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.

Sapporo Holdings Ltd produces and sells alcoholic and non-alcoholic beverages.  The Company's products include beer, wine, brandy, whiskey, imported beer, soft drinks, juice, coffee, and tea.  SAPPORO HOLDINGS also operates real estate businesses.

<ul>
<li>After 17 years of failure to change, Sapporo's policy change was triggered by the fact that sales in beer business were beginning to recover after the long tunnel of deflation.</li>
<li>Regulators, weighed down by the growing number of companies with low profitability and declining competitiveness, want to change the situation, even if it means leveraging the power of activist investors.</li>
<li>Many companies bottomed out due to exiting the deflationary economy, and TSE requests prohibit companies from ignoring investors' proposals, which makes it easier for companies to change.</li>
</ul>


After 17 years of failure to change, Sapporo's policy change was triggered by the fact that sales in beer business were beginning to recover after the long tunnel of deflation.
Regulators, weighed down by the growing number of companies with low profitability and declining competitiveness, want to change the situation, even if it means leveraging the power of activist investors.
Many companies bottomed out due to exiting the deflationary economy, and TSE requests prohibit companies from ignoring investors' proposals, which makes it easier for companies to change.


The Good News Is that Companies May Change in Less than 17 Years!

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.

<ul>
<li>The improvement in ROA was not as large as that of ROE, which raises concerns that the improvement in profitability may be running out of steam.</li>
<li>Improvements in corporate governance in 2024 were even lower than in 2023. The repetitive loss of enthusiasm after danger past is seen in % Independent Directors, Nomination/Compensation Committee, etc.</li>
<li>The reason why stock valuations little increased despite Foreign Ownership's 2024 increase might have to do with the fact that improvements in corporate governance have not spread to all companies.</li>
</ul>


The improvement in ROA was not as large as that of ROE, which raises concerns that the improvement in profitability may be running out of steam.
Improvements in corporate governance in 2024 were even lower than in 2023. The repetitive loss of enthusiasm after danger past is seen in % Independent Directors, Nomination/Compensation Committee, etc.
The reason why stock valuations little increased despite Foreign Ownership's 2024 increase might have to do with the fact that improvements in corporate governance have not spread to all companies.


"Danger Past, God Forgotten" How Long Will the Effect of TSE's Request Last?

<ul>
<li>It is commendable that more listed companies as a whole are setting ROE and ROIC as their targets. The real value of actually achieving these goals will now be tested.</li>
<li>Dividend Policy score, Treasury Shares Retirement score, AGM Disclosure score, and IR Disclosure score improved slightly, but the listed companies as a whole have yet to show improvement.</li>
<li>Even though higher stock prices negatively impacted Policy Stock Holding score, overall improvement has not been achieved for the listed companies. Cash allocation also remains an issue for many companies.</li>
</ul>


It is commendable that more listed companies as a whole are setting ROE and ROIC as their targets. The real value of actually achieving these goals will now be tested.
Dividend Policy score, Treasury Shares Retirement score, AGM Disclosure score, and IR Disclosure score improved slightly, but the listed companies as a whole have yet to show improvement.
Even though higher stock prices negatively impacted Policy Stock Holding score, overall improvement has not been achieved for the listed companies. Cash allocation also remains an issue for many companies.


Growth Policy Score Improved with the Request to Raise P/B, but Other Criteria Are in the Process

<ul>
<li>While companies are eager to improve ％ of female board members, for which they are required to meet new targets, they are less enthusiastic about raising ％ of independent directors.</li>
<li>The improvement in ％ of independent directors has been decreasing year by year. As the importance of independent directors increases, it's necessary to demand increase in this ratio through engagement.</li>
<li>For the other evaluation criteria, the median value remained unchanged from the previous year. Meanwhile, some traditional companies have not been able to eliminate the position of ex-CEO advisors.</li>
</ul>


While companies are eager to improve ％ of female board members, for which they are required to meet new targets, they are less enthusiastic about raising ％ of independent directors.
The improvement in ％ of independent directors has been decreasing year by year. As the importance of independent directors increases, it's necessary to demand increase in this ratio through engagement.
For the other evaluation criteria, the median value remained unchanged from the previous year. Meanwhile, some traditional companies have not been able to eliminate the position of ex-CEO advisors.


Improvements Have Expired in Criteria Related to the 2019 Corporate Governance Code Revision

<ul>
<li>The problem with cross-held shares is that management facing shareholders tends to be neglected if they remain protected by a defensive wall rather than a lower return on capital.</li>
<li>The start of mandatory disclosure of policy shareholding policies from FY3/2025 will also help reduce policy shareholdings, which are expected to decrease gradually, but may remain as deemed shareholdings.</li>
<li>To improve capital profitability, profit margins must increase, so restructuring the business portfolio and investing for growth are key. Management changes are required to implement these changes.</li>
</ul>


The problem with cross-held shares is that management facing shareholders tends to be neglected if they remain protected by a defensive wall rather than a lower return on capital.
The start of mandatory disclosure of policy shareholding policies from FY3/2025 will also help reduce policy shareholdings, which are expected to decrease gradually, but may remain as deemed shareholdings.
To improve capital profitability, profit margins must increase, so restructuring the business portfolio and investing for growth are key. Management changes are required to implement these changes.


Reducing Cross-Held Shares Is Precisely What Is Needed to Promote Management Change

Executive Director, Co-head of CG Research, Metrical Inc.
METRICAL INC. is a corporate governance(CG)research, investment research and consulting firm in Japan, offering a full service CG research and solutions to investors, public companies and other wide range of organizations globally. http://www.metrical.co.jp/

Aki Matsumoto
Executive Director
• Metrical Inc

The Good News Is that Companies May Change in Less than 17 Years!

I would like to discuss the issues on the December 6 Nikkei Newspaper article, “Sapporo Holdings realizes Fund is catalyst, Reforms from within.”

Metrical Inc

"Danger Past, God Forgotten" How Long Will the Effect of TSE's Request Last?

I would like to discuss how far listed companies have progressed in their corporate governance efforts during the year 2024, based on my 2 previous...

Metrical Inc

Growth Policy Score Improved with the Request to Raise P/B, but Other Criteria Are in the Process

I would like to discuss how far progress has been made in corporate governance efforts by listed companies during the year 2024, focusing on the...

Metrical Inc

Reducing Cross-Held Shares Is Precisely What Is Needed to Promote Management Change

I would like to discuss the issues on the December 1 Nikkei Shimbun article, “Nippon Kabushiki Kaisha, Holding Company Prevents Capital Utilization.”

Metrical Inc

The Good News Is that Companies May Change in Less than 17 Years!

I would like to discuss the issues on the December 6 Nikkei Newspaper article, “Sapporo Holdings realizes Fund is catalyst, Reforms from within.”

Metrical Inc

"Danger Past, God Forgotten" How Long Will the Effect of TSE's Request Last?

I would like to discuss how far listed companies have progressed in their corporate governance efforts during the year 2024, based on my 2 previous...

Metrical Inc

Growth Policy Score Improved with the Request to Raise P/B, but Other Criteria Are in the Process

I would like to discuss how far progress has been made in corporate governance efforts by listed companies during the year 2024, focusing on the...

Metrical Inc

Improvements Have Expired in Criteria Related to the 2019 Corporate Governance Code Revision

I would like to discuss how far listed companies have progressed in their corporate governance efforts during the year 2024, focusing on the board...

Metrical Inc

Reducing Cross-Held Shares Is Precisely What Is Needed to Promote Management Change

I would like to discuss the issues on the December 1 Nikkei Shimbun article, “Nippon Kabushiki Kaisha, Holding Company Prevents Capital Utilization.”

Metrical Inc