JAPAN Law and Practice Contributed by: Hiroshi Mitoma, Tomohiko Iwasaki, Kosuke Hamaguchi and Akira Komatsu, Nagashima Ohno & Tsunematsu
3.10 Payments to Directors/Officers Compensation to Directors
Compensation for Breaches/Third-Party Claims If a director or a statutory auditor breaches their duties, the company may seek compensation for the damage caused by the breach. In addition, a share - holder may also file a shareholder derivative action on behalf of the company if the shareholder requests that the company file a lawsuit against a breaching director or statutory auditor but the company does not do so within 60 days of such a request. Moreover, if a third party suffers damage arising from the performance of the duties by a director or a statutory auditor who had knowledge that their conduct was inappropriate or was grossly negligent, then the third party may seek recovery of the damage from the director or statutory auditor. Even if a director or a statutory auditor fails to perform their duties, their liability to a company arising from such failure may be discharged or limited through: • the consent of all shareholders; • a resolution of a shareholder meeting; or • a resolution of a board of directors (or, in the case of a company without a board of directors, consent of a majority of two or more directors) pursuant to the articles of incorporation. In addition, a director who is neither a representa - tive director nor an executive director or a statutory auditor may enter into an agreement with a company to limit their liability, if so permitted by the articles of incorporation. Amendment to the Companies Act to allow an executive director to enter into such agree - ment is now being discussed. 3.9 Other Claims/Enforcement Against Directors/Officers In relation to corporate governance, a third party is able to make claims against directors, statutory audi - tors and other officers for damage incurred in connec - tion with misrepresentations in a company’s financial statements, business reports or any other documents unless the directors, statutory auditors or other offic - ers can prove that they have exercised due care. Directors, statutory auditors and other officers of a listed company are also liable for misrepresentations in the public disclosure documents of the company, such as annual securities reports, under the FIEA.
Compensation to directors must be approved by a shareholder meeting unless it is provided in the articles of incorporation. In usual circumstances, a shareholder meeting approves the maximum aggre - gate amount of compensation of all directors and del - egates to the board of directors the authority to decide the compensation to be paid to each director within the approved maximum aggregate amount. In such a case, the board of directors of a listed company with a board of statutory auditors that is a large-sized company or a company with an audit and supervi - sory committee must approve the policy as to how to determine the specific amount of compensation of each director and disclose this policy in the annual business report. The authority to decide the compen - sation of each director based upon this policy is often delegated to a representative director or an independ - ent compensation committee. If the total amount of the compensation of all direc - tors exceeds the maximum aggregate amount of compensation approved by a shareholder meeting, the compensation in excess of the maximum aggre - gate amount is invalid. In such case, it is considered that the amount of the compensation of each director would be reduced based on a ratio of the total amount of the compensation of all directors to the maximum aggregate amount approved by a shareholder meet - ing; and a company has a right to request each direc - tor to return the excessive amount regardless of its negligence. In addition, the directors involved in such illegal payment are jointly and severally liable to the company for the amount in excess of the maximum aggregate amount approved by a shareholder meet - ing. If a company issues its stock or stock options to its directors as compensation, it also needs to obtain the approval of a shareholder meeting on the maxi - mum number of such stock or stock options to be issued and other prescribed details. In the case of a company with an audit and supervi - sory committee, the compensation of audit and super - visory members must be determined separately from other directors, and the allocation of compensation among audit and supervisory members is determined based upon their discussion unless a shareholder
388 CHAMBERS.COM
Powered by FlippingBook