As shown in Annexe 5, one method of evaluating a company’s share price is through the relationship between return on equity (ROE) and the cost of equity—commonly known as the equity spread approach. While there are various forms of equity spread models, the fundamental premise is that profits generated at a certain level of capital efficiency (hereinafter referred to as “actual ROE”) are reinvested in businesses expected to yield returns at that same level.

Therefore, if the company reinvests its earnings into businesses expected to generate returns higher than its actual ROE, the price-to-book ratio (PBR) will exceed 1×.

As shown in Annexe 6, assuming that Pasona’s cost of equity is 8%, the PBR would naturally exceed 1× if the company allocates capital to uses expected to yield returns above 8%. However, as repeatedly noted, the equity market currently values Pasona at a PBR of 0.59×—significantly below 1×.

As noted in Annexe 7, Mr Yasuyuki Nambu, founder of Pasona, advocates a corporate philosophy that goes beyond the pursuit of profit and emphasises giving back to society. We acknowledge and respect Mr Nambu’s principles to a certain extent.

However, as stated above, Pasona’s shareholders’ value is currently significantly impaired. In a stock company, the directors have a duty to protect the interests of shareholders—the ultimate principals. Even if the company seeks to pursue social contributions, the directors must, in parallel, take prompt action to rectify any erosion of shareholders’ value.

Despite this, as shown in Annexe 8, Pasona has made a substantial donation of ¥680 million to a related party. Furthermore, as documented in Annexe 9, this donation was not disclosed as a “related-party transaction” in the supplementary materials to the notice of convocation (specifically, matters provided electronically in connection with the 17th Annual General Meeting), raising serious concerns from the standpoint of transparent disclosure.

A “related-party transaction” refers to a transaction between a company and a party with which it has a special relationship. As explained in Annexe 10, such transactions may result in the company being pressured into unnecessary dealings or subjected to unfair terms and conditions.

As stated in Annexe 11, on 17 July 2025, Pasona announced the full outline of a five-year mid-term management plan starting with the fiscal year ending May 2026. However, the report on corporate governance dated 14 April of the same year made reference to portfolio restructuring, but no concrete strategy or positioning regarding this was disclosed. Moreover, revenue targets were only partially disclosed by segment, and profit indicators varied between segments, leading to a lack of specificity in the overall plan.

This suggests that the plan is based on the assumption that the current business segments will remain unchanged, and does not reflect any consideration of portfolio restructuring. Furthermore, with regard to the earnings level and equity capital level necessary to achieve the stated ROE target of 8%, the company explained in its earnings presentation held on the same day that they were derived through a “bottom-up” approach. However, as shown in Annexe 12, a mid-term management plan should be developed not by extrapolating from the present, but by “backcasting” from the future goal of enhancing shareholders’ value.

As outlined in Annexe 13, the mid-term management plan should be treated not as a mere roadmap, but as a commitment to shareholders. Management is expected to demonstrate accountability for delivering improvements in shareholders’ value.

Notably, the contents of the current plan—such as overall cost reduction and a 5% ordinary profit margin—closely resemble proposals made by Oasis Management between 2017 and 2018. It has taken eight years for these ideas to be reflected, and in that context, portfolio restructuring is now a critical and urgent matter. There is no justification for further delay.

Accordingly, the current mid-term management plan should be revised to reassess the roles of each segment from a portfolio restructuring perspective, and to incorporate more concrete and quantitative explanations. A new plan must be formulated that is genuinely conducive to enhancing shareholders’ value.