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Sekisui House Board of Directors rules changed

Weekly Economist

April 6, 2020


Sekisui House Osaka Head Office

At Sekisui House where corporate governance issues have arisen following the so-called land fraud incident, it was unveiled that the rules of the Board of Directors have been changed to an unusual form.  According to the material obtained by the editorial department of Weekly Economist, the "convener" and "chairperson" of the board of directors of Sekisui House are defined by the personal names of Chairman Toshinori Abe and Vice Chairman Shiro Inagaki, respectively.  Normally, the chairperson and convener are defined by corporate titles such as "chairman" and "president".  It is normal for "convener" and "chairperson" to change when the director roles change, and it is extremely rare for a Japanese listed company to define the convener and chairperson roles by personal names. It can lead to the board's authority concentrated over certain people over a long period of time, and corporate lawyers are saying that it is going against the trend of enhanced governance.


The shadow of the fraudulent landlord case


 For Sekisui House, former Chairman Isami Wada and current Director and Senior Managing Officer Fumiyasu Suguro made a shareholder proposal in mid-February calling for a total replacement of the board of directors, pointing out the current management team's "governance failure".  Currently, a proxy fight is going on for the general meeting of shareholders for later this month.


 In the “Rules of the Sekisui House Board of Directors” obtained by the editorial department, Article 7 states that “The Board of Directors shall be convened by Director Toshinori Abe” and Article 9 stipulates that "The Chairman of the Board is Shiro Inagaki."


 Originally, the Chairman of Sekisui House used to be both the chairman and convener of the board, but it was revised by the Board of Directors on January 24, 2018.  According to the “Minutes of the Board of Directors Meeting” of the same date, the rules of the Board of Directors were changed, and due to “Motion No. 3” “Director Shiro Inagaki” became chairman, and due to “Motion No. 4” “Director Toshinori Abe” became the convener.  Since then, the board rules have not been revised.


 Hideaki Kubori, who is a director at the Japan Exchange Group and is familiar with corporate governance, said, "I have never heard of a listed company stipulating the convener or chairperson in his or her personal name.  It seems to be the behavior of a dictator who ignores shareholders."


 In fact, at the board meeting of the same day, there was a "coup" in which former Chairman Isami Wada was forced to resign.  It was due to the fierce conflict between the then Chairman Wada, and the then President (current chairman) Abe over the responsibility of the land fraud case unveiled in 2017.


 At the beginning of the Board of Directors meeting of January 24, 2018, Sekisui House's Audit & Supervisory Board Member Yoshinori Shinohara, chairman of the Investigation Committee that investigated the company's land fraud case, said, “President Abe should be heavily responsible for the incident as President and Chief Operating Officer."


 Prior to the Board of Directors' meeting, Sekisui House's Personnel and Remuneration Advisory Committee agreed on Mr. Abe's dismissal as President, and in response Mr. Wada pursued to dismiss Mr. Abe at the board meeting, but Mr. Wada was forced to resign instead.


 The minutes of the board meeting shows that Mr. Wada submitted a "Motion to dismiss Mr. Abe as Representative Director and President" and Mr. Abe submitted a "Motion to dismiss Mr. Wada as Representative Director and Chairman", respectively.  It also shows how the rules of the Board of Directors were revised by Abe and Inagaki in the process.


 After the motion to dismiss Mr. Abe was rejected, a motion was passed to change the chairperson from Mr. Wada to Mr. Inagaki.  Then, lawyers were brought in by Mr. Abe and Mr. Inagaki, and then a motion to revise the board meeting rules was passed, and “Director Abe” became the convener and “Director Inagaki” became the chairperson of the board.


 According to the minutes, Mr. Wada announced his resignation shortly after the rules were revised.  Mr. Wada said it was because he knew the motion to dismiss him was going to be approved.


 The convener of the board of directors has the ability to convene a board meeting, and the chairman has the authority over the board proceedings.  In other words, while Mr. Inagaki will chair and lead the dismissal of Mr. Wada's Chairman, since Mr. Abe will be the convener, he can decide not to convene a board meeting in a case where Mr. Wada calls for an extraordinary board meeting to dismiss Mr. Abe.


Stay in power after mandatory retirement


 Currently, both Abe and Inagaki are serving as representative directors, but Sekisui House has a mandatory retirement age of 70 for representative directors, and Inagaki will turn 70 this year and Abe will turn 70 next year.


 However, under the current Board of Directors' rules, they can continue to be chairman or convener, and remain in power as long as they remain as directors, even if they resign as representative directors.  Some people in the company have expressed concern that "this could lead to a rule by retired representative directors.” (Sekisui House executive)


Lawyer Hideaki Kubori, (Photo: Emi Naito, in Chiyoda-ku, Tokyo)

 Kubori points out that “In the first place, governance is a mechanism for monitoring and controlling management, and the role of directors is to make the mechanism function as entrusted by shareholders.  At a company with advanced governance, the chairman and  convener are both outside directors.  Having two insider leaders as chairman and convener could allow arbitrary operations."


 Mr. Suguro, who has made a shareholder proposal seeking to replace the current management team, points out that the board rule is "one of the evidences of the governance failure at Sekisui House."


 A spokesperson for Sekisui House said, "The current rules of the Board of Directors were revised to establish a new governance system.  The rules of the Board of Directors will be revised as the governance reforms progress.  We don't think that the current rules would lead to a rule by retired representative directors."


 Wada and Suguro's shareholder proposal seeks to elect a total of 11 directors including seven outsiders.  Sekisui House’s slate directors include only four outsiders, and there is a strong conflict between the shareholders and the Company.


 The general meeting of shareholders will take place on April 23, 2020.

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