1. Corporate Governance of Japanese companies: shareholders & their interests Souichirou Kozuka Professor of Law Sophia University

2. 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.

3. Bulldog sauce case TOB by Steel Partners (US fund) Issuance of share options Discriminatory against acquirer Approval by Shareholders

5. 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

6. 2005 METI Guidelines on introducing defensive measures Protection of shareholder interests To be based on the shareholders’ consent Proportionality

7. 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.

8. 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

9. 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).

10. 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?

11. 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)

12. 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

13. 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

14. 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.

15. 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.