A New Era for the Business Judgment Rule in Japan? Domestic and Comparative Lessons from the Apamanshop Case

Abstract

This working paper provides a translation and comparative analysis of one of the most important recent corporate law decisions by the Supreme Court of Japan: the Apamanshop Case (Supreme Court 15 July 2010 – Case No. 2009 ju 183). From a domestic perspective, the decision was a watershed moment in Japanese corporate law and governance for three reasons: (1) it marked the first time that the business judgment rule had been explicitly applied by the Supreme Court in Japan; (2) it affirmed the general framework for applying the business judgment rule which had previously been used in several lower court decisions; (3) the Supreme Court’s detailed examination of the content of the directors’ decisions suggested that the manner in which the business judgment rule is applied in Japan is markedly different from how it is applied in the United States. For three reasons, each of the aforementioned important findings, has the potential to significantly shape the future of Japanese corporate governance: (1) the Supreme Court’s recognition of the business judgment rule should provide a wider and more predictable ambit of protected managerial discretion for directors in Japan; (2) the Supreme Court’s recognition of the importance of engaging an outside lawyer for establishing the reasonableness of the decision-making process will likely further increase the role of lawyers in Japanese boardrooms; (3) the Supreme Court’s detailed examination of the content of the directors’ decisions suggests that the manner in which the business judgment rule is applied in Japan is markedly different from how it is applied in the United States. Interestingly, this decision also sheds light on two important debates in comparative corporate law: (1) it suggests that the theory that corporate legal transplants start from codified rather than case law is erroneous; and (2) it calls into question the use of coding or leximetrics as a useful tool for understanding corporate law comparatively.

Keywords: Japanese corporate law, comparative corporate law, business judgment rule, legal transplants, leximetrics, Japanese corporate governance

JEL Classification: K00, K22