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Former Chairman of Sekisui House “It is not a revenge!”

Former Chairman and Current Director discuss why they made the Shareholder Proposal

April 5, 2020

Toyo Keizai Online

Hiroshi Matsuura


In 2017, Sekisui House lost approx. 5.5 billion yen in a land transaction in Shinagawa-ku, Tokyo that involved a fraudulent landlord group.  In 2018, Mr. Isami Wada, former Chairman who pursued to dismiss the then President Mr. Toshinori Abe (current Chairman), was forced to resign.


Two years have passed since then.  Mr. Wada and Mr. Fumiyasu Suguro, who will be resigning as director on April 23, 2020, held a press conference on February 17, 2020.  They pointed out at the press conference that the current management including Mr. Abe has been resisting to disclose the investigation report on the fraud and that the management is responsible for the subsequent cover-up.  They also pointed out that it has resulted in the current corporate culture at Sekisui House of employees not feeling free to speak up.  Their shareholder proposal seeks to establish a board with a majority of which being outside directors.  The slate directors include Messrs. Wada and Suguro.


Sekisui House’s general meeting of shareholders is scheduled for April 23, 2020.  What are the goals of the shareholder proposal?  We interviewed Messrs. Wada and Suguro.


  • Please talk a little bit about the background that led to the shareholder proposal.


Wada:  The incident was not a fraud, which sounds like Sekisui House being just a victim.  It is not the case here.  Sekisui House was not defrauded.


According to the investigation report available on the website, Sekisui House dealt with a shell company, paid by deposit checks, and received multiple content-certified mail warnings.  They (the current management including Mr. Abe) ignored all the warnings and executed the deal.


We do not know where the lost money went.  I have been told that it is a typical example of money laundering.


Japanese companies’ corporate governance is not good enough.  In the U.S. you would have to go to jail if you did such a transaction.  The current management has been covering this up, and they cannot turn back now.


In order for a company to survive forever, you cannot ignore corporate governance.  You need to disclose everything and ensure transparency.  Among the 11 slate directors in our shareholder proposal, seven are outside directors.  This ensures that the outside directors could even force CEO to resign if there is something wrong, and we need to structure the board like this.


Not socially acceptable


Suguro:  Every investor we see says “it should not be tolerated.”  However, it was a little surprising to me that many people think that the land transaction was not illegal and therefore you cannot call it “an improper transaction”.  Some people even think that it is up to the company to choose what information to disclose or not.


I do not want to make a legal dispute out of this.  What I want to say is just that Sekisui House was not in compliance with business ethics demanded by the society.


In the criminal proceedings for the fraudulent landlord group, Sekisui House is just a victim, but it was indeed an improper transaction by Sekisui House.  The current management has an accountability to disclose the incident details to the shareholders.


The investigation report determined that directors of the board were responsible.  They reduced their salaries for a few months but that was not sufficient at all.


They only released a summary of the investigation report, which was just a cover-up.  It was a governance failure.  They are burying all the evidences like China did in its high-speed rail crash.  Everything has to be shared with the shareholders so the shareholders can make informed decisions.


The outside directors on our slate are all experts in such areas as governance, ESG, and laws, which the current management lacks knowledge of.  All of them have been introduced to us via people we trust very much.


To make the board sufficiently functional, we will ask the outside directors not to feel hesitant to say anything.  The board of directors will have extensive discussions from a broad perspective, and based on the outcome the board will work with executive officers to achieve the goals set.


Unlike the current micro-managing management, substantial delegations will be made to frontline teams, which will lead to enhanced morale at the frontline teams.  I am not just meaning to be difficult as a shareholder.  All I am trying to do is just for the benefit of the company.

  • What are some of the responses by the shareholders to your shareholder proposal?


Wada:  Many of the overseas investors and a majority of institutional investors seem to be in favor of us.  Among the corporate shareholders in Japan, Sharp Corp. (owning <1%) and others have expressed their support.  However, most cross-shareholding companies are totally different. (Note: Sharp Corp. responded to Toyo Keizai’s inquiry that “no decisions have been made.”)


Suguro:  Cross-shareholding companies and individual shareholders look for something different than overseas and institutional shareholders.  Governance may not sound appealing to individual shareholders, particularly those trading Sekisui House stocks for a short-term.  In order to grow the company for many years to come, meeting short-term investor needs is not the right answer.  We need to correct the governance at Sekisui House.


A majority should be outside directors


  • Sekisui House’s current outside directors do not seem to have much presence.


Wada:  There were only two outside directors when the investigation report was produced in 2018.  That is the reason for the governance failure.  Mr. Teruyuki Saegusa, former president of Hansin Department Store, and Mr. Shiro Wakui, Special Professor at Tokyo City University.  Mr. Yoshinori Shinohara, a CPA who led the investigation committee, was an external auditor.


Mr. Saegusa and Mr. Shonohara are still very unhappy about what happened.  Both of them are retiring as of April 23, 2020.  They were good but without making a majority of the board being outside directors, nothing works.


  • The three persons just mentioned were all investigation committee members and were involved with the production of the investigation report.


Wada:  The three were members of the Personnel and Remuneration Advisory Committee (six members in total), too.  I was the Chairman of the Committee, and it was the unanimous decision by the Committee to dismiss Mr. Abe.  But it was rejected at the board meeting later that day.


Suguro: You need to give reasons if you are making different decisions than what the Personnel and Remuneration Advisory Committee proposes.  Even without any request from shareholders, you have an accountability to the shareholders.


  • The motion to dismiss Mr. Abe was rejected and you (Mr. Wada) offered to resign in response to a motion to dismiss you.  Shouldn’t you have made an action at that time?


Wada:  In hindsight, yes, maybe I should have.  But I was too shocked to do so back then.


I did not plan on standing up.  I worked for the company for many years, and as far as the company is doing fine, I should feel good.  But it did not turn out like that.  As I learned from Mr. Suguro, the company is getting worse.


I do not want to return to the leadership.  I swear.  If this were a personal revenge, I would have done this much earlier.


I love Sekisui House.  It helped me grow.  I want to make the company a place where younger people like to stay to work for long.


I want to change corporate governance in Japan.  That is why I stood up.  Some media say this is my revenge.  If that were the case, I would have done earlier.  They may just be making fun of me, though.


  • This looks like an internal battle, just as you say.


Wada:  If that were the case, I would return to the company for many years.  However I am planning to quit in a year.  I want to correct wrong things and that is it.


Suguro:  The current management has not made any explanations to employees on the land fraud.  The employees cannot trust the management and their morale has been diminished.  They just look at their bosses, and are always edgy.  No liveliness, unlike old Sekisui House.  I am extremely concerned about the employee morale being essentially lost.

A majority of the board has to be outsiders


  • You said that there are only a few outside directors and that employees look at their bosses only – was it even the case when Mr. Wada was with the company?


Wada:  Most of the Japanese companies think that having 2-3 outsiders is more than sufficient.  However decisions are made with a majority vote, so outsiders have to be a majority.  The current management of Sekisui House is damaging the good corporate culture that we had.  Frontline teams used to lead the company, but they are centralizing everything.


Suguro:  The company is run from a financial perspective only.  If it agrees with the finance strategy, then it is okay.  It is okay, but there are many other things that you need to take into consideration, like growth potential and feasibility.  Because the company sold large good assets in recent years and therefore some management indices including ROA have been good, but it is at the cost of long-term earning potentials.


  • One of the important tasks for a leader is to grow his/her successor.  Do you feel bad about your choice of Mr. Abe as your successor?


Wada:  If you did such a transaction, you should feel ashamed of yourself and resign.  Why is he resisting to disclose the investigation report?  Did he commit a crime?  I feel very responsible for having nominated him as my successor.  I was too naive.


  • Mr. Suguro, you made a shareholder proposal to Sekisui House when you are the current director of the company.  How is the company treating you?


Suguro:  The current management became tougher on me.  But I had no other choice to correct the situation.  The move at this time was the only choice available for me.


In our shareholder proposal, we are saying that we will be managing the company going forward.  Unlike activist investors, we are not demanding any direct benefits from the company.

Mr. Wada, former Chairman (right) said “I want to change corporate governance.  If this were a personal revenge, I would have done this much earlier.” (Photo: Shuji Umetani)

Isami Wada / Born in 1941. Joined Sekisui House in 1965.  Became Director in 1990, President in 1998, and Chairman & CEO in 2008.  Then became Director and Executive Advisor in 2018.  Retired in the same year. (Photo: Shuji Umetani)

Fumiyasu Suguro / Born in 1957.  Joined Sekisui House in 1982.  Became Executive Officer in 2008, Director in 2014, and Senior Managing Officer in 2016. (Photo: Shuji Umetani)

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