What happened?
From 2018 into 2019, Leopalace21 disclosed multiple defects in apartment buildings it had constructed. They included missing party walls in attic and ceiling spaces, insulation materials that differed from design documents, and exterior-wall and ceiling finishes that did not match required specifications.
In February 2019, the company began an outside investigation and established an External Investigation Committee made up of lawyers. The Committee examined not only individual construction defects but also product development, building-confirmation applications, drawings, construction, quality control, repair approvals, internal audit, and whistleblowing. It published this report on May 29, 2019.
This article uses only the 128-page detailed version of that May 29 report as its primary source. It does not mix in the additional investigation report published in July 2019. The source report is in Japanese. All English wording below is a From Reports translation or summary, not an official English translation.
Twelve passages that stood out
Rather than cataloguing each defect, these notes follow the actual documents and routines inside the company: drawings, approvals, performance tests, employee messages, surveys, audit checklists and whistleblowing records.
Products could go on sale before construction manuals were complete. CAD drawings sent to branches were described as about 70% complete. Building-confirmation drawings contained “convenient” representations, while another internal message listed four ways to deal with government authorities. Warning signs then appeared in repair approvals and performance tests without becoming a company-wide issue.
Page references use the printed page numbers in the Japanese report.
Products went on sale before construction manuals were finished. CAD drawings sent to branches were only “about 70% complete”
While Leopalace21 was developing and selling its “six series” of apartment products, the product-development group was repeatedly creating new series and changing existing specifications. The Committee says the workload was heavy enough that products sometimes went on sale before their construction manuals had been completed.
A party wall separates dwelling units for fire and sound protection. Printed page 37 explains that the wall must divide the attic or ceiling space without gaps.
That meant branch design or construction could move ahead even when headquarters believed an attic party wall was required but the CAD drawings did not make that clear, or when the relevant construction manual had not yet reached the branch or contractor.
The report says CAD drawings sent from headquarters to branch design teams were originally only “about 70% complete,” with the branches expected to finish them for individual sites and local requirements.
When branches asked whether a party wall was needed, headquarters sometimes revised the CAD drawing and sometimes told the branch to make a handwritten correction itself.
The attic party wall was not supposed to be built. The application drawing still showed it as if it would be
For the Nail series other than the truss type, Leopalace21 believed that a party wall in attic or ceiling space was not required. At the same time, multiple building officials had instructed the company to install one.
Even so, a section in the building-confirmation application drawing “conveniently” depicted the wall as though it would be constructed.
The External Investigation Committee characterized this as, in effect, obtaining the confirmation certificate from the building official by deception.
That is the Committee’s assessment. It also said the company should have reconsidered its own position that the wall was unnecessary once multiple officials had instructed it to install one.
An employee message said dealing with authorities meant “1) threaten, 2) work through back channels”
The Committee gave another example of what it described as the company’s disregard for proper building-confirmation procedures: a message sent to employees by an executive responsible for sales.
Printed page 52 identifies the document as “Points to note for achieving sales in the 37th term,” dated November 27, 2009, and written by the director responsible for the West Japan No. 1 Sales Department. It pushed sales achievement and shorter construction schedules and listed four ways to negotiate with government authorities.
In From Reports’ translation, they were: 1) threaten, 2) work through back channels, 3) have the property owner accompany staff to the government office and ask directly, and 4) have a local owner accompany staff to the government office and make the request.
The Committee cited the message as an episode showing instructions that appeared to prioritize shortening the schedule over following proper building-confirmation procedures.
In 2011, the president approved repairs for a legally required missing party wall. Six years later, another building’s “deficient fire performance” stopped at “reconsider necessity”
In March 2011, a repair request from the Yokohama branch said that the company’s inadequate instructions had resulted in the discovery that a legally required attic party wall had not been installed. Four directors approved the request before the president gave final approval.
In July 2017, another repair request said an attic wall was missing, resulting in deficient fire performance, and proposed a company-funded repair.
The 2017 request was rejected by a department head with a short comment meaning “reconsider necessity,” and the approval process stopped there.
The document used to support that rejection was a reworked version of an internal paper created during earlier litigation in Himeji. It had not been prepared with advice from an outside expert. The Committee said these repeated opportunities should have triggered company-wide re-examination, but substantive review did not occur.
The sound-insulation test failed and no formal report was obtained. Also, a 60-minute fire test stopped at 51 minutes
Leopalace21 conducted several performance tests on foam panels after sales had already begun.
A May 1999 sound-insulation test failed because performance at a particular frequency fell below the standard.
A person involved told the Committee that because the result was poor, they did not obtain a formal report.
A fire-performance test followed in September 1999 for an exterior load-bearing wall intended to meet a one-hour requirement. It was stopped at 51 minutes, before the full 60 minutes, because the maximum temperature on the unheated side exceeded the specified limit.
The fire-test specimen had its face panels screwed to the steel frame. Product-development personnel told the Committee that these tests concerned a different foam-panel specification from the panels actually used in the party and exterior walls.
A footnote on printed page 87 also records sound-insulation tests in two buildings in 2000 that both met the specified D-40 requirement. For fire protection, meanwhile, minutes of a 1996 internal meeting had already recorded the need to obtain certification. The Committee said ministerial certification had not been obtained for the foam panels actually used in party and exterior walls.
Work moved ahead before products and drawings were ready. An employee called it “try it first” and “fix it after we try it”
The Committee sent a questionnaire to 6,173 officers and employees and received 3,519 valid responses. The report reproduces numerous examples in the respondents’ original wording.
One response criticized the shallow level of advance consideration.
The employee described a corporate tendency that amounted to “try it first” and “fix it after we try it.”
Another response said products were announced in a rushed fashion before construction manuals and general drawings were ready, leaving staff to work from experience without sufficient product knowledge.
These are employee survey responses, not facts that the Committee independently established in every instance.
“Do it without construction drawings.” Schedule meetings focused on “how to pull work forward”
The employee survey also contained more concrete descriptions of job sites and schedules.
One respondent recalled that until about 15 years earlier subcontractors were sometimes told to proceed without construction drawings. When the subcontractors asked construction-management staff what was correct, the respondent said they did not get an answer.
In that response, subcontractors were described as being told, in effect, “Do it without construction drawings.”
Another employee wrote that monthly schedule meetings revolved around how work could be pulled forward even when everyone knew the schedule was unrealistic, putting both design and construction under pressure.
These remain attributed employee-survey accounts.
Internal audit checked cash and stamps in detail. Yet whether buildings complied with the law was outside its scope
Leopalace21 had an internal-audit function during the years when the defects arose. The Committee found that a 2005 audit plan covered quite detailed asset controls, including cash, deposits, stamps, important keys, telephone cards, ID cards and employee badges.
Yet the construction-department item concerned estimates for foundation work and similar costs. Whether buildings complied with construction-related laws was not an audit item.
A former head of internal audit told the Committee that once a building had passed building confirmation and had actually been built, he believed on a “good-faith assumption” that it matched the approved design.
The Committee concluded that this kind of assumption was broadly shared among internal-audit staff and helped explain why the defects were not discovered through internal audit.
A director said, “Compliance has nothing to do with it”
The report discusses the whistleblowing system introduced in 2006 and records an account from the head of the Legal Department within the compliance organization.
He said that management understanding of compliance and whistleblowing had previously been inadequate. When action was taken in response to a report, he sometimes heard that people inside the business tried to identify who had made the report.
He also recalled that about a decade earlier there had been a business-side director who openly said, in From Reports’ translation, “Compliance has nothing to do with it.”
The same executive said that this had changed: persistent compliance education by Legal had produced results, and in recent years he no longer heard such remarks or reports of attempts to identify whistleblowers.
There were 1,087 whistleblowing reports over 12 years. Not one concerned the construction defects
According to the report, after the construction problems surfaced, the Audit & Supervisory Board reviewed whistleblowing reports from the system’s launch through October 29, 2018. The legal chief also said he searched the records using terms related to party walls.
The reported result of the Board’s review was that none of the 1,087 whistleblowing reports over 12 years concerned the construction defects.
The system itself was created only in 2006, after many of the relevant defects had already occurred. The number therefore does not show that reports made during the original construction period were suppressed.
The report nevertheless notes that later repair approvals included multiple references to missing walls as legal violations. The Committee said the absence of whistleblowing on such issues showed that the system could not be described as fully functional.
The legal chief suggested one reason. Because the system had originally been introduced largely as an anti-harassment measure, many employees may have understood it as a tool for getting themselves out of situations in which they were personally being harmed, rather than as a system for correcting company compliance problems even when they themselves were not the victim.
“If we can’t get carpenters, bring in ‘daihachi’ or ‘dainana.’” The report records the joke as a sign of labor shortages
In its discussion of the underlying causes, the Committee said rapid growth in the contract-construction business had outpaced the company’s product-development, construction, quality-control and construction-supervision systems.
One problem was simply finding enough contractors.
The report says people inside the company joked that if they could not gather enough “daiku” — carpenters — they should bring in “daihachi” or “dainana,” nonsense wordplay implying almost anyone would do.
The Committee also found a chronic shortage of employees qualified as chief engineers and a major shortage of first-class architects relative to the number of projects.
The Committee’s phrase for the overall problem was “thinking while running.” One employee described “Miyama and everyone else”
The Committee identified a broader background: escaping a business crisis and expanding the contract-construction business had become overriding priorities.
One employee described a period when increasing the number of construction projects was the goal and every department was, in effect, “thinking while running.”
The Committee said the reality was worse: issues that should have been considered before starting were left behind, and even problems noticed along the way were ignored and allowed to remain.
The Committee separately analyzed a management structure in which the founder’s preferences carried unusual weight. One employee said there was effectively only a distinction between founder Yusuke Miyama and everyone else at the company.
At the same time, the report expressly states that the investigation found no objective material showing that Miyama knowingly gave an unlawful instruction.
What the report says about the background
The Committee proposed joint training for management and employees, or having managers attend training for frontline employees and give comments. These were specific ways to demonstrate management’s commitment to staff (printed page 121).
It also suggested training built around concrete case studies or this report itself, together with a system for continuing to check periodically whether the prevention rules were being followed (printed page 122).
Corrections to this article
Note 02 now limits the headline to the attic party wall rather than the whole wall between dwellings (p.114). Note 05 corrects pp.88–89 to pp.86–88 and adds the specimen-specification account and the footnote about separate sound tests meeting D-40 in 2000. Notes 01 and 10 distinguish the Committee’s assessment from testimony; the 1,087-report result is attributed to the reported Audit & Supervisory Board review (pp.61, 109–110). Note 07 restores until about 15 years earlier rather than about 15 years earlier, and other supporting page ranges were extended.