The Enduring Relevance of the Poison Pill: A U.S.-Japan Comparative Analysis

Abstract

More than forty years after its invention the poison pill defensive measure remains the subject of important judicial decisions and renewed academic debate concerning fundamental corporate governance questions, both in the United States, its country of origin, and in its adopted home of Japan. In this essay, we use the poison pill as a mirror, reflecting the evolution of corporate law, markets and norms in the United States and Japan. The pill’s journey from its inception in the United States and its subsequent (conceptual, but not technical) adoption in Japan to the present has taken place in markedly different corporate governance environments in the two countries. Yet today, a period characterized globally by shareholder activism and ESG agitation, the divergent paths of the pill appear to be converging, a possibility highlighted by recent judicial decisions on anti-activist pills in the Delaware courts and the Japanese Supreme Court.

The essay begins by tracing the separate, path-dependent origins of the pill in the two countries, showing how distinctions in legal technology of the pill derive from some fundamental differences in corporate law mechanics and governance norms in the two countries. Next the essay juxtaposes the near-death experience of the poison pill in Japan in the market environment prevailing in the 2010s with the contemporaneous apogee of the pill’s potency in the Delaware Chancery Court’s Airgas decision. The essay concludes by bringing the story of the pill’s enduring relevance to the present day, focusing on the current academic debate about anti-activist pills in the U.S. and the controversial recent use of a modified version of majority-of-the-minority shareholder approval (MoM) for anti-activist pills in Japan.

Keywords: Poison pill, takeover defenses, corporate governance, shareholder activism, comparative law

JEL Classification: G30, K22, P52