Outside directors liability: a comparative analysis between the US and Japan

The pervasive role of outside directors in the legal environment can explain much of the contemporary landscape of corporations, including practices and patterns that gradually developed in a large number of countries, thus representing the core of most prescriptions for good corporate governance. The current de lege ferenda in the Korean legislation once more proves that the presence of independent and outside directors plays a relevant role in the Asian context and leads to additional reflections related to that geographical area. Perhaps due to increased globalization, tighter market competition and stronger shareholder pressures, the New York Stock Exchange Listed Company Manual, 303 A.01, and the Japanese Companies Act, art. 327-2, also recently confirmed such tendencies among listed companies. The purpose of this paper is to explore the implication of regulating the risky role of outside directors and Board composition, in light of Japan’s extensive corporate governance reform in 2014. The analysis covers companies both in Japan and in the United States, where the level of litigation surrounding outside directors is incredibly relevant and the literature on the topic is ample and intriguing , focusing mainly on Delaware regulation. Its purpose is to examine the possible effects of the amendment of the Japanese Companies Act on the future of outside directors’ liability, disregarding its impacts on unlisted companies and inside directors, except for some necessary implications to illustrate points made concerning outside directors. Part II will briefly review the concept of outside directors, which facilitates better understanding of regulatory reforms in Japan. Part III will examine the topic in the U.S. context. Part IV will compare the major features of the phenomenon in Japan and the U.S. Part V concludes by evaluating the implication of the analysis.