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Shareholder Proposal to Sekisui House “Goal is to get the Company back on track”

Current Director of Sekisui House who made the Shareholder Proposal discusses why it was necessary


Koichi Kitanishi

Nikkei Business

April 6, 2020

Mr. Isami Wada, former Chairman of Sekisui House, will be fighting a proxy contest with the current management at the general meeting of shareholders to be held later this month.  Some people see this as a personal revenge by Mr. Wada who was ousted two years ago.  Mr. Wada denies it.  Mr. Fumiyasu Suguro, Director and Senior Managing Officer of Sekisui House who made the Shareholder Proposal in cooperation with Mr. Wada, as well as Mr. Motohiko Fujiwara, former Managing Officer and a dissident slate director, accepted an interview with Nikkei Business, and discussed why they made the move.


Mr. Fumiyasu Suguro who led the Shareholder Proposal (right) and Mr. Motohiko Fujiwara, a dissident slate director

Mr. Suguro, you made the Shareholder Proposal despite being the current director of the board of Sekisui House.  What drove you to do that?

Fumiyasu Suguro (“Suguro”): A land fraud incident in Gotanda, Tokyo was unveiled from Spring to Summer of 2017, and in January 2018 an investigation report produced by the investigation committee was submitted to the board.

The internal process for the land transaction was very sloppy, and it looked as if there were insiders who had a connection with the fraudulent landlord group.  Irrespective of whether it was illegal or not, Sekisui House should disclose every single detail of the incident, especially because 5.5 billion yen was gone and the internal process was not run properly.  However the Company led by the four representative directors including Chairman Mr. Toshinori Abe and Vice Chairman Shiro Inagaki has been resisting to disclose the investigation report, covering up all the facts that are inconvenient to them.


In October 2019 an economic magazine reported on the responsibilities for the land fraud, and there was an incident right after that that inspired me.  At a meeting right after the news article was released, a few of the directors said “Why are they digging up this old incident?  Ignore them,” and they laughed.


Because of the fraud, frontline sales people at Sekisui House have been having a hard time and they were often ridiculed by their customers “Sekisui House is not equipped to properly deal with land purchases.”  The current management has not made any explanations internally to the employees.  They were trying to pretend that the fraud had never happened, and it sounded like the entire organization was rotten to the core.  If I did not make a move, we would not have a bright future ahead of us.

Why did you work with Mr. Isami Wada on the Shareholder Proposal?

Suguro: I thought I alone would not be strong enough to fight against the four representative directors.  I was sure that people would see this as an internal strife.  However it was vital for us to have Mr. Wada’s network and power to set up a team for this fight.

At the end of 2019, I went to visit him and asked for his advice.  He expressed concern on governance issues, and he clearly said that he won’t be involved with business operations.  We agreed to join forces to clean up the Company, not to fight an internal battle.


Mr. Wada’s term of office is one year only


Despite that, many people see this as Mr. Wada’s move to return to the leadership.

Suguro: No, that is not the case here.  He won’t be involved in business operations at all.  He won’t be a representative director or Chairman of the Board.  What we expect from him is assistance in establishing a solid foundation for corporate governance and in coordination with external parties such as industry groups and Ministry of Land, Infrastructure and Transport.  In Japan you need to be a director to deal with such external relationships, so we would like him to be responsible for such relationships as a director, and once proper governance is in place he will retire.  He will be serving the first one-year term but not thereafter.


Mr. Suguro, for the past two years you have been a director.  Wouldn’t you be able to do something before you make a Shareholder Proposal?

Suguro: The four representative directors decide everything.  The other directors cannot do anything that disagrees with the four.  I was responsible for international business and developed Sekisui House’s growth platform for the future.

When Mr. Wada was with Sekisui House, he led the international business, and he understood that one of his tasks was to develop the business for the next generation.  In hindsight, there were multiple points in time to correct the Company’s innate characteristics to cover up.  One of the examples was the board meeting where a report was made that a shareholder derivative lawsuit was filed.  I almost felt resigned to correct the situation, and that is something I regret.


The current management was inaugurated in 2018 to strengthen governance.

Suguro: Mr. Wada was at the top of the organization for 20 years, and two years ago might have been a good timing for him to resign.  However, dismissing the top is not normal and making it known to the public may have risks, so I tried to understand that it could be disguised as an alternation of generation as well as CEO’s voluntary resignation to take all the responsibilities.

I thought Mr. Abe, too, should have resigned due to his full involvement in the fraud transaction, but I expected a lot from Governance Reforms that his management team announced.  However it turned out that essentially nothing has been done.  Everything is centralized at the four representative directors, and the other directors, our partner companies, and employees are all very scared.  We all feel very micro-managed and closely monitored.  Governance is meant to strengthen organizational powers, but at Sekisui House it works very well only in transmitting decisions down the hierarchy.


Why has everything been centralized?

Suguro: After the coup, the four representative director group was put into place – that is the sole reason.  While they are saying that the power is divided among the four, since the four are closely tied, it has much larger power than the power Mr. Wada alone used to have.  In December 2018 when the board meeting rules were revised, the convener of the board was defined as “Director Toshinori Abe” using the personal name.  The Companies Act allows each director of the board to convene a board meeting, though.  Likewise, the chairperson of the board was defined as “Director Shiro Inagaki.”  The four representative directors make the company rules in a manner only convenient for them, and outside directors as a result cannot fully exert their supervision duties.


Sekisui House’s business performance has been good – its operating profit exceeded 200 billion yen in the year ended January 2020.

Suguro: That is so because the Company has been selling good assets while essentially suspending new business investments.  But we are beginning to see some indications of overseas business declining.  In Mr. Wada’s era, we sought to achieve a good balance between investment for growth and current profits.  The current management ceased investment for growth.  The relationships with partner companies that we work with overseas are getting worse, and the number of new projects we work on with the partners is declining, which is annoying.  I am particularly concerned that young good employees are leaving the Company one after another because they are afraid to work in an environment where you cannot speak up.


Mr. Fujiwara, you resigned as Managing Officer in May 2019.  We know you were a star sales person who became a Sales Administration Headquarters head at the youngest age ever at Sekisui House.

Motohiko Fujiwara (“Fujiwara”): I became a Sales Administration Headquarters head at the age of 43, and served Sekisui House as head of such regions as East Kanto and Kanagawa for 12 years.  I used to dine with Mr. Abe twice a day when we met for monthly Sales Administration Headquarters head meetings.

However, after the land fraud incident, I was not invited to those meetings and was totally ignored.  Since I was close to Mr. Wada, he must have thought I belonged to Mr. Wada’s camp which does not exist.  In March 2018 when Nikkei Newspaper reported the coup, the Sales Administration Headquarters head meeting of the month was not normal.  The management was saying “We said that it was an alternation of generation.  Nikkei Newspaper is crazy.”  Many of the non-executive employees were not trusting the management because of the land fraud and the coup.  The management never talked to the employees about the incident, and there were such rumors as “the employee who executed the land transaction got 500 million yen from the swindlers.”

During Mr. Wada’s era, Sekisui House had a free and easy corporate culture.  Although we had tough revenue goals, we loved Sekisui House.  Now, frontline teams have responsibilities to achieve goals but have no authority.  What they need are weapon and authority.  They can stand to be told “Sekisui House is not equipped to purchase land,” but they cannot stand to lose their decision-making power.  Nothing hurts a housing company more.  Employee morale has been lost due to promotions rewarded as a result of the coup.  I was Managing Officer, but felt powerless and helpless, so I left the Company so that I won’t lose my mind.


What is your view of the land fraud incident as a real estate professional or an insider?

Fujiwara: I was not involved with the land transaction, but I heard a lot about it from my colleagues.  An employee with the Tokyo Condominium Business Department which did the transaction told me that a sales person who knew the true landowner went to meet with the seller.  Since he knew the true owner, he said “the seller is fake”, but they had to proceed with the transaction because of the instructions by senior executives.  Mr. Abe, then President, granted his approval on the transaction first ahead of the rest of the reviewers and approvers, and the pencil-written description “President Project” on the internal approval request document was erased.  Mr. Abe had made a decision to purchase the land before any due diligence was conducted, and proper judgments were not made.  The Company has been covering up the fact that there is an employee who died under questionable circumstances.  This has a deep dark side.

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