Governance Briefing — March 31, 2023
The Tokyo Stock Exchange issued its capital-efficiency action programme on March 31, 2023, directing Prime Market boards to justify price-to-book shortfalls and publish improvement plans.
Executive briefing: The Tokyo Stock Exchange (TSE) released Action to Implement Management that is Conscious of Cost of Capital and Stock Price on 31 March 2023. The initiative challenges Prime Market issuers trading below book value or with low profitability to disclose concrete governance responses, including revisiting capital allocation, cross-shareholdings, and business portfolios. Boards must signal how they will lift return on equity and market valuations, and report progress via investor communications.
What TSE expects
- Quantify capital efficiency gaps. Companies should analyse cost of capital, ROE, and valuation indicators, then explain drivers behind price-to-book ratios below one.
- Publish action plans. Boards are encouraged to set measurable initiatives such as divesting non-core assets, improving shareholder returns, and strengthening governance of group subsidiaries.
- Enhance disclosure cadence. Issuers must provide ongoing updates through integrated reports, investor briefings, and corporate websites.
Implications for operators
- Prime Market boards. Nomination and finance committees should embed capital-efficiency KPIs into director evaluations and remuneration scorecards.
- Global investors. Stewardship teams gain leverage to engage Japanese issuers on unwinding cross-shareholdings and deploying excess cash.
- Technology and industrial groups. Diversified conglomerates must tighten portfolio governance, clarifying hurdle rates and exit criteria for underperforming divisions.
Action checklist
- Conduct board workshops on cost of capital governance and scenario modelling for capital allocation.
- Update disclosure calendars to include semi-annual progress reports on valuation improvement measures.
- Coordinate with legal teams to ensure investor communications satisfy Fair Disclosure (FD) requirements while being specific on restructuring milestones.
Sources
- TSE news release on capital efficiency initiative
- Action to Implement Management that is Conscious of Cost of Capital and Stock Price (PDF)
Zeph Tech advises Japan-focused investors on linking TSE’s capital-efficiency push to stewardship strategies and governance reforms.