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Former Chairman fighting back to further investigate the land fraud incident

Toyo Keizai

April 18, 2020 issue

Hiroshi Matsuura


“For the past two years, the current management of Sekisui House has been covering up the truth of the land fraud incident.  There is a governance failure here.  Sekisui House would go wrong if nothing were done.”  Mr. Isami Wada, former Chairman and CEO of Sekisui House said.


In 2017 Sekisui House was defrauded of 5.5 billion yen in the land fraud.  In January 2018, the then Chairman Wada presented a motion to dismiss the then President Toshinori Abe (current Chairman) at a board meeting, but Mr. Wada was instead forced to resign.


Mr. Fumiyasu Suguro, current director of Sekisui House, joined forces with Mr. Wada who served the company for a total of 20 years as President as well as Chairman (10 years as President and another 10 years as Chairman).  They made a shareholder proposal seeking to elect a total of 11 directors (including the two) for the ordinary meeting of shareholders to be held on April 23, 2020.  Mr. Suguro is the only slate director to be re-elected, so it essentially seeks to replace the entire management team.


Mr. Wada sees as problems the following: 1) they are resisting to disclose the full-text of the investigation report on the fraud and are reluctant to investigate the incident more in detail, 2) they ignored the proposal in January 2018 to dismiss Mr. Abe by the Personnel and Remuneration Advisory Committee, which is a governance failure, and 3) they developed a corporate culture where employees cannot speak up, resulting in declining sales employee morale.


As regards 1) above, there is a 15-page investigation report produced by outside directors and submitted to the board meeting in January 2018.  What Sekisui House made public in March 2018 was only a 2.5-page summary of the report.  Despite the court order in a shareholder derivative lawsuit by an individual shareholder, Sekisui House made every effort not to disclose the report citing protection of personal information, and what they ended up making available was only a redacted version with many of personal names masked.


The investigation report that has been made available by a group assisting the shareholder proposal revealed that Sekisui House had ignored multiple warnings made from within and outside of the company, that they had made many misjudgments, and Mr. Abe personally had granted his approval of the land transaction in advance of reviews/approvals by the others.  It also states that Mr. Wada “has the responsibility to take the lead and to correct imperfections in the personnel and systems in order to prevent recurrence of such an incident.”


Back then, Mr. Abe was responsible for the company’s business in Japan, and Mr. Wada was focused on its business outside of Japan.  Therefore, the Personnel and Remuneration Advisory Committee held in January 2018 determined that Mr. Abe should be held responsible for the incident and that he should be dismissed.  However, as mentioned above, the motion was rejected, and Mr. Wada was ousted.


Mr. Wada and his team point out the possibility of money laundering.  Sekisui House used multiple deposit checks that can easily be cashed in such a large land transaction where the company normally uses bank wires to settle.  “It may not have been illegal, but it was improper.  They have been resisting to investigate the incident.  There is no governance here.”  Mr. Suguro said.


We agree that the manner in which Sekisui House’s current management has been dealing with this is questionable, but why now?  Isn’t it an internal factional battle?  “I thought it was okay if the company would continue to grow.  But it turned out that the current management has been destructing the frontline teams’ strengths, which I cannot ignore.  I will correct the situation and retire again in a year.”  Mr. Wada said.


In regards to the company’ record profit in the fiscal year ended January 2020, “it is because the company just sold the company’s good assets including their development projects in the U.S. and Akasaka Kokusai Building in a prime location in Tokyo,” says Mr. Wada.  Mr. Suguro expressed concern saying that “some financial indices are good but it is at the cost of future growth potentials.”


Sekisui House announced that they are opposed to the shareholder proposal.  They cited such reasons as the record profit, governance reforms where they plan to have one more outside director, the shareholder proposal’s misunderstanding of the facts regarding the land fraud, and the disclosure already made of a summary of the investigation report.  Also the company said “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.”


At the ordinary meeting of shareholders in April 2018, only 69% of the shareholders voted for Mr. Abe.  How will the shareholders vote at this year’s shareholders meeting?

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