METRICAL: How far has corporate governance progressed in 2021? ~ Board Practices Edition

Metrical updates its corporate governance evaluations every month for approximately 1,700 companies listed on the 1st Section of the Tokyo Stock Exchange with market capitalization exceeding approximately 10 billion yen. 2021 saw the revision of the Corporate Governance Code in line with the reorganization of the TSE’s market segments in April 2022. It is expected that initiatives to enhance the corporate governance of listed companies will also move forward. I would like to take a look at how far corporate governance has improved as a result of these efforts, with numbers.

The chart below shows Metrical’s evaluation of each criteria in December 2020 and their changes in December 2021, showing how far the corporate governance initiatives of listed companies have improved over the past year. Let’s take a look at them in order.

The first chart shows the distribution of the Metrical CG score, which is an overall assessment of a listed company across a number of corporate governance criteria. The distribution of the green bars in December 2021 is higher than that of the orange bars in December 2020, indicating that the score has shifted to the right. It can be assumed that listed companies have made progress in their corporate governance efforts, partly due to the revision of the Corporate Governance Code. Let’s take a closer look at the details below.

METRICAL: What Kind of Firm Adopts Takeover Defenses? (Metrical Analysis Using BDTI Data)

As shown in the table below, more than 90% of all TSE-listed companies have not adopted takeover defense provisions, and about 90% of the companies in the Metrical universe (which consists mainly of companies listed on the TSE 1st Section and slightly larger in market capitalization than all listed companies) have not adopted takeover defense provisions.

While companies that do not retain takeover defenses are now the mainstream, we looked at the performance and corporate governance practices of companies that have adopted takeover defenses and those that have not. The table below shows them. As you can see, the performance of companies without takeover defense measures is superior in terms of ROE (actual), ROA (actual) for the past three years on average and Tobin’s Q. In terms of corporate governance practices, other than the percentage of independent directors, companies were found to be superior in terms of the percentage of female directors and Metrical score.

METRICAL:CG Stock Performance: November 2021

Stock market declines in November. CG Top 20 stocks underperformed the index. Stock prices in November plunged sharply toward the end of the month, falling for the second month in a row, as investors grew wary of a new variant of the COVID-19, the Omicron virus. The Topix and JPX400 indices fell -3.60% and -3.44%, […]

Metrical: Equity Issuance and Performance, Corporate Governance

Metrical has previously published “Retirement of treasury stock and performance, corporate governance” and “Dividend policy and performance, corporate governance,” and in the articles we have examined the relationship between share retirement and performance and corporate governance, and between dividend policy and performance and corporate governance, respectively (please contact us if you would like to know more). The current article on equity issuance is the third in a trilogy. Surprisingly, interesting analysis results were confirmed for each of these approaches.

To summarize the previous two articles, the stock retirement score is positively correlated with ROA (actual) and Tobin’s q, and companies that have retired their own shares three or more times have significantly better key performance indicators in ROE (actual), ROA (actual), and Tobin’s q. Similarly, in evaluating corporate governance practices (including actions), the Metrical Corporate Governance Score, the % of Independent Directors, the Equity Issuance Score, and the Dividend Policy Score, the 100 companies that have retired their own shares three or more times have significantly higher scores than the companies that have retired their shares less frequently. This confirms that these companies have a strong awareness of the need to improve their corporate governance, as these scores are significantly higher than those of the companies that have retired their own shares less frequently.

The Dividend Policy Score has a certain relationship with the Key Performance Indicators. Companies with a payout ratio target or forecast of less than 10% have the lowest ROE (actual) and ROA (actual) as key performance indicators compared to the group with the higher dividend policy score, while they have the highest Tobin’s q. In addition, companies with a payout ratio target or forecast of less than 10% have the lowest dividend policy score compared to the group with the higher dividend policy score in the Metrical Corporate Governance Score, Equity Retirement Score and Equity Issuance Score as an evaluation of corporate governance practices (including actions). These companies have the lowest Corporate Governance Score, Equity Cancellation Score and Equity Issuance Score compared to the group with the higher Dividend Policy Score. Therefore, it can be pointed out that these companies may have relatively low awareness of improving corporate governance.

Metrical evaluates the Equity Issuance Score according to the type of equity issuance (capital increase, CB, WB, preferred stock, etc.) and the frequency of such issuance. Specifically, if a company has never issued equity since 2000, the score is 0, and if it has subsequently implemented equity financing, the score is lowered according to the type of issuance. Specifically, the score is -2 for capital increases that directly issue new shares and -1 for equity financing that mitigates the dilution of shareholder interests, such as CB, WB, and preferred shares, and a negative score is added for each equity financing.

The number of companies with an Equity Issuance Score of 0 (no equity issuance since 2000) is 797, the number of companies with an Equity Issuance Score of -1 (has issued equity only once using CBs, WBs, preferred shares, etc. that are not directly dilutive) is 121, the number of companies with an Equity Issuance Score of -2 (has raised capital once or has issued equity twice using CBs, WBs, preferred shares, etc. that are not directly dilutive) is 557, and the number of companies with an Equity Issuance Score of -3 (has issued more equity than the above) is 69, the number of companies with an equity issuance score of -4 (has issued more equity than the above) is 118, and the number of companies with an equity issuance score of -5 or lower (has issued more equity than the above) is 54.

METRICAL: CG Stock Performance – October 2021

Stock market declines in October. CG Top 20 stocks significantly outperformed the index.

In a reversal of the previous month’s sharp rise, the stock market plunged in the first half of October, followed by a market stalemate ahead of financial reports starting at the end of the month. Topix and JPX400 indices fell -1.34% and -1.35%, respectively, during the month of October, while the CGTop20, the top CG rating score, outperformed both indices by a smaller margin, -0.41%.

METRICAL: Considerations for Nominating Committees

Nominating committees are the most difficult issue in corporate governance practices. Since the election (nomination) of directors is a matter that involves personnel rights, and personnel is also a matter that has a great deal to do with compensation, the CEO is still deeply involved in this decision in many companies, especially in Japan where the board of directors is composed of many inside directors. It is not difficult to imagine that there would be resistance to delegating this decision-making authority to independent outside directors. To conclude, even if a nominating committee has been established, it is impossible to know whether the committee is functioning properly without a close examination of the substance of the committee. In order to check whether the nominating committee is functioning properly, the first point to be considered is whether the majority of the members of the committee are independent outside directors, and whether the committee is chaired by an independent outside director. However, a prerequisite for this is that the board of directors must be prepared to accept decisions on director nominations made through a transparent and objective process. This can be thought of as the board of directors itself being operated in a transparent and objective manner. As a measure of this, I would like to examine whether independent outside directors make up the majority of the board of directors. If the board of directors is dominated by inside directors, it is unclear whether the process of nominating directors is carried out in a transparent and objective manner, and it is also unclear whether the board of directors approves the proposed candidates for directors submitted by the nominating committee.

First of all, as shown in the table below, the current status of the nominating committees of all listed companies in Japan is as follows: of the 3,733 companies that submitted corporate governance reports out of the 3,784 companies listed on the Tokyo Stock Exchange as of October 1, 2021, 82 companies (2% of the total) are companies with nominating committees under the law. (2% of the total). There were 1,249 companies with audit committees and 2,401 companies with board of corporate auditors, of which 609 companies (49%) and 1,046 companies (44%) had voluntary nominating committees in their respective organizational forms.

METRICAL:Information Disclosure in English

I have previously written and reported on information disclosure in English. This time, I would like to think about information disclosure in English again. The BDTI and Metrical have repeatedly stressed the importance of information disclosure in English, and recently the TSE released the “Results of a Survey of Foreign Investors on English-language Disclosure”, so this issue is gradually gaining attention. The Tokyo Stock Exchange’s “Availability of English Disclosure Information by Listed Companies” provides information on the disclosure of information in English by listed companies. According to this information, there are three types of information disclosure in English: “Timely Disclosure Documents,” “Notices of General Shareholders Meetings,” “Corporate Governance Reports,” “Annual Securities Reports,” “IR Presentations,” and “IR Website English Links” based on disclosure information provided by listed companies.

According to TSE data as of June 30, 2021, of the 3,782 companies listed on the Tokyo Stock Exchange, 3,730 companies for which data could be compiled disclosed information in English for each item as follows. For IR Presentations and IR Website English Links, about half of the listed companies disclose information in English. The second most commonly disclosed item in English is earnings reports such as financial statements, with 38% of companies disclosing in English. The two reports with the least disclosure in English are the annual securities report (Yuho) and corporate governance report, with 6% and 11% of companies disclosing in English, respectively.

ICGN Excellence in Corporate Governance Programme 2021


Seems like a good program. If you sign up, kindly please also tell us at so we can get credit for the introduction.

This 4-part course builds an awareness of how institutional investors with globally diversified portfolios analyse corporate governance practices and a company’s approach to generating long-term value. The curriculum focuses on recent changes to the Japan Corporate Governance Code and standards expected of JPX listed companies, particularly the new Prime Market segment. The ICGN Course provides:

  • Global Investor Lens with ICGN Member opinion responsible for AuM in excess of over $59 trillion, based in over 40 countries
  • Best Practices based on ICGN’s Global Governance Principles used by ICGN Members in voting polices and company engagement
  • Local Relevance applicable to national standards/regulations and clarity around any differences between local and global standards
  • Practical Experience featuring live case studies from international investors and pre-recorded keynote speeches

The ICGN Faculty is a prestigious group of professionals with practical experience from the corporate and investment field. Each 90-minute module will include insights and case studies presented by an international guest (with simultaneous interpretation) and teaching from the lead faculty member in Japanese language. Participants can also view a pre-recorded 15-minute keynote speech from an influential governance practitioner.

METRICAL: The First Step in Board Diversity

We have long considered the number of female directors as one of the key factors in board practices to measure how a company is willing to change, and according to the BDTI survey (3,622 companies as of March 26, 2021), the percentage of female directors on boards has improved significantly from 1.4% in 2016 but still only accounts for 6% of the total (see chart below).

Metrical’s survey of the universe companies, mainly those listed on the Tokyo Stock Exchange 1st section, also shows how few female directors there are (see chart below). Of the 1,729 listed companies in the universe, 643 (37.2% of all universe companies) have no female directors, 676 (39.1%) have one female director, and only 410 (23.7%) have two or more female directors.

Japan’s Corporate Governance Revolution: Halfway Through the Tunnel (Equities First/Nasdaq Report)

Over the past six years Japan has put in place a long list of corporate governance reforms, amounting to a virtual revolution in thinking at corporations, domestic institutional investment firms, and even society. However, because Japan is still only halfway through the “tunnel” of reform and thinking, much of the resulting value creation for investors and other stakeholders is yet to come. Key takeaways from this whitepaper’s data-driven review of Japan’s governance “revolution” include:

Tangible corporate governance reform has come to Japan, in the form of a robust Corporate Governance Code and Stewardship Code.
In tandem with government policy, advocacy by investor groups and pro-governance corporate leaders will continue these positive reforms in the years to come.
Japanese firms have “got the message” that a sea change has occurred: a majority of firms are hiring outside directors, establishing nominations and compensation committees, and reducing takeover defenses such as poison pills.
Japanese boards are starting to embrace global trends for incentive-based compensation, higher levels of diversity, and focus on returns and capital efficiency.
Cross-shareholdings and other “allegiant holdings” are being unwound as foreign and domestic institutions alike have become more proactive in their proxy voting strategies, making the market more attractive in general.
Merger and Acquisitions (M&As) and activism are on the rise, raising capital efficiency or managerial awareness of the need for it.
As a result of many of the above changes, Return on Assets (ROA) values in Japan are trending higher across the board.