Toshinori Abe, Chairman of Sekisui House, and Yoshihiro Nakai, President, did not want to see this – On March 6, 2020, the day after its announcement of the new mid-term management plan, the Sekisui House stock was heavily sold off and dropped to 1,955 yen, 7% lower than the previous day close.

 

Abe’s Dark History when he was Head of Tohoku Sales Administration Headquarters

 

The current management team led by Abe has set its target consolidated net profit for the fiscal year ending January 2023, which is the final year of the new mid-term management plan, as 147 billion yen.  The target profit is only a 4% increase compared to their proud record profit of 141.2 billion yen in the fiscal year ended January 2020.  Research analysts were hard on them saying “Very disappointed.  It is too conservative.  Also the profitability of their mainstay business of single family houses is getting worse.”

 

Sometimes stocks are heavily sold off if forecast is not good enough, so you should not need to worry too much about a drop in share price, but Abe and Nakai did not want to see their stock price drop sharply at this time.

 

It is because of the shareholder proposal that Wada, former Chairman whom Abe ousted two years ago, made for the ordinary meeting of shareholders to be held on April 23.  The shareholder proposal seeks to elect 11 slate directors including Wada.  In response, Sekisui House proposed election of 12 directors including Abe and Nakai.  The new mid-term management plan announced in the middle of this fight gave the investor the impression that Abe and Nakai might not be equipped to run the company.   It must have delivered a hard blow to them.

 

“It is true that the company is losing its earning power.  They are naively honest in their mid-term management plan.”  A Sekisui House executive says.

 

How does the customer choose a housing company to work with?  Every housing company appeals like “our houses are steel framed, strongly resistant to earthquakes, and very spacious” or “our exterior walls are made of our unique concrete, and lead to high durability and resistance to fire.”  However the customer eventually chooses who to work with based on the eagerness of a sales person.  Therefore housing companies provide huge incentives to sales employees, and if you are the most excellent sales person, you will be earning 70-80 million yen a year.

 

This is true for sales employees of for-sale single family houses.  Since Abe had terrible sense of sales, he was assigned to the rental housing marketing which is not popular within the company.  A former employee says “Abe joined Sekisui House since his brother had said to him ‘Sekisui House pays good salary’, but he was not successful in his sales and marketing career.”

 

Here is his summary history/career.

 

Born in 1951 in Miyagi Prefecture in northern Japan.  As soon as he finished his high school education, he went to Tokyo to work for a company in Nakano-ku, Tokyo.  But his brother said “you should go to college”, and so he went back to Sendai, Miyagi Prefecture.  Then he graduated from Tohoku Gakuin University in Sendai in 1975, and joined Sekisui House.  He was first assigned to a branch office in Utsunomiya, Tochigi, and then was transferred to Sendai, Yamagata, and Kooriyama.

 

He did not perform well in sales, but in 2004 he became Executive Officer and head of Tohoku Sales Administration Headquarters.  He created a dark history there.

 

“A series of suicides at Sekisui House – Why are employees so pressured?

 

In 2004 an article with such a headline appeared in a magazine circulated mostly in Fukushima.  It described a suicide by a Kooriyama branch manager of Sekisui House at a house exhibition place.  It also described that some other employees had followed suit.  All of those who committed suicide worked for Abe, and at a funeral for one of them Abe made a memorial address in tears, but the funeral was spoiled.  “At the end of the article it said ‘Information needed on Sekisui House.’  The writer appeared to want to write another article on this, but I did not see it.  Maybe Sekisui House silenced him.”  Another insider says.

 

The following year Abe was promoted to Managing Officer, head of Tokyo Sales Administration Headquarters.  In 2006 he became Director, and concurrently served as head of Metropolitan Area Administration Headquarters.  “He was not good at selling houses, but he was very obedient to his bosses, so his dark history never prevented him from being promoted.” (the same insider)

 

All the leading sales employees have been transferred

 

Nakai, President, graduated from Kyoto University, and joined Sekisui House in 1988.  A Sekisui House employee who has known Nakai for many years says “Like Abe, his sense of sales and marketing was bad, but since he is a Kyoto University graduate, he was assigned to work at the Head Office in his early career.”  When he was at Corporate Management Planning Department, Abe became General Manager of that Department.  Back then nobody thought Nakai would become President, but he gradually distinguished himself under Abe.

 

“Sales employees are the key to Sekisui House.  Both Abe and Nakai were horrible in sales.  The mid-term management plan recently announced was conservative because Abe and Nakai have had no success in their sales career.”

 

The Sekisui House insider who says so is concerned about the recent huge drop in the sale of single family houses.  “Recently I saw the company’s order to transfer a super-excellent sale employee in Yokohama to Sendai in northern Japan.  Since he was excellent, he should have earned at least 50 million yen a year, but if he moves to Sendai, his annual salary should fall to 10 million yen.  He will leave the company soon.”

 

Another example. “An excellent sales person had his third child, and therefore he would become very busy.  The company knew it.  And he knew that good sales persons had been transferred a lot, and that he might have to move.  So he quit.  Love of Humanity is the company’s corporate philosophy, but I cannot see any part of it.  It may be because of ‘Ressentiment” by Abe and Nakai who were not good at sales.” (another Sekisui House insider)

 

There has to be some connection between such moves and the huge drop in Sekisui House’s market share in single family houses.

 

The sale and marketing at Sekisui House dramatically changed under the Abe / Nakai reign.  Everything is decided at the Head Office, and daily activities at branch offices are conducted    as instructed by the Head Office.  Less and less delegations to branch offices.  “Different regions have different characteristics in housing sales.  It is hard for the Head Office to see the differences.  Substantial delegation to branch offices is the way to go,” say many insiders.

 

Because the Head Office directs everything, the below thing happened.

 

NTT DoCoMo group moved to Kokusai Akasaka Building in Akasaka, Tokyo, after the major trading house Nissho Iwai (currently Sojitsu) which used to be headquartered there, moved to Odaiba.

 

Sekisui House used to own a 100% stake in this building which is in a prime location close to the Prime Minister’s Office.  However in December 2018, Sekisui House sold its 50% stake to Nippon Life Insurance for 40+ billion yen.  As a result, the operating profit in their Urban Redevelopment Business for the fiscal year ended January 2019 was 40.4 billion yen, far above the original forecast of 18 billion yen.  The stake sale was just made to produce a profit to help the financial results look better, and without the stake sale the Urban Redevelopment Business’s results were far below its target.  A former Sekisui House employee says “Why did they not sell 49%, rather than 50%?  It is clear that the current management team has no understanding of the business.”

 

In January 2019 Sekisui House sold a 40% stake in the trust beneficiary right to the Ritz-Carlton, Kyoto, near Nijo Ohashi in Kyoto, to Sekisui House REIT, Inc. for 17.8 billion yen.  The closing date for the sale was a little before January 31, 2019, their fiscal year-end.  This was also to make the financial results look better.  They are making up for their decreasing earning power by selling good assets.

 

Big wonder – very harmonious with the fraudulent group

 

You may remember that Sekisui House lost 5.5 billion yen in the land fraud incident unveiled in 2017, particularly because the criminal proceedings are going on for some of the primary offenders including Misao Kaminskus.  A summary of the incident is as follows.

 

The land property was owned by Sakiko Ebisawa, and one of her acquaintances Tsuyoshi Ikuta first contacted Sekisui House to discuss the possibility of selling the property to the company.  Sekisui House decided to purchase the property in Nishi-Gotanda, Tokyo from the intermediary company that Ikuta managed.

 

A purchase and sale contract was entered into between Ebisawa and Ikuta for 6 billion yen, and another purchase and sale contract was entered into between Ikuta and Sekisui House for 7 billion yen.  Then an earnest money deposit payment and a provisional registration of the land transfer were made.

 

Then, a content certified mail was received at Sekisui House from a person who said she was the real Sakiko Ebisawa: “I am the real owner.  I have never made a sale reservation or made a provisional registration to sell the property, so I would request that the provisional registration be removed.”

 

The company received multiple warnings from others as well, so the company’s legal counsel advised that they should verify the identity of the seller by contacting her acquaintances, but it was never done.

 

It was already a big wonder, but there were more.

 

The final closing was originally scheduled for July 31, 2017.  However, since several brokers visited the company saying that the land transaction with Ikuta should not be done, so the company brought forward the final closing to June 1, 2017 in order to avoid any involvement by such brokers.

 

It was too late.  The Legal Affairs Bureau rejected the land transfer registration application on June 6, 2017, and its notice was received by the company on June 9, 2017.

 

There were multiple chances that the company could realize that it might be a fraudulent transaction, but they ignored all of them and were deceived.  The real Ebisawa was known to be the landowner who would never sell, and the company did not verify the identity of the seller, but there were many more.

 

The first one is the payment method.  Normally a wire transfer is used for such a large transaction.  However, 1.2 billion yen out of the earnest money deposit of 1.4 billion yen, as well as the entire final settlement money of 4.9 billon yen, was paid by deposit checks.  If you use a wire transfer it will be recorded on a bank statement, but if you use a deposit check, no record is made and the money can be used for money laundering.  They used the payment method that could accommodate money laundering.

 

One more point.  There is a mixed-use development project by Sekisui House called “Grande Maison Ekoda no Mori” in Nakano-ku, Tokyo.  That is a land parcel of approx. 39,500 square meters located right next to the Ekoda no Mori Park, and the company planned to build 531 condominium units, medical facilities, kid’s club, and convenience stores.  If you google this project online, you will see such words as “not selling well” and “price reduction.”  An industry expert says “the company may have mispriced.”

 

Sekisui House paid a total of 6.3 billion yen to the fraudulent group but their loss was 5.55 billion yen.  The 7.5 billion yen difference was from the purchase by the fake Ebisawa of 11 units of “Grande Maison Ekoda no Mori”.  “The first phase of the project started in 2016, but the project became known as one of the projects not selling well.  The fake Ebisawa purchased 11 units there.  It was good, but the purchase money came from Sekisui House, essentially Sekisui House bought the units.” (a Sekisui House executive)

 

It was in late March 2017 when the Gotanda property transaction was brought to Sekisui House.  Abe, then President, inspected the site on April 18, 2017, and on April 20, 2017 he granted his final approval ahead of the rest of the reviewers.  He was eager to do the transaction which turned out to be a fraudulent deal, and we should not blame it to the fact that he has a very bad sense of sales and marketing.  Is it just a coincidence that the whole deal looks very harmonious in that the company used deposit checks and sold the condominium units not selling well, etc?

 

Governance experts brought in

 

Abe can control the company despite all of these because he has a number of his followers in the nucleus of the company.  Nakai was his chief of staff when he was General Manager of Corporate Management Planning Department.  Abe has regularly had lunch with Inagaki, CFO and Vice Chairman, and Uchida, Executive Vice President, and lunch was on the guy who lost the toss.  That is how Abe developed his followers.

 

At the board of directors meeting on January 24, 2018, Wada, then Chairman, pursued to dismiss Abe for his responsibilities for the land fraud incident, but failed.  Then Abe presented an urgent motion to change the Chairman of the board from Wada to Inagaki, and the new Chairman Inagaki essentially approved a motion to dismiss Wada.  The reason why the coup to oust Wada, who made Abe and others obey his orders by saying “I used to sell 500 single family houses a year”, was successful is because of the close ties among Abe, Inagaki, Nakai and Uchida.

 

At a thank-you party for excellent sales staff held on March 2, 2020, Yosuke Horiuchi, who is Director & Senior Managing Officer and is close to the four bad guys, shouted “Wada has a 2000% chance of losing at the meeting of shareholders.  I will make Wada use up all of his money/fortune and never recover.”

 

Is Wada going to lose?  Wada brought in as slate directors several corporate governance experts including Christopher Douglas Brady, who has a broad network in the U.S. financial world and is a son of Nicholas Brady who was the United States Secretary of the Treasury under Presidents Ronald Reagan and George H. W. Bush, as well as Pamela Fennell Jacobs, the ESG expert.  “Overseas institutional investors will like the election of the slate directors proposed by the shareholder proposal better than the reelection of the incumbents,” a financial expert says.  In a month we will know what happens.