Corporate Governance of
Japanese companies:
shareholders & their interests
Souichirou Kozuka
Professor of Law
Sophia University
Key to understanding Japanese
corporate law
Simple (simplistic) “shareholder
centrism”
Manager should be loyal to
shareholder interest (Agency theory)
Difficulty in identifying “shareholder
interests” (collective action problem)
is not recognised.
Bulldog sauce case
TOB by Steel Partners
(US fund)
Issuance of share
options
Discriminatory against
acquirer
Approval by
Shareholders
Bulldog sauce SC decision
SC (Aug. 2007) upheld the defensive
measure employed by management
Held not to be infringing “equality
among shareholders”
Reason: (super-)majority supported
the management in finding the
acquirer to be against common
interests of shareholders
2005 METI Guidelines on
introducing defensive measures
Protection of shareholder interests
To be based on the shareholders’
consent
Proportionality
2008 METI Guidelines on activating
defensive measures
Defence just to delay the takeover (eg
AWS-type measures): permitted.
Defence against apparently abusive
takeover: permitted.
Defence on finding that the takeover
damages the shareholders’ interests:
must be based on shareholders’
consent.
Liability of directors: law reform
Shareholder’s derivative suit
awakened in 1993 (by a tiny
procedural amendment, to filing fees)
Industry reacted strongly
Partial exemption introduced in 2001
Limitation agreement only available to
outside directors
Liability of directors: courts’
response
Courts deciding according to
shareholder (not stakeholder) theory.
Japanese version of BJR: directors
must not be negligent in
investigations and the decision made
must not manifestly unreasonable.
Many ex-directors of failed banks held
liable since ‘00 (incl. SC on Takugin).
Changes in capital markets
Shares increasingly held by
nominees:
increase of institutional investors/foreign
investors
Banks disappearing as major
shareholders:
cross shareholding under the main bank
system evaporated?
Changes in corporate governance
Pressure from institutional investors
(incl. foreign investors)
Hostile takeovers
Proxy fight (Moritex case, Tokyo DC
2007)
Shareholder proposals (successful in
Aderans in 2008)
Reforms in 1990’s
1990’s as an era of reform – in
corporate law as well
Frequent amendments (almost every
year, sometimes multiple)
Bills sometimes submitted by MPs
(since 1997)
Culminated in Corporations Act 2005
Major reforms
Corporate finance – impact of finance
theory (e.g. stock repurchase)
Deregulation – minimum capital
requirement abandoned, freedom in
articles of association enlarged etc
Corporate governance – global
competitiveness?
Corporate restructuring
Corporate restructuring
Establishment of holding companies:
financial conglomerates; distribution
companies; manufacturers;
broadcasting companies.
Lifting the ban in AMA in 1997.
Reform of merger law, introduction of
demerger (spin-off), share-for-share
exchange, share-transfer.
Looking back
Some people claim that the reform
was all in the interest of “industry.”
Interests of employees are said to be
left behind.
Developments in practice/case law
must also be looked at.
The key is (too much) emphasis on
shareholder interests.