Shareholder lawsuit

The former 11 board members of a Japanese bank were ordered to pay 775 million dollars to the bank by the Osaka district court in September 2000. The indemnity must be the most expensive payment in the Japanese history of shareholder lawsuits. Moreover, one of the sued 11 managers (Former NY branch manager) was decreed to pay 530 millions dollars in the same case. The amount of the single person’s liability must also be the highest as individual lawsuit. This was a lawsuit that the shareholders demand the compensation of the damages caused by a part-time employee in the NY branch. He had covered up the loss of dealing federal bills wrongly for more that ten years. The sum had amounted to 1.1 billion dollars. Even after he confessed the illegal transactions to the bank, the executives had not notified the fact immediately to the US authority. By the further illegal treatment of the employee’s cover-up, the authority fined the bank heavily and ordered it to retrieve the NY office from the US. The damages are not only the loss of the trade itself but also the disgraced image as one of the biggest banks in Japan. Therefore, the shareholders who took it serious filed a lawsuit against the management for the losses(they reconciled 250-million-yen payment).

Shareholder lawsuits against top managers on behalf of companies have been increasing since 1983. It's because the lawsuit fee was brought down to 8,200 yen regardless of the amount of liability in the revision of the commercial codes that year. Before the revision, shareholders had to pay hundreds of millions yen for the fee besides the attorney costs when they filed a lawsuit against management for tens of billions yen. This revision was triggered by the incident that a securities brokerage compensated the loss its big clients suffered. In the case, there was a argument whether or not it was necessary for the shareholders to pay two hundred million yen for the expensive lawsuit fee against the liability of 17 billion yen. At the time the fee was determined according to the amount of liabilities. After the revision, the reduction of the fee has made it easier for shareholders to file lawsuits against management in class action.

In addition to the reduction of the lawsuit fee, the increasing trend of shareholder lawsuits is attributable to the change of shareholder’s consciousness. Although investing stocks isn’t still a major style in the portfolio of the individual financial assets, the number of personal investors has been rising with the help of Internet trading and taxation advantages. People have become interested in companies’ management because the malfunction of top management will directly lead to the loss of their assets. More and more public companies are getting monitored by individual investors nowadays.

Organizational investors have also changed recently. Many of the shareholders in Japanese stock markets are still financial institutions and corporations. One company hold the stocks of another and vice versa. This business convention is called cross share holding, which is one of the Japanese business characteristics. By holding stocks each other, the companies aim at strengthening the ties. The ties may become strong. But it may weaken the awareness as shareholders. For the reason that one company doesn’t want to be intervened in the management, it won’t say anything about the other.

Followed by the adoption of the global accounting system and the economic slowdown, however, Japanese companies have started to sell the stocks especially crossed shares in order to squeeze profits. As a result, the ratio of the crass share holdings in Japanese stock markets has gradually been decreasing. Instead, foreign and individual investors have been on the rise. New comers to the stock markets start to raise objections against their companies. Typically one of the foreign pension funds tries to make the possible use of the rights as shareholders, sometimes claims the change of top managers. This action is very natural while many of the Japanese companies don’t get accustomed to it. As those investors who have strong consciousness as shareholders are increasing, management levels will be upgraded.

In the corporate situation today, M&As have become a matter of course. Particularly when foreign companies enter Japanese markets, it’s a prompt fit-in method. Actually the amount of foreign investment into Japanese companies has drastically increased. On top of that, the newly established stock markets have made it easier for start-up businesses to go public in a shirt period. These top managers who almost suddenly appear in the Japanese business are exposed to the risk of being sued from share holders (Shareholder lawsuit could happen to not public companies). Despite the liability cap shareholder can ask for is set, any top managers should discipline business judgments any time.

The round number of shareholder lawsuit in continued cases

Suveyed by Supreme Court of Japan