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Former Chairman seeking to replace the current management team while the Company has achieved the record profits


Why Internal Conflict for Two Years?

Lessons learned from the Sekisui House “Land Fraud”

Mr. Isami Wada, who had resigned in April 2018 as director of Sekisui House, made a shareholder proposal.  He is seeking a corporate governance reform.  In response Sekisui House said that the incident is over and that the shareholder proposal was made for his personal reasons, and the Company seeks support from the shareholders.  How do the shareholders view the land fraud incident which lost approx.. 5.5 billion yen in shareholder wealth?  That will determine the outcome of the general meeting of shareholders in April.



Hidekazu Oura

April 8, 2020

“Investigation Report” that never disclosed


The “Fraudulent landlord incident” that happened in 2017 at “Kaikikan”, an old Japanese-style inn in Nishi-gotanda, Sinagawa-ku, Tokyo.  A fraudulent landlord is a swindler selling land as if he or she were the true owner of the land.  Sekisui House, the leading housing company in Japan, was deceived by a swindler group and lost approx. 5.55 billion yen.

Most of the primary offenders in the incident have been arrested, and their criminal proceedings are going on.  However, the current and former managements of Sekisui House are fighting over “Governance”.

“I have stood up to do a governance reform for Sekisui House.  “`Counterattack” or “personal revenge” – no way.  Once the reform is done, I will entrust everything to younger generations and resign within a year,” says Mr. Isami Wada, former Chairman of Sekisui House.

Mr. Wada is called “Restorer” of Sekisui House.  At a board meeting in January 2018 Mr. Wada presented a motion to dismiss current Chairman Mr. Toshinori Abe (then President), but he could not get a majority vote and the motion was rejected.  Instead a motion to dismiss Mr. Wada was presented, and before the resolution was made Mr. Wada announced his resignation.  In February 2018 he resigned as Chairman, and then in April 2018 he resigned as director of the board.

Mr. Wada made a shareholder proposal to Sekisui House on February 17 (correctly February 14), 2020.  It seeks to replace the current directors (including Chairman Mr. Abe and President Mr. Yoshihiro Nakai) with the 11 slate directors that Mr. Wada proposed, including Mr. Wada himself and Mr. Fumiyasu Suguro, current director and senior managing officer responsible for international business (retiring in April).  The reason for the shareholder proposal that Mr. Wada gave is that no detailed disclosure of the “fraudulent landlord incident” has been made.  “All employees are feeling gloomy.  I need to resolve that.”

Sekisui House reported on the incident in August 2017 in the press release titled “Notice Regarding Problems with the Purchase of the Land for Condominiums.”  In September 2017 they set up an investigation committee composing of outside directors, and on January 24, 2018 an investigation report was submitted to the company.

However the full-text of the investigation report has yet to be disclosed, and Sekisui House released only a summary of the report giving as reasons the protection of personal privacy and the confidentiality of criminal investigations.

Subsequent to the incident, an individual shareholder of Sekisui House filed a shareholder derivative lawsuit against Sekisui House.  The plaintiff has been requesting the disclosure of the investigation report, but Sekisui House has been resisting to do so.  As a result of a fight at a court, you now can view a redacted report at the court.  Also it is viewable on an internet site created by those involved.

I would like to go over what happened based on the investigation report.

As mentioned, the property was a piece of land where an old Japanese-style inn “Kaikikan” was in Nishi-gotanda, Tokyo, and it is only a three-minute walk from Gotanda Station of JR Yamanote-Line.  It is a 600-tsubo (c. 21,350 sqft) site, and a number of real estate companies, including major ones, contacted the owner of the property, but one executive at a major real estate company recalls “they would not sell particularly when the previous owner had owned the property.”

On April 24, 2017, Sekisui House entered into a land purchase contract to purchase the land from a company which was headquartered in Nagatacho, Chiyoda-ku and was run by an acquaintance of the owner, and the Company made a preliminary registration of land transfer.

However, the owner and her documents, including her passport and seal certificate, were all fake.  Misao Kaminskus (Koyama), one of the primary offenders and has been arrested, was at meetings with Sekisui House as a finance representative of the fake owner.

Sekisui House received multiple messages from the true owner by content certified mail requesting that the preliminary registration of land transfer be removed, but they did not verify the identify of the fake owner, and all they did was to receive a confirmation letter from the fake owner saying that she was not a swindler.  The fake owner never showed up at the property site even when a site inspection by Sekisui House was conducted, and also she gave the wrong birthdate and zodiac during the transaction process.

A Sekisui House employee, who was within Kaikikan shortly before the final closing, was asked to accompany to the police at the request of the owner, but they continued to close the deal thinking that it was a disturbance made by somebody who did not want to see the deal done by Sekisui House.

Despite all of these red flags they moved forward with the transaction and lost approx. 5.5 billion yen.

The investigation report details such failures by Sekisui House.  For example, before the close of the transaction their intermediary was changed to a shell company, and the investigation report criticizes this as “something that cannot, and should never, happen.”

The investigation report points out Mr. Abe’s, as well as Mr. Wada’s, responsibilities.  Given the responsibilities a 20% salary cut for two months was announced for the directors in September 2017.

However, Mr. Wada says the case is not over, saying that Sekisui House has yet to disclose the investigation report, and that we do not know where a vast majority of the lost 5.5 billion yen went.

“I don’t know why they are refusing to disclose the report,” “In Japan people tend to think that everything will be resolved as time passes.  We should have many more investors from overseas.  I was told by a US investor that the absence of governance is the biggest issue in Japan,” Mr. Wada said.


Sekisui House refutes “the Shareholder Proposal is made due to a private reason”


On March 5, 2020, Sekisui House released its financial results for the year ended January 2020, as well as a new mid-term management plan and their opposition to the shareholder proposal made by Mr. Wada.

They achieved record revenue of approx. 2,415.1 billion yen and record operating profit of 205.2 billion yen for the fiscal year.

Sekisui House started working on “Governance Reforms” in February 2018.  They have argued that they had implemented measures for transparency and invigoration of the meeting of the Board of Directors’ operations, including separation of the chairperson and the convener of the meetings of the Board of Directors, introduction of a mandatory retirement age of 70 for representative directors, and evaluation of the efficacy of the Board of Directors.  They plan to propose to the general meeting of shareholders in April an increase in the number of outside directors from current three to four in order to set the outside directors ratio at one third.

The Company also says that “the Company's proposal is the most appropriate to ensure the achievement of the Fifth Mid-Term Management Plan and to contribute to the strengthening of the management oversight function and corporate governance system.”

Then the Company criticizes the shareholder proposal saying “the Company understands that the main purpose of the Shareholder’s Proposal is the shake-out of the management structure.  However, although the phrase "proposals for sustainable improvement of corporate value" is used as the reason for Shareholder’s Proposal, no specific management strategies have been set forth, so the policy contributing to the improvement of the corporate value of the Company and the common interests of shareholders is unclear.”

The Company also said “The absence of such measures shall be regarded as evidence that the proposed shareholder and candidates for Directors in Shareholder’s Proposal do not possess specific measures to enhance the sustainable corporate value of the Company and the common interests of shareholders.” ”If Shareholder’s Proposal results in the renewal of the management structure of the Company, it may unnecessarily cause confusion in the management of the Company.”

As regards the land fraud incident, the Company says, it “has comprehensively disclosed information on the background of the "land fraud incident", the cause of the incident, the location of responsibility, measures to prevent a recurrence and the content of the disposition,” and that the summary it disclosed covered its analysis of the problems of the Company, and that it quoted the original investigation report on the responsibility of then President.

For the reasons for not disclosing the investigation report, it said that the reason why the Company has not published the full investigation report is because of concerns about counterfeiting of the "land fraud incident", the confidentiality of criminal investigations and the protection of personal privacy. “There is no concealment of important information, as suggested by the proposed shareholders.”

The Company concluded that it “cannot help thinking that Mr. Wada is not ‘concerned the Company’s current distress and stand up’ (reasons of Shareholder’s Proposal) but there most likely is a private reason for the proposed shareholder, and is not intended to enhance the corporate value of the Company and the common interests of the shareholders.”  Both sides are set for a head-on confrontation.

Of noteworthy in what Mr. Wada says is the international business.  The business used to be led and grown by Mr. Wada, but he says “the recent excellent performance in the international business is just a fruit of what we did 5-7 years ago.  The Company is reducing its investments in the business in a broad sense.  The Company has to continue to grow and you need to invest in the future.”

Mr. Fumiyasu Suguro, who is one of the slate directors, is the current director and senior managing officer responsible for the international business, is retiring in April.  Mr. Suguro says, “The current management team should say so, but I have been having different thoughts.”

Mr. Wada says, “People in the United States value heart and conscience more than Japanese.  You need to keep those who dug your well.  Koji Yamada (one of slate directors) who was head of our U.S. operations left the Company.  I do not understand what the current management would like to do.”

Mr. Wada pointed out a significant drop in the Company’s mainstay business of single-family housing.  The order received in the business for the year ended January 2020 saw a YoY decline of 10.5%.  The drop in profit was covered by asset sales in the urban redevelopment business.  They forecast another decline in revenue and operating profit in the single-family housing business for this fiscal year.  Some structural factors including decreasing population will contribute to the decrease, so it may not be that simple to blame it to the current management.


Proxy fight?


So the next stage for the fight will be at the general meeting of shareholders in April.  Approx. 40% of Sekisui House is owned by financial institutions, and approx. 20% by overseas investors.  The key are these shareholders and Mr. Wada says, “if we did not see a good chance of winning, then we would not have made the shareholder proposal.  If people learn of the governance failures and improper transaction details, then they will begin to take our side.”

In response to our question on whether he is working to get support from institutional investors in and outside of Japan, he said “Sorry but I cannot comment on that due to the confidentiality of our strategies”, but it appeared that he and his team are working on it.  There will likely be a proxy fight.

Depending on how the shareholders vote, there is a chance that the board will be a mixture of directors from both sides, but Sekisui House plans on appealing to the shareholders that the incumbent directors are best equipped to run the company.

Sekisui House focuses on the Company’s financial results and its mid-term management plan, but Mr. Wada focuses on the land fraud.  The best lesson that we have to learn from the incident is that a problem has to be disclosed in a timely manner and otherwise the problem becomes more serious.

“I hate governance, not people”


Mr. Isami Wada

Former Chairman, Sekisui House


I was the one who established the investigation committee and requested the committee to produce the investigation report.  I did not expect their findings to be such bad.  People call the incident “Land Fraud”, and it sounds like Sekisui House was a victim of the fraud.  But it was not.

I hate governance, not people, of Sekisui House.  I am hoping that the overall governance in Japan will change as a result of our work at this time, and that we can be a trigger for that change.

It is not that you are good if you get approved at a meeting of shareholders.  Every company should have some issues.  Japanese companies need to change so that those issues will be disclosed in detail.

“Without the trusting relationships the financial performance won’t be sustained”


Mr. Fumiyasu Suguro

Director and Senior Managing Officer (resigning in April 2020), Sekisui House


What we call governance is the trusting relationships with stakeholders including the frontline team, the customers, and cooperating partners in the U.S.  Does the current management have such relationships?  I feel the relationships are fading.

The financial results they produced were good, but without the trusting relationships the financial performance won’t be sustained.  We would like to have a sincere dialogue with everybody so the Company achieves a sustainable growth.

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