JAPAN Law and Practice Contributed by: Hiroshi Mitoma, Tomohiko Iwasaki and Kosuke Hamaguchi, Nagashima Ohno & Tsunematsu
proposal to dismiss the director is rejected at the shareholder meeting, then a shareholder hold - ing, for the preceding six months or longer, not less than 3% of the voting rights of all sharehold - ers may file a lawsuit to dismiss the director. Other management members, including an executive officer in a company with nominat - ing and other committees, may be dismissed by a board of directors. A dismissed executive officer may seek damages, as in the case of a Statutory auditors are appointed by a majority of the votes at a shareholder meeting. Howev - er, dismissal of statutory auditors requires two thirds of the votes at a shareholder meeting. As in the case of directors, a dismissed statutory auditor is entitled to seek damages arising out of the dismissal, except in cases where justifiable grounds exist. 4.5 Rules/Requirements Concerning Independence of Directors An outside director is a director who does not, in principle, execute the company’s operations, and has no relationship with its affiliate compa - nies or their management, etc. A more detailed definition of an outside director is provided in the Companies Act. dismissed director. Statutory Auditors Furthermore, the TSA Regulations and the Cor - porate Governance Code have certain require - ments or recommendations in relation to “inde- pendent” outside directors. An independent outside director is an outside director who sat - isfies the “independent officer” criteria as estab - lished by the Tokyo stock exchange. According to these criteria, an outside director who is an executive director or officer of one of the com - pany’s main business partners, or an expert
who receives a substantial amount of fees or compensation from the company, is not quali - fied to be an “independent” outside director. In this sense, the “independent officer” criteria are more stringent than the “outside director” criteria under the Companies Act. Under the Corporate 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 independent outside directors), it must publicly explain the reason why. Under the Corporate Governance Code, it is also recom - mended that a person who has experience man - aging other companies be included among such independent outside directors. The Corporate Governance Code also suggests that a listed company with a controlling share - holder 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 commit - tee 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 control - ling shareholder and the minority shareholders. 4.6 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 construed as part of a fiduciary duty. As part of their fiduciary duty, directors are required to establish an internal control system of the company. Furthermore, directors have a
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