METRICAL: Study on Committees

Over the past year, an increasing number of companies have set up nomination and compensation committees. In order to improve transparency and objectivity and considering the continuity of management, establishing these committees is a key issue in enhancing corporate governance. Due to the request of the Tokyo Stock Exchange, many companies have moved to set up advisory committees lately. On the other hand, only a limited number of companies have moved to the organization structure of a company with 3 statutory committees for the same period.

Based on the data of approximately 1,800 companies, we will show how far companies have progressed in setting up the committees for the past 2 years since March 2018. As shown the chart below, compared to March 2018 and April 2020, the number of companies with statutory nominating committee and compensation committee increased modestly from 65 companies/all 1,796 companies to 68 companies/all 1,753 companies in total. It obviously shows how difficult the companies consider moving to the structure with 3 statutory committees. On the other hand, as for the optional (advisory) committees, an increasing number of companies have set up the nomination committee and compensation committee. The number of companies with optional (advisory) nomination committee increased from 550 companies /1,731 companies (31.8% of all companies excluding the companies with structure having 3 statutory committees) as of March 2018 to 949 companies/1,685 (56.3% of all companies excluding the companies with structure having 3 statutory committees as of April 2020. Similarly, the number of companies with optional (advisory) compensation committee increased from 609 companies/1,731 companies (35.2% of all companies excluding the companies with structure having 3 statutory committees) as of March 2018 to 992 companies/1,685 companies (58.9% of all companies excluding the companies with structure having 3 statutory committees) as of April 2020.

METRICAL: April – Prices Rose But CG Top 20 Slightly Underperforming

The market price in April 2020 has recovered significantly from the previous month when it continued to decline significantly due to concerns over the spread of new corona infections. The world market price turned to an increase as the US stock prices rose from expectations for good clinical trials of corona drugs. Both Topix and JPX400 stock indexes have risen for the first time in four months since January, recovering 4.54% and 4.60% respectively in the last month. CG rating score Top20 stock price was slightly underperforming with 4.15%. The volatility (standard deviation) for the current month is 7.65%, 7.74%, 4.11% for Topix, JPX400, and CG Top20 stocks, respectively.

METRICAL: Willingness to Change

We have observed the number of female directors as a key factor on board practices to measure how a company is willing to change. The table below shows the correlation analysis between the number of female directors and performance key measures such as ROE (actual), ROA (actual) and Tobin’s Q on the 1,755 companies as of March 31, 2020. We have seen the statistically significant positive correlation between ROE (actual or results) and the factor since we started the correlation analysis with correlation analysis with BDTI in 2017. Now, the factor shows the sign of significance to ROA (actual or results) in this month, updating the data of December fiscal year end companies after AGMs.

METRICAL: March – Prices Fell Sharply But CG Top20 Stocks Outperformed

The market price in March 2020 continued to fluctuate with high fluctuations due to concerns about the spread of the Coronavirus around the world. Approximately half of the sharp decline by mid-month recovered at the end of the month. Both Topix and JPX400 stocks have fallen sharply in March for the month of -6.46% and -6.79% respectively. The Top20 CG rating score was -6.22%, outperforming the previous month at -0.30% compared to the two main stock indices, with a lower rate of decline. By the way, the stock prices of the ten companies with the top 10 CG rating scores were -1.44%, which was even smaller.

METRICAL: February prices fell sharply due to concerns about the spread of Coronavirus. CG Top20 stock outperforms last month, keeping pace with Topix and JPX400

In February 2020, prices fell sharply in the world’s major stock markets by the end of the month, fearing that the spread of the coronavirus could spread to various parts of the world. Both Topix and JPX400 stock indices have fallen sharply to -0.59% and -0.57% respectively in the month of February. The Top20 CG rating score was -0.38%, outperforming the previous month, keeping the decline rate lower than both major stock indices. The stock prices of the 10 companies with the top 10 CG rating scores fell even less, at -0.34%.

BDTI/METRICAL Joint Research Update: “CG Practice and Value Creation Linkage”-January 2020-

Topics

  • 50%
    INEDs increased 1 company (Yamada Consulting [4792]) to 85 (86 companies
    including Toshiba) from the previous month.
  • A
    significant positive correlation was found between board practices and value
    creation (ROE, ROA, Tobin’s q) in the following

(Positive
correlation with actual ROE)

  • Ratio of female directors and
    ROE results
  • Incentive (compensation) plan
    factors and ROE achievements

METRICAL:January Market Indices and CG Top 20 stocks edged lower amid concern about spread of Coronavirus infection after risk-on rally in the 1H of the month.

Stock prices climbed in the 1H of the month on risk-on rally buoyed by hitting historical high of US market, but concern about negative impact on global economy led by coronavirus infection put downward pressure on the stocks toward the month end. TOPIX and JPX400 market indices lost -0.11% and -0.09% respectively for the month. CG Top 20 stocks soft -0.07% but outperformed against the both indices for the same period.