,100...

Metrical Inc

What Are the Reasons Japanese Companies Cannot Overcome the Drawbacks of Traditional Management?

I would like to discuss the issues on the June 26 Nikkei article titled “Did Companies Convey Their Growth Path at Shareholders’ Meetings?”

Metrical Inc