Over the past several years, Leopalace21 has worked to improve its governance and to enforce compliance.

At the time I became an outside director in 2020, the era of management under the Company's founder still exerted inescapable influence over the Board of Directors, and I was unable to sense a profound effort to tackle governance. If the Company had not been negligent in the fundamentals of responsibly completing the work contracted by building owners and of providing comfortable, pleasant housing to tenants, the construction defects problem would not have occurred.

In short, I think that fault may have originated in a predisposition to follow the opinions of the upper management of the Company. Governance here refers to "Corporate Governance," or mechanism for monitoring whether a joint-stock company is being managed impartially in a manner that serves the interests of shareholders. If a company does not have a good mechanism for this, deviations can easily occur. The construction defects problem clearly originated in a failure of governance to function.

Transformation will not move forward unless governance properly works. In principle, outside directors bear the role of monitoring the appropriate use of management resources. Out of concern over lack of change in the Board of Directors, I began putting forth opinions that ventured into the area of management execution, including how governance could be enhanced. While the Company has since been taking steps forward, I do not yet see these as sufficient. Transformation of a company's culture takes a long time. Without effort and reflection on everyday actions, good habits will not take root. Top management must also change itself, and the Company must not only make changes to its systems but also continuously put the changes into practice.

This continuous practice requires that the Company avoid superficial debate that fails to understand the essence of the words. All information and systems of the Company should be organized from their fundamental starting points. Moreover, to understand the true significance of the mechanism of governance, the Company must look back to the origin of the joint-stock company.

The essence of governance can also be understood from shareholders' reasons for investing. Shareholders invest in the expectation of share price increases and high-yield dividends. The anticipation of price increases is grounded in the desire to profit and become rich. Why do investors seek wealth? In the end, they do so because it makes their families happy. If investment is performed for the sake of family happiness, it is preferable for shareholders to receive dividends over the medium to long term rather than receive transient profit. This requires that the existence of companies is accepted over the medium to long term, and naturally makes compliance with laws and regulations a high priority. Earning recognition as a good company and a good citizen is likewise important. When we break down "governance," it refers to the mechanism for monitoring improprieties and maximizing shareholder values.

Actually, the words "governance" and "compliance" do not appear in Japan's laws governing joint-stock companies. Throughout Japan, not only within the Company, these matters have long been discussed without an essential understanding of them. As I recall, one reason why the term "governance" became widely known in Japan involved statements concerning the collapse of Japan's bubble economy made by Hirotaka Takeuchi, an honorary professor at Hitotsubashi University. The governance introduced by Professor Takeuchi, who had taught at Harvard Business School, was American-style governance that seeks to maximize shareholder profits. Naturally, maximizing shareholder profits is not wrong. In his 1979 work Wakon wasai no susume (Japanese spirit combined with Japanese learning), the late Western historian Shosaburo Kimura advocated the importance to Japan of making use of Western technology with a Japanese spirit. In Rongo to soroban (1916), Eiichi Shibusawa placed value on morality and the public interest. In the same way, I would like the Company to forge ahead with debate grounded in spirituality and ethics, without being satisfied by superficial discussion. I believe the key to regaining society's trust can also be found in this approach.

Corporate governance is actually linked to employees' everyday lives and their lifetimes. Many shareholders today are banks, securities companies, and other institutional investors. The largest of these investors are pension funds. This means that the source of investment funds is in fact society as a whole, including individual employees. The failure of a pension fund to earn gains through its management has an impact on the future lives of employees. Universities and research institutes, too, invest donated funds to enable their greater use in research and educational activities. Seen from those perspectives, it should be clear that the issue of governance as maximization of shareholder profits directly relates to yourselves and to everyone in society. Governance is human life itself.

In promoting autonomous conduct, human resource development is vital. While human resource development may not yield immediate efficacy, I think its effects are gradually beginning to appear. However, attracting talented human resources is not easy for a company that has been involved in major misconduct. That is why the Company must create an environment that lets employees take pride in working here.

While the construction defects problem has been settled to a degree, the Company is making its restart not from zero but from less than zero. Taking the obvious for granted will not lead to the restoration of lost trust. The Company has to soberly consider how it can regain trust and take action accordingly, without straying from that path.

Living as a human means, first and foremost, living for the world and for others. Divisions of labor exist for the purpose of increasing overall happiness in society, by having people shoulder the work that they can do well. This means that the presence of companies that are not of use to society is unacceptable. People failing to engage in everyday work with the recognition that their expertise is connected to somebody's happiness is unacceptable.