In the Shadow of Delaware? The Rise of Hostile Takeovers in Japan

Abstract

Despite longstanding predictions to the contrary, hostile takeovers have arrived in Japan. This essay explains why, and explores the implications of this phenomenon, not only for Japanese corporate governance, but for our understanding of corporate law development around the world today. Delaware law figures prominently in the recent Japanese events. A high profile battle for corporate control has just generated a judicial standard for takeover defenses that might be called a Unocal rule with Japanese characteristics. Meanwhile, ministry-endorsed takeover guidelines have been formulated that adopt wholesale the familiar threat and proportionality tests under Delaware law, along with virtually every related doctrinal nuance following Unocal. If, as now seems distinctly possible, the world's second largest economy is in the process of embracing hostile M&A, along with Delaware takeover jurisprudence, it represents a remarkable moment for Japan and for the global standards movement in corporate governance.

At one level, these developments provide powerful support for convergence theories, illustrating the intellectual appeal of Delaware corporate law's shareholder-oriented model in the world today. But closer analysis suggests that a far more complex, strategic process of legal reform and selective adaptation is under way. The process suggests not so much a convergence of Japanese and Delaware law as a highly unpredictable telescoping and stacking of two decades of Delaware takeover jurisprudence onto existing Japanese institutions - a process whose important features are masked by the prevailing analytical constructs in the comparative corporate governance literature. Successful economies do not abandon their institutions for foreign models, they adapt features of other systems that offer the potential to address emergent shortcomings in their own systems. The true appeal of Delaware corporate law may reside in its suitability to this process of selective adaptation, rather than in its superior shareholder protections.