Hello, this is Yuya Shimizu. I’d like to share a few thoughts on the “Action Programme for Corporate Governance Reform 2025”, released by the Financial Services Agency (FSA). One section in particular—Part II-1-ii—stood out to me as a meaningful step forward.
While the English-translated version describes the issue slightly vaguely, the Japanese version clearly frames it as a response to the “cash hoarding” problem seen in Japan. By explicitly identifying this as a problem, the FSA, in its role as the markets’ guardian, has intensified the pressure on management teams and boards who merely sit on cash without investing or returning capital — thereby continuing to erode ROE.
Companies often justify their large cash holdings as ‘preparation for future growth investments.’ However, in reality, we frequently observe situations where investment is insufficient, balance sheets expand unnecessarily, and ROE deteriorates. Statements like “We need a lot of cash now for our future CAPEX or M&A!” often ring hollow to shareholders. This is because good management should enable growth investment to be financed by debt from banks, and if the stock is appropriately valued, raising capital through equity issuance at market price should also be feasible. Investing in growth is not inherently problematic, so long as it delivers results, but hoarding excessive cash under the vague promise of future investment is a different matter altogether.
Two of the Investees for which we recently submitted shareholder proposals — Japan Pure Chemical (“JPC”) and Tomoe Corporation (“Tomoe”) — are prime examples of this issue. At JPC, approximately 86% of total assets are in cash and investment securities, with zero debt. Tomoe holds 40% of its total assets in cash and investment securities (with debt only amounting to roughly 15% its total liabilities and equity). Their projected quarterly ROEs on Shikiho Online are 4.81% and 3.36% respectively — both well below an acceptable standard. Management, in both cases, has long taken shelter not beneath the metaphorical ‘shade of a great tree’, but in the shade (i.e. the comfort and safety) of excessive cash reserves, failing to return sufficient value to employees, shareholders, and to the company’s own future for continuous long periods.
In pursuit of shareholders’ common interests, we will continue to actively engage with our portfolio companies facing such issues. We also sincerely hope that the FSA continue to raise such important issues for the transformation of Japan’s corporate management mindset and growth of national economic prosperity.
This post does not constitute a solicitation for an offer to acquire or recommend the purchase or sale of specific securities, or advice on investment, legal, tax, accounting, or any other matters.