Let me begin with a word about my own career. I studied industrial engineering at university, and after graduating, I joined National Housing Materials Co., Ltd. (now Panasonic Homes Co., Ltd.), where I spent many years in housing quality control. I later headed the company’s quality control, environmental, and CS (customer satisfaction) functions while also participating in industry-wide activities. As Chair of the CS Quality Committee at the Japan Prefabricated Construction Suppliers and Manufacturers Association, among other roles, I worked with government agencies and other companies in the sector to raise quality control and customer satisfaction standards across the housing industry. It was on the strength of that experience that I became an Outside Director of Leopalace21 in 2020. Since then, I have supported the Company’s reform, principally from a quality control perspective.

Since the construction defects problem came to light in 2018, the Company has committed itself as a whole to inspecting and repairing existing buildings. By the end of December 2024, inspection and remedial work had been completed on every obvious defect where the cooperation of tenants and building owners could be obtained. I think very highly of the fact that, under real business constraints, including the suspension of new construction contracting, the Company faced the negative legacy of the past head-on and saw a difficult task through to the end.

Through that process, the character of the Company itself has steadily changed. When I took up my role, a strongly top-down culture was still much in evidence and employees could be seen waiting for instructions. In working through the problem, the organization has been changing into one where each employee thinks for themselves and acts on their own initiative. I also sense the beginnings of a culture in which management and employees can debate frankly, regardless of rank. On quality and compliance, too, the principle that what must be observed will be observed has spread throughout the organization, and internal standards are set at an extremely high level. That an insistence on doing things properly has taken root in the culture can fairly be called an achievement of governance reform.

The strengthening of the talent base is also progressing steadily. Thanks to active support for employees seeking qualifications and to mid-career recruitment of qualified people, the shortage of qualified engineers that emerged as an issue after the construction defects problem came to light is gradually being resolved, and front-line technical capability has improved markedly.

The Company’s underlying character is improving, then, but the reform still has some way to go. I go out myself to the sites that underpin quality control and make opportunities to talk directly with employees, and I still sense a lingering assumption that in the end, somebody else will make the decision for them. The same is true of management. Only when that assumption is cleared away will this become an organization that can truly run under its own power.

The other important task ahead is to redefine what quality means for Leopalace21. Because of the construction defects problem, quality has tended to be viewed primarily in terms of building design and construction quality. But the core of the Company’s business is leasing, and we need to recognize that the living space and the services we provide to tenants are equally part of what quality means.

In my view, there are three kinds of quality that the Company should hold clear. First, quality seen through the tenant’s eyes: a comfortable interior and a standard of upkeep that makes someone think, “I want to live in this apartment.” Second, the quality of the physical building: quality built into new construction, and the maintenance and renovation of existing buildings. Third, the quality of every point of contact with the client, from winning the order for a new building through design, construction, and after-sales service. It is important to define clearly what each of these should look like and to raise the standard of each.

There are encouraging signs in all three areas. The Leasing Business Headquarters is working with the Architectural Engineering Division to step up the beautification of buildings inside and out, through maintenance of existing buildings and cleaning by partner contractors. Last fiscal year, the Quality Promotion Department was also established within the Architectural Engineering Division. However, because that department sits inside the Architectural Engineering Division, it can address the physical quality of new construction and maintenance, but it is not structured to cover quality as the tenant sees it. The accelerator and the brake — driving the business forward and controlling its quality — sit within the same organization, so the check function may not work as it should. I therefore believe the Company will need a body that oversees quality across the business as a whole from an independent position. If a structure can be put in place that does not merely point out quality problems but proposes practical improvements grounded in the constraints the front line actually faces, the Company’s quality will advance further still.

Whether the reform has genuinely taken root will, I think, become clear once the supply of new apartments is fully underway. At present, small faults and errors arising on new-build projects are shared at meetings, and everyone involved discusses how to put them right. But as the number of construction starts rises and the business grows in scale, will the Company hold to that same discipline? Only when the Company can maintain and continue raising the quality control standards it has set for itself, even as the business expands, will the reform truly have taken hold. It is also important to accurately assess which processes carry the greatest risk and the competence of each partner construction contractor, to manage them in order of priority, and to continually verify that the inspections being carried out are actually effective.

To further advance reform and translate it into sustainable growth, I look to management for the following.

First, actively communicate the new Leopalace21 to the outside world. Last fiscal year, for example, the Company launched ArLk, a new product strong in both concept and design, yet its appeal has not been conveyed to the market nearly enough. Proclaiming a “new Leopalace21” internally will not change how the Company is judged or perceived from outside. Management may still feel the weight of the construction defects problem not being fully resolved, but the Company has already entered a new stage and should show society, with confidence, that it is moving forward.

Quality and customer satisfaction cannot be discussed without understanding the frontline. Rather than simply receiving reports at meetings, I would like management to go out to the frontline sites themselves, check quality from the tenant’s perspective, and talk repeatedly with the employees and partner contractors working there. Monitoring the frontline continuously and keeping communication with it open are also how the early signs of a problem are picked up and the problem is prevented before it arises.

Putting the customer’s voice to work in improving management is also important. Since the last fiscal year, the Company has used NPS^® (Net Promoter Score)^*, a survey method for measuring customer satisfaction and loyalty. What matters is not the score itself but what is drawn from it and what improvements follow. I would like to see a mechanism built that clearly defines the underlying quality, links NPS^® measurements to improvements in that quality, and carries both forward into continuous improvement.

Sharing a picture of the Company’s future with employees is also extremely important. Many of our employees are conscientious and have a strong sense of responsibility, so if management sets out a clear vision of the company it is aiming to become, I think each of them will be able to advance the reform with greater autonomy.

* NPS^® is a registered trademark of Bain & Company, Inc., Fred Reichheld, and NICE Systems, Inc.

Now that the response to the construction defects problem is broadly in sight, I want the Board to go deeper still in its discussion of long-term growth strategy. Building a management foundation that can absorb market changes and unforeseen events to achieve sustainable growth will also require consideration of various options, including diversifying the business portfolio.

The Company manages some 540,000 units across Japan. Rather than simply leasing them, it should use that network and customer base to ask what services it could offer and where it might collaborate with corporate customers, and then try. And it should do so not by rolling out uniform measures nationwide from the headquarters, but by letting each region take the lead and act on its own local characteristics. That is precisely what the regional branch structure now being built is for, and I expect it to develop people and become an engine of the Company’s growth.

It is also important to carve out activities such as cleaning and maintenance, which are often treated as costs, and turn them into businesses that generate revenue. That in turn calls for developing people who can run a business with profitability in mind. Drawing actively on the knowledge of Outside Directors from a range of specialties, I would like the Company to take a step beyond leasing apartments, widen its business opportunities, and create new value.

The role of an Outside Director is to oversee management and to prevent problems before they arise. I hope that specialists from a wider range of fields relevant to the Company’s business will join the Board, so that its discussions become more multifaceted and more effective. For my part, I intend to keep raising the issues I identify by going and seeing the frontline and, in that way, to contribute to governance that is effective in practice.

In recent years, Outside Directors, too, have been expected to engage actively in dialogue with stakeholders. When Outside Directors with different specialties each communicate the Company’s initiatives and thinking from their own perspective, understanding of the Company and trust in it will deepen.

At the same time, I recognize that an important part of the role is not merely to receive reports from the executive side but to grasp the situation firsthand and exercise the check function before a problem surfaces.

Our housing is home to people of many different backgrounds, each with their own needs and priorities. The Company already offers multilingual support at its call center and a watch-over service, and there is room to consider such things as women-only properties designed with safety and security in mind. Services that deliver new value to address the challenges facing tenants and local communities still offer room to grow. It will not be easy, but if the Company can work with government bodies and other companies rather than alone and build businesses that help resolve social issues region by region, its standing as a piece of social infrastructure will become firmer still.

Now that the Company has at last reached the starting line for new growth, securing that growth will demand a clear definition of what quality is and a commitment to improving it from many angles. I would like every department to work on improving quality within its own area of expertise and responsibility, and for the organization as a whole to build a structure that underpins it. On that foundation, I hope the Company will achieve sustainable growth and become an employee-centered company, where every employee works with pride and realize their full potential.