METRICAL:Drivers of Corporate Governance Improvement Are the Percentage of Foreign Shareholdings

In January 2024, Japanese stocks rose sharply as overseas investors bought Japanese stocks for the first time since June 2023. There has been no change in the composition of Japanese equities driven by overseas investors, who account for over 70% of the TSE’s trading volume. Meanwhile, since the TSE’s request at the end of March 2023, listed companies have been struggling to raise their stock price valuations (P/B). We have also seen an increase in disclosures from listed companies that seem to be expecting overseas investors to buy their shares. In this article, we will focus on the ratio of foreign shareholdings and analyze the trends in companies in which overseas investors invest. The contents of this article should be of interest not only to overseas investors, but also to listed companies.

The Metrical universe of 1,822 companies (as of January 2024) is divided into five groups (30% or more, 20% or more but less than 30%, 15% or more but less than 20%, 10% or more but less than 15%, and less than 10%) based on foreign shareholding ratio and analyzed for each category. The median foreign shareholding ratio is 15%; companies with 15% or more can be said to have higher foreign shareholding ratios. Also, as discussed in my previous article “Takeover Defense Measures and Foreign Shareholder Ratio,” there is a sort of threshold at 30%. When the foreign shareholding ratio exceeds 30%, it becomes more difficult for the company to secure 1/3 of the special resolution at the shareholders’ meeting, and thus the influence of foreign shareholders becomes stronger, which in turn can be expected to improve the company’s management.

BDTI’s Director Training for Women Initiative 2024

For the third year in a row, Oasis Management Company Ltd. (“Oasis”) will support director training for women in Japan. Oasis will pay all costs for qualifying women who enroll by the end of June to take any of BDTI’s director training courses described below.  The goal of the initiative is to equip highly qualified female leaders with the skills and knowledge needed to succeed as board directors, and to proactively address the imbalance in board gender diversity in Japan by growing the pool of board-ready, qualified female director candidates.

Starting April 1st to June 30th, for qualifying women who enroll to take any of BDTI’s director training courses as described below, Oasis will cover all costs.  These Japanese and English-language training programs have been designed by leading experts in Japan to prepare candidates to serve as directors, statutory auditors, and executive officers in Japan. We look forward to women with a broad range of experience taking advantage of this opportunity to receive director education.  (Click here to see Oasis’ press release.)

METRICAL – CG Stock Performance (Japan): February 2024

The February stock market continued to be strong from the beginning of the month.
In February, the CG Top 20 underperformed both the TOPIX and JPX400 stock indices.

Supported by high overseas stock market prices in the U.S. and other countries, the Japanese stock market was also solid throughout the month, with the Nikkei 225 hitting its all-time high in 1989 on February 22. The stocks continued to be firm toward the end of the month.
The TOPIX and JPX400 indexes gained 4.83% and 4.75%, respectively, in February, while the CG Top20 stocks underperformed against both indexes, dipping -0.97%.

The composites of CG Top 20 stocks has been replaced as of July 1.
Wacom (6727), K’s Holdings (8282), Eisai (4523), NSD (9757), and Trend Micro (4704) were new additions, while Ebara Corporation (6361), Orix (8591), United Arrows (7606), Tokyo Gas (9531) and Hoosiers Holdings (3284) were removed. Details of the component stocks are shown in the table below.

【METRICAL】Corporate Governance in Japan Is Improving, but Has yet to Take Steps to Create Value

Metrical provides monthly corporate governance assessments of approximately 1,800 companies, primarily prime market listed companies. This year, continuing on from last year, we would like to see how much progress has been made in corporate governance initiatives by listed companies over the past year.

We analyzed how much the 1,788 companies in the comparable Metrical universe improved in each evaluation category between December 31, 2022 and December 31, 2023. The table below shows the Metrical CG score, which is the overall corporate governance score, the average ROE and ROE over the past three years, the change in Tobin’s Q and foreign shareholding ratio in December 2022, December 2023, and change from 2022 to 2023, and the mean and median values.

1/19 “Director Boot Camp” Held by Zoom! Next Course: 3/29!

BDTI Boot Camp
Based on interest from participants overseas, BDTI held its English Director Boot Camp via teleconference on January 19th. The day-long intensive course was attended by highly-experienced and highly interactive participants all the way from Hong Kong, Papua New Guinia to Europe. The participants heard lectures about corporate governance by Nicholas Benes and there were lots of interactive discussion and Q&A about real-life situations on Japanese boards, and how to handle them. You get even more in the additional materials we provide in your thick binder.

【Metrical】Percentage of Female Board Members Is a Measure of a Company’s Seriousness About Improving Its Practices

Following the previous analysis of the ratio of independent directors, here is an analysis of the ratio of female board members. As you know, the Japanese government has set a target of increasing the ratio of female board members ( board directors, statutory executive officers, and statutory auditors) to 30% by 2030 for companies listed on the prime market. Using data from the Metrical Universe at the end of September, I will examine the characteristics of each group in terms of the ratio of female board members.

Of the 1,781 companies in the Metrical Universe at the end of September, 74 (4.2%) have achieved a ratio of 30% or more female directors. The government and TSE have also set an intermediate goal of appointing at least one female board member by 2025. 1,567 (88%) of the 1,781 companies in the Metrical Universe at the end of September have at least one female board member. The 1,781 companies in the Metrical universe also include companies listed outside the prime market. It also includes companies like Canon that are expected to appoint female board members at future AGMs, so it is likely that the majority of prime market listed companies will have appointed female board members by 2025.

METRICAL:Companies with over 50% Independent Directors Have High Profitability and Stock Valuations

The ratio of independent directors is on the rise, with the number of companies with a majority of independent directors (more than 50%) increasing to 280 out of the 1,781 companies in the Metrical Universe at the end of September 2023. I would like to examine the characteristics of companies with a majority of independent directors.

The chart below shows the number of companies in the Metrical universe with a majority of independent directors (more than 50% independent directors). Since there are less than 1,800 companies in the Metrical universe, the percentage of companies in the universe with a majority of independent directors (more than 50%) has just risen to 15.7% as of the end of September 2023, so it will take some time before a majority of companies have a majority of independent directors on their boards. It is likely to take some time before the majority of companies have a majority of independent directors on their boards. However, the number of such companies is gradually increasing.