The derivative action: An economic, historical and practice-oriented approach

• Main Authors: BAUM, Harald, PUCHNIAK, Dan W.
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2012
• Subjects: Asian Studies; Comparative and Foreign Law
• Online Access: https://ink.library.smu.edu.sg/sol_research/3957; https://search.library.smu.edu.sg/discovery/fulldisplay?docid=alma99577088502601&context=L&vid=65SMU_INST:SMU_NUI&lang=en&search_scope=Everything&adaptor=Local%20Search%20Engine&tab=Everything&query=any,contains,The%20Derivative%20Action%20in%20Asia:%20A%20Comparative%20and%20Functional%20Approach&offset=0
• Institution: Singapore Management University

The derivative action, also known as the derivative suit (in the United States), Aktionärsklage (Germany), kabunushi daihyō soshō (Japan), action sociale ut singuli (France) and paisheng susong (PRC) (among others), is a global phenomenon. It originated in the common law world and is regarded by some as ‘one of the most interesting and ingenious.. accountability mechanisms for large formal organizations’. As a potentially powerful elixir for corporate governance ills, the derivative action has captivated lawmakers for well over a century. It is also a subject that has long intrigued academics – and rightfully so. The beauty of the derivative action is truly in the eye of the beholder, making it ripe for scholarly debate. Depending on one’s vantage point, it can be seen as either a functional necessity for meaningfully enforcing directors’ duties, which mitigates agency costs, or a corporate governance mechanism inherently vexed by a litany of complex procedural problems, which stifles entrepreneurship. We suspect that, after reading this book, you will conclude that the truth about the derivative action in Asia lies somewhere in between these two extremes. Few, if any, legislatures or courts have been able to strike the appropriate balance between the necessary incentives to ensure that derivative actions are pursued effectively and the indispensable safeguards to prevent their abuse (what we term in this book the ‘Holy Grail’ of derivative actions regulation). Ironically, in spite of generations of legislative craftsmanship and academic musings, in almost all jurisdictions derivative actions are rare. Even in the United States and Japan, where derivative actions occur idiosyncratically with some regularity, their popularity has substantially fluctuated over time. Nevertheless, or perhaps because of this, a number of key jurisdictions – including Singapore (1993), New Zealand (1994), Italy (1998), Australia (2000), Hong Kong (2005), Germany (2005), the United Kingdom (2006) and the People’s Republic of China (2006)– have recently introduced statutory (codified) derivative actions with the hope of transplanting the ‘Holy Grail’ into their corporate governance regimes. Other jurisdictions, including Japan (1993), South Korea (1998) and Taiwan (2010), have attempted to uncover the Holy Grail more cautiously by tinkering with their existing derivative actions legislation – sometimes with unforeseen and dramatic results.