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>Companies competing in global market are often compared in profitability and practices with global competitors, so they would have moved to reduce cross-shareholdings earlier than companies focused on domestic market.</li>
<li>There is little improvement in capital profitability, but lower number of cross-held shares will reduce the number of companies whose proxy votings are influenced by cross-shareholdings, which will improve governance.</li>
<li>Companies that maintain top management despite decline in the founding family's stake tend to be targets of activist investors because they have problems with both corporate governance and capital profitability.</li>
</ul>


Companies competing in global market are often compared in profitability and practices with global competitors, so they would have moved to reduce cross-shareholdings earlier than companies focused on domestic market.
There is little improvement in capital profitability, but lower number of cross-held shares will reduce the number of companies whose proxy votings are influenced by cross-shareholdings, which will improve governance.
Companies that maintain top management despite decline in the founding family's stake tend to be targets of activist investors because they have problems with both corporate governance and capital profitability.


Many Companies that Have Seen Their Founding Family's Stake Decline but Retain CEO Have Challenges

<ul>
<li>As lack of investment, including in human capital, is recognized as a factor behind the lack of growth, there're plans to enhance disclosure of human capital in annual securities reports.</li>
<li>While labor share of large companies has fallen 1.3 ppt over the past year, OP margins increased only 0.3 ppt. It's necessary to produce products with high gross profit margins.</li>
<li>Unable to make bold investments to create higher added-value products, companies instead use cash-flows for shareholders return without increasing cash reserves, resulting in high level of cash on hand.</li>
</ul>


As lack of investment, including in human capital, is recognized as a factor behind the lack of growth, there're plans to enhance disclosure of human capital in annual securities reports.
While labor share of large companies has fallen 1.3 ppt over the past year, OP margins increased only 0.3 ppt. It's necessary to produce products with high gross profit margins.
Unable to make bold investments to create higher added-value products, companies instead use cash-flows for shareholders return without increasing cash reserves, resulting in high level of cash on hand.


How Long Can a Model Where Profit Is Helped by Low Growth in Labor Cost and Depreciation Continue?

<ul>
<li>Investors are disappointed that this is not put forward as a management strategy to resolve the parent-subsidiary listing, but the TSE believes that friendly disclosure is the solution.</li>
<li>It's problematic for parent company's shareholders to allow the parent's resources to be used and to leave part of subsidiary's profits outside the company for a long period of time.</li>
<li>For both the parent company and its subsidiaries, this is a lost opportunity to shift to management that can create more value. It'ill only delay the shift to value-creating management.</li>
</ul>


Investors are disappointed that this is not put forward as a management strategy to resolve the parent-subsidiary listing, but the TSE believes that friendly disclosure is the solution.
It's problematic for parent company's shareholders to allow the parent's resources to be used and to leave part of subsidiary's profits outside the company for a long period of time.
For both the parent company and its subsidiaries, this is a lost opportunity to shift to management that can create more value. It'ill only delay the shift to value-creating management.


How Long Will the ‘Parent-Subsidiary Listing Prolongation Scheme’ Work?

<ul>
<li>Information regarding ％ of female managers and gender wage gap, which were previously required to be disclosed in annual securities reports, will move to the "Sustainability Philosophy and Initiatives" section.</li>
<li>This change in description will make issues such as % of female managers and gender wage gap more clear, thereby improving the inconsistencies with the company's goals and policies.</li>
<li>Since disclosure of compensation incentives for employees other than board members will be required, this may encourage more companies to introduce compensation incentives for non-board members employees.</li>
</ul>


Information regarding ％ of female managers and gender wage gap, which were previously required to be disclosed in annual securities reports, will move to the "Sustainability Philosophy and Initiatives" section.
This change in description will make issues such as % of female managers and gender wage gap more clear, thereby improving the inconsistencies with the company's goals and policies.
Since disclosure of compensation incentives for employees other than board members will be required, this may encourage more companies to introduce compensation incentives for non-board members employees.


Will Change to Annual Securities Report Improve in % of Female Managers and Gender Wage Gap?

<ul>
<li>If large companies that posted conservative outlook for FY3/2026 revise their guidance upwards amid weakening of Japanese Yen, there is an expectation that the decline in ROE will be smaller.</li>
<li>More companies are strengthening shareholder returns, but a few companies can maintain high enough ROE to create value by hiring large higher shareholder returns to have impact on ROE. </li>
<li>In order to raise ROE to a level that creates value, it is necessary to make investments and shareholder returns to have much impact on ROE.</li>
</ul>


If large companies that posted conservative outlook for FY3/2026 revise their guidance upwards amid weakening of Japanese Yen, there is an expectation that the decline in ROE will be smaller.
More companies are strengthening shareholder returns, but a few companies can maintain high enough ROE to create value by hiring large higher shareholder returns to have impact on ROE. 
In order to raise ROE to a level that creates value, it is necessary to make investments and shareholder returns to have much impact on ROE.


Do Managers Who Give Small Amounts of Shareholder Return to Have Other Objectives?

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TSE Tokyo Price Index TOPIX (TPX INDEX)

Many Companies that Have Seen Their Founding Family's Stake Decline but Retain CEO Have Challenges

I would like to discuss the July 27 Nikkei article "Sales of policy-shareholdings to increase by 50% to a record high of 9 trillion yen, a catalyst...

Metrical Inc

How Long Can a Model Where Profit Is Helped by Low Growth in Labor Cost and Depreciation Continue?

I would like to discuss the issues on the Nikkei newspaper article of July 16th, "Increased profits will not pay wages, labor share in fiscal 2024...

Metrical Inc

How Long Will the ‘Parent-Subsidiary Listing Prolongation Scheme’ Work?

I would like to discuss the issues on the TSE's February 4 publication “Investors' Perspective on Parent-Subsidiary Listings, etc.”

Metrical Inc

Will Change to Annual Securities Report Improve in % of Female Managers and Gender Wage Gap?

I would like to discuss the July 23 Nikkei article, "Financial Services Agency to unify disclosure of human capital in annual securities reports...

Metrical Inc

Do Managers Who Give Small Amounts of Shareholder Return to Have Other Objectives?

I would like to discuss the Nikkei article published on July 23 2025, "Japanese companies unable to use cash reserves, capital efficiency at lowest...

Metrical Inc