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.

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>Although large companies improved the rate at which men take “parental leave,” the gap between men and women in both the take-up rate and the duration of leave remains overwhelming.</li>
<li>To further promote “parental leave,” it's necessary to shift from business models that rely on understaffing to keep labor costs low to high-value-added businesses that don't depend on manual labor.</li>
<li>In Japan, equality in gender and family matters has not been legally mandated. Consequently, the burden of childcare and housework has inevitably fallen disproportionately on women.</li>
</ul>


Although large companies improved the rate at which men take “parental leave,” the gap between men and women in both the take-up rate and the duration of leave remains overwhelming.
To further promote “parental leave,” it's necessary to shift from business models that rely on understaffing to keep labor costs low to high-value-added businesses that don't depend on manual labor.
In Japan, equality in gender and family matters has not been legally mandated. Consequently, the burden of childcare and housework has inevitably fallen disproportionately on women.


The Current Status and Future Outlook for Men Taking Parental Leave

<ul>
<li>The elimination of “parent-subsidiary listings” in the broad sense—including affiliated companies—and delistings resulting from TOBs etc. that lead to industry consolidation are expected to improve the profitability of listed companies.</li>
<li>After delisting, a company will have no choice but to break away from management style that defers challenges to work toward improving earnings in line with the fund’s profit targets.</li>
<li>After a company is delisted, some executives may realize for the first time that maximizing shareholder interests is the primary management objective of a corporation.</li>
</ul>


The elimination of “parent-subsidiary listings” in the broad sense—including affiliated companies—and delistings resulting from TOBs etc. that lead to industry consolidation are expected to improve the profitability of listed companies.
After delisting, a company will have no choice but to break away from management style that defers challenges to work toward improving earnings in line with the fund’s profit targets.
After a company is delisted, some executives may realize for the first time that maximizing shareholder interests is the primary management objective of a corporation.


What Do Managers Realize After Going Private?

<ul>
<li>Amid calls for shifting to value-creating management, having independent outside directors—who can view matters from external perspectives—serve as board chair is one option for driving change within the company.</li>
<li>Companies with an outside director chairering the board of directors increased by 29—from 110 (2.9%) two years ago to 139 (4%). However, the pace remains far too slow.</li>
<li>Setting board agendas is crucial for outside directors to take the initiative during board meetings. The time has come to appoint an outside director as chair of the board.</li>
</ul>


Amid calls for shifting to value-creating management, having independent outside directors—who can view matters from external perspectives—serve as board chair is one option for driving change within the company.
Companies with an outside director chairering the board of directors increased by 29—from 110 (2.9%) two years ago to 139 (4%). However, the pace remains far too slow.
Setting board agendas is crucial for outside directors to take the initiative during board meetings. The time has come to appoint an outside director as chair of the board.


Electing Outside Directors as Board Chair Is Direct Path to Making Outside Directors More Effective

<ul>
<li>In survey conducted by Life Insurance Association of Japan on “Is ROE Exceeding the Cost of Capital?,” the discrepancy in perceptions between companies and investors has drawn attention every year.</li>
<li>With the rise in the cost of capital, there is a risk that ROE could fall below the break-even point—even based on a company’s own calculated “cost of capital.”</li>
<li>The key to achieving “ROE significantly exceeds the cost of capital” is to implement fundamental measures to boost earnings; however, many companies will focus solely on enhancing shareholder returns.</li>
</ul>


In survey conducted by Life Insurance Association of Japan on “Is ROE Exceeding the Cost of Capital?,” the discrepancy in perceptions between companies and investors has drawn attention every year.
With the rise in the cost of capital, there is a risk that ROE could fall below the break-even point—even based on a company’s own calculated “cost of capital.”
The key to achieving “ROE significantly exceeds the cost of capital” is to implement fundamental measures to boost earnings; however, many companies will focus solely on enhancing shareholder returns.


Will Rising Capital Cost Lead to Fundamental Solution Beyond Simply Increasing Shareholder Returns?

<ul>
<li>The reasons behind the sluggish ROE include insufficient shareholder returns, along with inadequate investment in creating businesses with high gross profit margins and insufficient implementation of business and industry restructuring.</li>
<li>Both ROE and net profit margin improved sharply in FY2017, primarily due to corporate tax cuts; since then, companies failed to implement fundamental measures to improve their operating profit margins.</li>
<li>All we can do is hope that the rising cost of capital will give those managers who haven’t been able to implement the necessary measures the push they need.</li>
</ul>


The reasons behind the sluggish ROE include insufficient shareholder returns, along with inadequate investment in creating businesses with high gross profit margins and insufficient implementation of business and industry restructuring.
Both ROE and net profit margin improved sharply in FY2017, primarily due to corporate tax cuts; since then, companies failed to implement fundamental measures to improve their operating profit margins.
All we can do is hope that the rising cost of capital will give those managers who haven’t been able to implement the necessary measures the push they need.


There Are Still Many Companies that Fail to Carry Out Both What They Can Do and What They Must Do

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/