JAPAN Law and Practice Contributed by: Hiroshi Mitoma, Tomohiko Iwasaki, Kosuke Hamaguchi and Akira Komatsu, Nagashima Ohno & Tsunematsu
statutory auditors requires two thirds of the votes at a shareholder meeting. As in the case of directors, a dis - missed statutory auditor is entitled to seek damages arising out of the dismissal, except in cases where justifiable grounds exist. 3.5 Independence of Directors An outside director is a director who does not, in prin - ciple, execute the company’s operations, and has no relationship with its affiliate companies or their man - agement, etc. A more detailed definition of an outside director is provided in the Companies Act. Furthermore, the TSA Regulations and the Corporate Governance Code have certain requirements or rec - ommendations in relation to “independent” outside directors. An independent outside director is an out - side director who satisfies the “independent officer” criteria as established by the Tokyo stock exchange, which are more stringent than the “outside director” criteria under the Companies Act. Under the Corpo - rate Governance Code, if a listed company on the Prime Market does not appoint such a number of independent outside directors as to constitute one third or more of its directors (or if a listed company on other markets does not appoint two or more inde - pendent outside directors), it must publicly explain the reason why. The Corporate Governance Code also suggests that a listed company with a controlling shareholder appoint such number of independent outside directors who are independent of the controlling shareholder as to constitute at least one third of its directors (in respect of a company listed on the Prime Market, a majority) unless the listed company establishes a special com - mittee composed of independent persons, includ - ing independent outside directors, to deliberate and review material transactions or matters that involve a conflict of interest between the controlling shareholder and the minority shareholders. 3.6 Legal Duties of Directors/Officers Directors owe a fiduciary duty to the company. The Companies Act specifically provides that directors of a company must perform their duties to the company in a loyal manner, with this duty of loyalty being con - strued as part of a fiduciary duty. Furthermore, direc -
tors have a duty to supervise other directors’ execu - tion of the company’s operation. In connection with the decision on a company’s oper - ation, the business judgement rule applies, whereby directors are given broad discretion in making busi - ness decisions and are not to be held liable for those decisions unless the business decision or the process thereof is construed as significantly unreasonable. If a director intends to carry out any transaction: • with the company; • that competes with the business of the company; or • that results in a conflict of interest between the director and the company, then the director is required to disclose the material facts relating to the transaction to the board of direc - tors and obtain its approval. 3.7 Responsibility/Accountability of Directors In general, directors owe their duties to the company. However, if a director breaches its fiduciary duty or any other duties, it may be held liable not only to the company but also to any third party that has suffered If a director engages, or is likely to engage, in an act in violation of law or the articles of incorporation (such acts include breach of a fiduciary duty) and this act is likely to cause substantial damage to the company, a shareholder holding shares in the company for six consecutive months or longer (or a shorter period if so provided in the articles of incorporation) may seek injunctive relief. In the case of a closely held company, the restriction on the shareholding period does not apply. In the case of a company with statutory audi - tors, an audit and supervisory committee or nominat - ing and other committees, injunctive relief is granted only if the company is likely to suffer irreparable dam - age because statutory auditors or the relevant com - mittee members are expected to audit and supervise the directors. damage arising from the breach. 3.8 Breach of Directors’ Duties Injunctive Relief
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