top of page

Stormy AGM likely, defrauded Sekisui House

Voting advisory firms recommended to vote against Chairman and Vice Chairman

April 13, 2020

Tadashi Fujioka

JB Press


Sekisui House was defrauded of 5.55 billion yen in a fraudulent land transaction in June 2017.  Their meeting of shareholders is scheduled for later this month, and it will likely be a stormy one.


Four representative directors facing the risk of dismissal


Former chairman and a current director made a shareholder proposal to Sekisui House, and a proxy fight is going on.  Voting advisory firms who advise institutional shareholders on voting decisions play a large role here.   One of the largest voting advisory firms, Institutional Shareholder Services (ISS) of the U.S., issued its recommendation to vote against Chairman Toshinori Abe and Vice Chairman Shiro Inagaki, both proposed by the company.  Another voting advisory firm Glass Lewis recommended to vote against all of the four incumbent representative directors.


As for the shareholder proposal, ISS recommended to vote for Mr. Jiro Isawaki, former Executive Vice President of TDK Corp. and current outside director of Renesas Electronics, and Mr. Christopher Brady, CEO of the U.S. fund Chart Group and an expert in security and national defense.  Glass Lewis recommended to vote for Mr. Isami Wada, former Chairman, Mr. Fumiyasu Suguro, director, Mr. Brady, and Ms. Hitomi Kato, a specialist in corporate laws.


Mr. Wada and Mr. Suguro are the two shareholders who made the shareholder proposal.  Mr. Wada was ousted as a result of a coup by current Chairman Mr. Abe, therefore it was somewhat seen as the second round of an internal factional battle.  A majority of people thought that the shareholder proposal was not going to win since Mr. Wada was criticized for his age and attempt to return to the leadership.


However, given the voting advisory firms’ recommendations, it has been revealed that it is not an uphill battle for the shareholder proposal.  On the other hand, the current management is fighting a tough battle since the current top two have been recommended to vote against by both of the voting advisory firms.


Recommended to vote against Mr. Abe two times in a row


Particularly institutional investors outside of Japan tend to follow the recommendations by ISS and Glass Lewis.  At the ordinary meeting of shareholders of Sekisui House two years ago, both ISS and Glass Lewis recommended that shareholders vote against Mr. Abe, and only 69.09% of shareholders voted for him.  In most cases company slate directors get more than 90% of the vote, so Mr. Abe’s case was quite uncommon.


That was due to Mr. Abe’s poor understanding of corporate governance.  He was very hesitant to disclose information on the land fraud incident that was unveiled in June 2017.  He forced Mr. Wada who was very eager to investigate and disclose the incident, and Mr. Abe also covered up the coup details, which was uncovered by Nikkei Newspaper soon after.


Key is Votes by Institutional Investors


The shareholder proposal is revolutionary in terms of corporate governance in Japan in that it proposes seven outside directors out of a total of 11 slate directors.  Also the outside directors include two non-Japanese persons, one of whom is a female executive of an ESG fund.  Also there is another female director who is a corporate law expert, so there are two female slate directors.  It meets diversity needs.


Mr. Isami Wada, Chairman and CEO in 2011 (Photo: Reuters/Aflo)

The company proposal, although the company has been promoting Governance Reforms in recent years, has only four outside directors out of a total of 12 director candidates, and out of the four outsiders, there is one female and no non-Japanese.  One of the key determinants may be how institutional investors will see this.


Sekisui House has cooperated with Sekisui Chemical, Sekisui Jushi, and Sekisui Plastics so that none of them won’t accommodate any meeting request by the team making the shareholder proposal.  This cross-shareholding has been something the shareholders outside of Japan have been criticizing about.


However, one of the company’s cross-shareholding partners Sharp Corporation has agreed to vote for the shareholder proposal (Mr. Wada).  Sharp Corp. has not made its support public, but more than 24% of the company is owned by Hon Hai Precision Industry in Taiwan, and unlike Japanese companies it may favor the enhanced corporate governance anticipated by the shareholder proposal.


Remarkable shareholder proposal


The shareholder proposal has a nature of Governance Reforms for the Corporate Japan.  Outside director candidates are all who joined forces with Mr. Wada and Mr. Suguro in the Reforms.  Mr. Jiro Iwasaki, an outside director candidate, said, “We will make this the corporate governance model for entire Japan.”


Mr. Makoto Saito, another outside director candidate, is a member of the Committee for Rating Third Party Committee Reports at the Japan Federation of Bar Associations, and is an expert of corporate scandals and governance.


Ms. Hitomi Kato is a whistleblower system expert, and developed “Whistleblower System Guidelines” at the Association of Corporate Legal Departments where approximately 1,200 listed companies are members.  She is a chairperson candidate for the board by the shareholder proposal.


The slate directors have been chosen in order to better supervise internal directors and management, and to prevent a scandal like the land fraud from happening again.


The most unconventional among the outside director candidates may be Mr. Christopher Douglas Brady.  His father is Nicholas F. Brady, the United States Secretary of the Treasury under President George H. W. Bush.  Mr. Brady is an investment expert in national defense.


He has interest in money laundering which is part of national defense in the U.S., and is concerned that the money Sekisui House lost in the land fraud might have gone to the underground via MUFG Bank.


The shareholder proposal is assisted by lawyers who promote anti-money laundering and corporate governance reforms.  Also, Mr. Takaaki Wakasugi, Professor Emeritus at the University of Tokyo and an authority in the corporate governance in Japan, serves the team as an advisor.  In March this year Professor Wakasugi had a study session on corporate governance with Mr. Wada, slate directors, and media reporters.


Land fraud and “improper transaction”


The team for the shareholder proposal has been releasing a lot of information on their website, and they are accommodating interview requests by media reporters, but on the contrary Sekisui House is not like that.  Particularly Mr. Abe and Mr. Inagaki have been very quiet.


The writer of this article has been following the land fraud incident and Sekisui House’s corporate governance issues since January 2018 when Mr. Wada was ousted in a coup by Mr. Abe.  I requested an interview with Mr. Abe and Mr. Inagaki many times since then, but have not been successful.


Therefore, I do not have a good idea of what the Sekisui House management’s thoughts are, and I will refrain from comparing the company’s proposal with the shareholder proposal.  I should direct the reader to the notice of the ordinary meeting of shareholders to be held later this month:


This notice describes the company’s opposition to the shareholder proposal, and there is a clear difference on the understanding of the land scandal between the two sides.


The shareholder proposal values social responsibilities in the global wake of ESG and SDG’s, and calls the land transaction “an improper transaction.”


The land fraud happened in June 2017, immediately after the guidelines for the housing land and building dealer were released on the Act on Prevention of Transfer of Criminal Proceeds that went into effect in 2016.  The management of Sekisui House, a real estate expert, should be held heavily responsible for the loss of approximately 5.5 billion yen in the fraudulent land transaction.  The transaction was personally approved by the current Chairman Mr. Abe.


The shareholder proposal criticized the company saying that the land transaction “was not executed in a manner socially accepted” (Mr. Wada), but the company responded “there were no illegal conducts identified in an investigation by the police”, seeing it based on whether it is legal or not.


Both Mr. Abe and Mr. Inagaki are almost 10 years younger than Mr. Wada.  Mr. Nakai, President, is 54 years old, and is a brilliant Kyoto University graduate.  However, Mr. Wada who has been criticized for his age is promoting the most advanced form of corporate governance.  How would the Sekisui House shareholders see this and make decisions?


The meeting of shareholders will be held in Osaka from 10:00am on April 23, 2020.

bottom of page