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>Fraud occurs regardless of the market on which the company is listed or the size of the company. Even if corporate governance is superficially in place, fraud will repeat itself.</li>
<li>If anything can deter the occurrence of scandals, it is diversity. It is necessary to create an organizational environment that accepts different values and allows people to voice their opinions.</li>
<li>In many cases, companies that committed fraud aren't delisted, and management doesn't take responsibility. There continues to be a bad tradition in which the whistleblower is blamed for the fraud.</li>
</ul>


Fraud occurs regardless of the market on which the company is listed or the size of the company. Even if corporate governance is superficially in place, fraud will repeat itself.
If anything can deter the occurrence of scandals, it is diversity. It is necessary to create an organizational environment that accepts different values and allows people to voice their opinions.
In many cases, companies that committed fraud aren't delisted, and management doesn't take responsibility. There continues to be a bad tradition in which the whistleblower is blamed for the fraud.


If It Is a Deterrent to the Occurrence of Scandals, Is It Diversity?

<ul>
<li>New TOPIX still has a large number of stocks and its components aren’t sufficiently liquid. TSE seems to have considered the companies that are under pressure to sell their shares.</li>
<li>The challenge for companies excluded from TOPIX components should achieve sustainable growth by continuous review of their business portfolios to achieve growth that they could not achieve in the past.</li>
<li>The company's performance must be in line with the plan disclosed by the company in response to the TSE's request. These companies should consider whether they should remain listed.</li>
</ul>


New TOPIX still has a large number of stocks and its components aren’t sufficiently liquid. TSE seems to have considered the companies that are under pressure to sell their shares.
The challenge for companies excluded from TOPIX components should achieve sustainable growth by continuous review of their business portfolios to achieve growth that they could not achieve in the past.
The company's performance must be in line with the plan disclosed by the company in response to the TSE's request. These companies should consider whether they should remain listed.


TOPIX Revision May Be an Opportunity for Companies to Choose to Go Private

<ul>
<li>Since there was no difference in IR Disclosures between companies that increased valuations over past year and those that didn't, it's clear that improvement IR Disclosures alone won't raise valuations.</li>
<li>Since many companies with large market capitalizations have high foreign ownership, overseas investor engagement has had a positive impact on their high return on capital.</li>
<li>TSE's support for companies with small market capitalizations is a type of engagement that encourages companies whose engagement doesn't reach them to think about their management strategies.</li>
</ul>


Since there was no difference in IR Disclosures between companies that increased valuations over past year and those that didn't, it's clear that improvement IR Disclosures alone won't raise valuations.
Since many companies with large market capitalizations have high foreign ownership, overseas investor engagement has had a positive impact on their high return on capital.
TSE's support for companies with small market capitalizations is a type of engagement that encourages companies whose engagement doesn't reach them to think about their management strategies.


After the TSE "Engagement," It Is the Company Itself to Devise and Execute a Management Strategy

<ul>
<li>Overseas investors tend to invest in companies with larger market capitalization and higher profitability, and companies with higher foreign shareholdings have significantly better values in corporate governance.</li>
<li>Hitachi has been one of the most successful companies in this area, probably due to its intermittent reforms in profitability and corporate governance through engagement with overseas investors.</li>
<li>Few companies, like Hitachi, achieved sustainable growth by continuous business portfolio review. This has led to high stock price volatility for many companies that cannot enter the sustainable growth phase.</li>
</ul>


Overseas investors tend to invest in companies with larger market capitalization and higher profitability, and companies with higher foreign shareholdings have significantly better values in corporate governance.
Hitachi has been one of the most successful companies in this area, probably due to its intermittent reforms in profitability and corporate governance through engagement with overseas investors.
Few companies, like Hitachi, achieved sustainable growth by continuous business portfolio review. This has led to high stock price volatility for many companies that cannot enter the sustainable growth phase.


The Key Is to Achieve Sustainable Growth Through Continuous Business Portfolio Review

<ul>
<li>A few companies have stock compensation plans for outside directors, but their common features are a majority of outside directors on the board and a high percentage of foreign ownership.</li>
<li>8 million compensation for an outside director would be too low to devote much of his/her time to that company. Consequently, 17.5% of all outside board members serve multiple companies.</li>
<li>The need to raise the ratio of female board members amid the low percentage of women in managerial positions has increased the concurrent positions of female board members.</li>
</ul>


A few companies have stock compensation plans for outside directors, but their common features are a majority of outside directors on the board and a high percentage of foreign ownership.
8 million compensation for an outside director would be too low to devote much of his/her time to that company. Consequently, 17.5% of all outside board members serve multiple companies.
The need to raise the ratio of female board members amid the low percentage of women in managerial positions has increased the concurrent positions of female board members.


Issues Related to Outside Director Compensation Are Plentiful

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)

If It Is a Deterrent to the Occurrence of Scandals, Is It Diversity?

I would like to discuss the July 16 Nikkei Shimbun article, "Corporate Accounting Fraud Increases for Third Consecutive Year, Approaching Record...

Metrical Inc

TOPIX Revision May Be an Opportunity for Companies to Choose to Go Private

I would like to discuss the issues on the Nikkei article published on July 11, 2024, "New TOPIX to boost corporate reforms."

Metrical Inc

After the TSE "Engagement," It Is the Company Itself to Devise and Execute a Management Strategy

I would like to discuss the issues on the July 11 Nikkei Shimbun article, "TSE Bridges Mid-to-Small Cap Companies and Investors to Support P/B...

Metrical Inc

The Key Is to Achieve Sustainable Growth Through Continuous Business Portfolio Review

I would like to discuss the issues on the July 9 Nikkei article, "Foreign ownership in Hitachi exceeds 50% for the first time; investors evaluate...

Metrical Inc

If It Is a Deterrent to the Occurrence of Scandals, Is It Diversity?

I would like to discuss the July 16 Nikkei Shimbun article, "Corporate Accounting Fraud Increases for Third Consecutive Year, Approaching Record...

Metrical Inc

TOPIX Revision May Be an Opportunity for Companies to Choose to Go Private

I would like to discuss the issues on the Nikkei article published on July 11, 2024, "New TOPIX to boost corporate reforms."

Metrical Inc

After the TSE "Engagement," It Is the Company Itself to Devise and Execute a Management Strategy

I would like to discuss the issues on the July 11 Nikkei Shimbun article, "TSE Bridges Mid-to-Small Cap Companies and Investors to Support P/B...

Metrical Inc

The Key Is to Achieve Sustainable Growth Through Continuous Business Portfolio Review

I would like to discuss the issues on the July 9 Nikkei article, "Foreign ownership in Hitachi exceeds 50% for the first time; investors evaluate...

Metrical Inc

Issues Related to Outside Director Compensation Are Plentiful

I would like to discuss the issues on the July 9 Nikkei article, "Hitachi to Pay Outside Directors in Stock to Supervise Management from...

Metrical Inc