Derivative Suits From the Lens of the Corporate Governance -A Research Based upon Korea,Japan and United States Legal System
Date Issued
2016
Date
2016
Author(s)
Lu, Ching-Wen
Abstract
This paper studies a controlling shareholder system in which control and cash flow rights are separated, seen frequently in Taiwanese corporations due to historical reasons. Corporate laws in Taiwan lack the appropriate mechanisms that regulate controlling shareholders and provide protection for minority shareholders. This paper examines the regulations of derivative suits. It subsequently analyzes whether the regulatory framework facilitates good corporate governance by affording the necessary remedies for minority shareholders in case that their rights are infringed. Reforming the framework of economic incentives of derivative suits regulations is a way to encourage the minority shareholders to take necessary legal action. The formation of legal practices following the adoption of a legal system requires a long process of legal adaptations. Such a process is influenced by many social factors, with culture playing the most significant role. This paper reviews the factors for the explosive growth of derivative suits in Japan in a functional comparative laws approach. The literature studies the incentives for plaintiff shareholders and attorneys through the lens of cost-benefit analysis. This paper advances the relevant literature by deconstructing the assumption of economic motivated and rational shareholders with empirical evidence. The theory of the behavioral economics expounds the mental processes of a normal human being making decisions, allowing us to explain the growth of Japanese derivative suits with a different perspective. Finally, this paper analyzes the pros and cons of non-profit organizations and attorneys as litigation initiators. Comparing the organizational structure of the Securities and Futures Investor Protection Center in Taiwan、Shareholder Ombudsman People''s in Japan ands Solidarity for Participatory Democracy in Korea, the paper analyzes the feasibility of using such non-profit organizations as a transitional mechanism to protect minority shareholders. This paper concludes that market mechanism provides the best mechanism for minority shareholders protection. To cultivate good corporate governance culture, the regulations should provide the appropriate economic incentives for attorneys, allowing them to take the lead for trend-following crowds.
Subjects
derivative suits
controlling shareholder
minority shareholder remedies
Japan derivative suits
Korean derivative suits
non-profit organization
attorney-driven
contingent fee
Type
thesis
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