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Sekisui House – current Chairman vs. former Chairman

Both trying to draw more supporters

Weekly Shincho

April 16, 2020 (April 23, 2020 issue)


<To this town, to this house, my heart goes back / I am home, it is Sekisui House>

The well known advertising jingle started in 1970.

Sekisui House (headquartered in Osaka) has been advertising its products using the song composed by Asei Kobayashi.  This year is its 60th anniversary of the founding.  But the leading housing company in Japan is in turmoil.

A shareholder proposal has been made to Sekisui House seeking to replace the current management including Mr. Toshinori Abe, Chairman at the 69th ordinary general meeting of shareholders to be held on April 23, 2020.

Those who made the shareholder proposal are Mr. Isami Wada, former Chairman and CEO, and Mr. Fumiyasu Suguro, incumbent Director of the company.  They are seeking to elect their own 11 slate directors to replace the current management team.

In response, Sekisui House’s current management announced its opposition to the shareholder proposal, and proposed its slate directors including Mr. Abe.  It is therefore a battle between current Chairman and former Chairman.  It began three years ago when a big fraud scandal was unveiled.

The scandal involved an old inn site in Nishi-Gotanda, Tokyo.  It is in a prime location, only a three-minute walk from the Gotanda station of JR Yamanote Line.  The plan was to develop a 30-story condominium and Sekisui House entered into a purchase contract with a fraudulent landlord group and was defrauded of 5.5 billion yen.

A local news desk reporter at a national newspaper company explains.

“Why did Sekisui House not realize it was a fraudulent transaction?  While the management including Mr. Abe who approved of the land transaction should be held responsible, Mr. Abe was promoted to Chairman in February 2018, and Mr. Wada was forced to resign.”

Sekisui House announced that the promotion and resignation were not related to the fraud incident, but at a board meeting of Sekisui House in January 2018, Mr. Wada presented a motion to dismiss Mr. Abe, and Mr. Abe presented a motion to dismiss Mr. Wada, and because of betrayal by a few more directors, Mr. Wada lost and left the company.

“I was very disappointed… despite all of my hard work for many years….” recalls Mr. Wada.

“When the fraudulent transaction took place, I was focused on developing new businesses in such countries as the U.S. and China.  The entire Japan business was left to Mr. Abe, and as a result, Sekisui House has become….I regret it.”


“I must do something”


Mr. Wada promoted Mr. Abe in 2008 to Representative Director and President of the company.

Mr. Wada became President in 1998, and he managed to grow the company to a 2-trillion yen, #1 single family housing company in Japan. 

He assumed Chairman of an industry organization, and in 2016 received the Grand Cordon of the Order of the Rising Sun from the emperor, but he was ousted by one of his right-hand men.

Mr. Wada said: “I was too naïve, and I regret it.  I learned of the fraud in June 2017 after the fact.  As soon as I learned of it I told everybody that we should disclose everything to the public.”

However, those involved with the transaction were all opposed to it.

“The head of legal department even told me that I should not do so since it will interfere with the investigation by the police.  The current management including Mr. Abe and Mr. Shiro Inagaki (Vice Chairman) would not take any action.  So I asked a senior guy at the police, but he said it would not interfere with their investigation.  I would presume that Mr. Abe and others did not want this to be taken up by the police and that they wanted to get away with it by just recording a special loss for the year.  It took almost two months before Sekisui House made a release on the fraud.  I thought I had to do something, so I set up an investigation committee.”

Mr. Fumiyasu Suguro, who made the shareholder proposal in cooperation with Mr. Wada and will be President of the company if elected said:

“Because Mr. Wada instructed to fully investigate the incident, the investigation committee was set up.  It turned out that the incident was a too terrible one, so I myself thought that it should be fully investigated and disclosed to the public, but before the report was made available to the public, the coup happened.”

By “coup” he meant Mr. Abe’s promotion to Chairman.

“Sekisui House made press releases on such things as the background of the incident and the measures to prevent recurrence, but omitted all the material facts.  The coup looked to me like a means of covering up the incident,” said Mr. Suguro, and he also said that the investigation report was finalized before the coup.

The investigation report has the following description:

“As Chief Operating Officer, he should be heavily responsible for the fact that he did not grasp the overall picture of the transaction and did not recognize significant risks.”

The current management has yet to disclose the full-text of the report, saying that it is because of concerns about counterfeiting of the "land fraud incident", and the confidentiality of criminal investigations.

In the shareholder derivative lawsuit against the management, the company has continued to resist disclosing the investigation report, even when ordered by the court.  Since the company’s appeal was rejected it submitted the report to the court, but the report available for viewing and copying is masked.

“Mr. Abe was the first person to approve of the transaction, ahead of anybody else.  It was therefore classified as a president project, and those working with him had to proceed with the transaction,” said Mr. Suguro.  “The company reported the crime to the police, but if you take a close look at the transaction, you will wonder if Sekisui House was really a victim of the fraud.”

The following shows why the company may not be just a victim.  Sekisui House received multiple content-certified mail warnings from the true landowner of the Gotanda property.  The warnings said “I have been in a hospital for long and cannot meet you.  The party you are dealing with is fake.”  The landowner’s number of seal certificate, which shows that she is the real owner of the property, was attached to the mail warnings.  The fake owner made an error on zodiac at a meeting for signing the transaction.


A call from FBI


“Mr. Abe knew of the mail warnings, but determined that it was just an interference, and accelerated the land transaction’s final closing by two months.  An employee who went to the property site was asked by the police to accompany to the police station at the request of the real landlord, but the transaction was closed as planned.  Mr. Abe should have just instructed his subordinates to verify the identify of the seller further, but failed to do his own due diligence.  He did not fulfill his duty of care as manager.”

There are a number of mysteries like this, with the largest one being where the lost money of 5.5 billion yen went.

A total of 10 fraudulent landlord group members including Mike Uchida, the primary offender, have been prosecuted, but the group got only a few hundreds of millions of yen, and nobody knows where the vast majority of the money Sekisui House had lost went.  Section 2 of the police and the prosecutor’s office have not been able to elucidate the incident details.

Mr. Wada said that the FBI of the U.S. has developed its interest and started its investigation.

“On March 19, I got a call from the FBI.  I cannot give you its details, but I spoke with them with my lawyer and an interpreter present for almost an hour, and answered all the questions.  I sensed that the FBI is very serious.  Since we do not know where the lost money went, the FBI said that it is definitely a money laundering.”

As the investigation report describes, Sekisui House paid the land purchase money to an intermediary shell company in deposit checks.

“We rarely work with an intermediary shell company and rarely use deposit checks – we use bank wires to settle a land transaction.  The deposit checks were multiple – 7 or 8, with the largest one being for more than 3 billion yen.  The checks were cashed instantly at MUFG Bank.  Given that the current management’s involvement with the improper transaction and its subsequent cover-up, Sekisui House may have to discontinue its business in the U.S.”

Mr. Wada, if elected, will set up a third-party investigation committee and reinvestigate the incident.

“Some people say that this is my personal revenge, but my objective is not to return to the leadership.  I did not plan for the company to cover-up the incident.  Without me doing anything, the company could go even worse, and since Mr. Suguro asked for my assistance, I decided to help him.”

Mr. Suguro said: “Mr. Wada will never be CEO or Representative Director or Chairman.  He will be focused on corporate governance just as a director, and will retire in a year once we see enhanced governance.  One of the primary reasons for the move at this time was because we were approached by many employees of Sekisui House who are strongly hoping to see a change.  We have already seen some top employees leaving the company.


“You are not supposed to discuss the incident”


Mr. Motohiko Fujiwara, former Managing Officer who once recorded the number one sales at Sekisui House, said “Employees and cooperating companies feel stressed since the incident has not yet been fully investigated.  The Art of War says “you need to have a good command of your force, rather than your troops.”  In an organization a force or energy is important.  It is up to leadership whether everyone is incentivized to achieve his or her goals.  The current management has not made any explanations on the incident to its employees.”

The employee morale has been declining.

“After Mr. Abe became Chairman, the word ‘Integrity’ became often used internally.  Everybody thought ‘who could use that word?’  Once I said to my client that Mr. Abe will take his responsibility for the incident.  And then I was called in by Mr. Abe, and he sort of interrogated me saying ‘Did you really say that I will take responsibility?’”

Mr. Fujiwara did not like that and decided to resign, but there are more.

“Mr. Abe’s wife is called “Imelda Marcos” internally, and she acts as she pleases.  Mr. and Mrs. Abe live at a Sekisui House condominium and when a light bulb went out, Mrs. Abe called a Condominium Business Department employee at his mobile, and the employee had to deal with it when he had a business meeting scheduled.”

How does Mr. Abe respond to all of this?

I went to visit his condominium in a nice neighborhood in Tokyo, and Mrs. Abe answered over the interphone “I do not recall any instances….” And she hung up.  I called Mr. Abe at his mobile, but there was no answer.

Sekisui House’s Public Relations Department said: “The land fraud incident was a fraud and Sekisui House was a victim.  There was no improper transaction.”

International Shareholder Services and Glass Lewis of the U.S. who advise institutional shareholders that account for 30% of the total shareholdings recommended to vote against Mr. Abe and Mr. Inagaki.  Mr. Wada and Mr. Suguro have been recommended to vote for by Glass Lewis.

These voting advisory firms have a large influence on voting decisions by shareholders.  Since the company can expect its group companies and partner companies to vote for them, everybody thought that the company would have a better chance than the dissident but now it is not clear -- Which side will win?

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