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 as more companies shifted to cash flow-focused management, their cash reserves remained stubbornly high, and few announced cash allocation policies. Finally, cash reserves began to decline—driven by TSE's request.</li>
<li>ROE and P/B of companies that disclosed in response to TSE's request haven’t improved. Consequently, the strategic intent behind share buybacks appears weak and isn't being well received by investors.</li>
<li>The decision to veer away from increasing cash reserves is the first step. How long will it take before the next move emerges to improve capital profitability and generate value?</li>
</ul>


Even as more companies shifted to cash flow-focused management, their cash reserves remained stubbornly high, and few announced cash allocation policies. Finally, cash reserves began to decline—driven by TSE's request.
ROE and P/B of companies that disclosed in response to TSE's request haven’t improved. Consequently, the strategic intent behind share buybacks appears weak and isn't being well received by investors.
The decision to veer away from increasing cash reserves is the first step. How long will it take before the next move emerges to improve capital profitability and generate value?


The Key Is when the Next Move Will Come that Steers Away from Increasing Cash on Hand

<ul>
<li>Given the fact that disclosure alone failed to raise stock valuations over three years, it can be assumed that many companies still prioritize compliance with TSE over consideration for shareholders.</li>
<li>Many companies have only recently begun incorporating capital allocation, cost of capital, and capital profitability into disclosures, so it'll take a little while longer for the results to become apparent.</li>
<li>Without serious showdown with investors driven by exercising voting rights, it's doubtful whether genuine management reform can be achieved. Without a sense of urgency in management, change will not occur.</li>
</ul>


Given the fact that disclosure alone failed to raise stock valuations over three years, it can be assumed that many companies still prioritize compliance with TSE over consideration for shareholders.
Many companies have only recently begun incorporating capital allocation, cost of capital, and capital profitability into disclosures, so it'll take a little while longer for the results to become apparent.
Without serious showdown with investors driven by exercising voting rights, it's doubtful whether genuine management reform can be achieved. Without a sense of urgency in management, change will not occur.


Companies Still Prioritize Compliance with the TSE over Consideration for Shareholders Interest

<ul>
<li>Standard Market contains many companies with small market capitalizations and low trading liquidity, so there aren't many companies in the Standard Market that institutional investors can consider as investment targets.</li>
<li>Standard Market has more companies with P/B below 1x and ROE below 8%, but there's little difference between Prime Market and Standard Market in their improvements over past two years.</li>
<li>Whether companies disclosed improvement plans in response to the TSE's request does not necessarily correlate with improvements in their P/B ratio or ROE.</li>
</ul>


Standard Market contains many companies with small market capitalizations and low trading liquidity, so there aren't many companies in the Standard Market that institutional investors can consider as investment targets.
Standard Market has more companies with P/B below 1x and ROE below 8%, but there's little difference between Prime Market and Standard Market in their improvements over past two years.
Whether companies disclosed improvement plans in response to the TSE's request does not necessarily correlate with improvements in their P/B ratio or ROE.


Example Supporting that Disclosure of Improvement Plans and Their Effectiveness Are Separate Matters

<ul>
<li>While 95% of companies now disclose mandatory documents in English, concerns remain that when only partial disclosure is made in English, important information may not be disclosed in English.</li>
<li>The simultaneous disclosure of Japanese and English versions of previously delayed disclosure materials has been well received by overseas investors.</li>
<li>Companies' attitudes differ significantly between documents mandated by the TSE and those that are not. Documents not subject to mandatory requirements are left to the company's discretion.</li>
</ul>


While 95% of companies now disclose mandatory documents in English, concerns remain that when only partial disclosure is made in English, important information may not be disclosed in English.
The simultaneous disclosure of Japanese and English versions of previously delayed disclosure materials has been well received by overseas investors.
Companies' attitudes differ significantly between documents mandated by the TSE and those that are not. Documents not subject to mandatory requirements are left to the company's discretion.


To Attract Long-Term Investors to Japanese Equities, Documents Disclosed in English Must Be Expanded

<ul>
<li>More companies have appointed outside directors as board chairpersons, driven by investor demands. For corporate governance to improve, it's essential that investors continue speaking out, demanding management that creates value.</li>
<li>Corporate Governance Code called for appointing outside directors to strengthen supervisory function of BODs, driven by concerns that a board composed solely of internal executive directors couldn't effectively address challenges.</li>
<li>If corporate governance has become a mere formality, it is the company itself that has driven this trend, so the company has no choice but to change its previous course.</li>
</ul>


More companies have appointed outside directors as board chairpersons, driven by investor demands. For corporate governance to improve, it's essential that investors continue speaking out, demanding management that creates value.
Corporate Governance Code called for appointing outside directors to strengthen supervisory function of BODs, driven by concerns that a board composed solely of internal executive directors couldn't effectively address challenges.
If corporate governance has become a mere formality, it is the company itself that has driven this trend, so the company has no choice but to change its previous course.


It Is Essential for Investors to Keep Raising Their Voices to Improve Corporate Governance

Japan

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TSE Tokyo Price Index TOPIX (TPX INDEX)

The Key Is when the Next Move Will Come that Steers Away from Increasing Cash on Hand

I would like to discuss the Nikkei article dated September 3, ‘Stock Buybacks Surge, Shattering the 'Mountain of Dead Capital’."

Metrical Inc

Companies Still Prioritize Compliance with the TSE over Consideration for Shareholders Interest

I would like to discuss the issues on the discussion points of the document titled “Current Status and Future Initiatives Regarding Management...

Metrical Inc

Example Supporting that Disclosure of Improvement Plans and Their Effectiveness Are Separate Matters

I would like to discuss the issues on the document titled “Future Measures for the Standard Market.” published by the TSE on September 2.

Metrical Inc

To Attract Long-Term Investors to Japanese Equities, Documents Disclosed in English Must Be Expanded

I would like to discuss the issues on the document “Status Following the Mandatory English Disclosure Requirement for the Prime Market,” disclosed...

Metrical Inc

It Is Essential for Investors to Keep Raising Their Voices to Improve Corporate Governance

I would like to discuss the issues on the Nikkei article dated August 30 titled “Chairs of Board of Directors from Outside Companies Double in Five...

Metrical Inc