Long Legal Transplants

Abstract

The comparative law concept of legal transplants has long been used as a device to describe or explain major changes in Japanese corporate law. The past twenty years have seen an extended series of major reforms in that field, many of them inspired by outside, and particularly American, models. This era of reform is notable for the fact that it is taking, in simple terms, a really long time. This paper frames the evolution of Japan’s rules on corporate director compensation in this period as a kind of “long” legal transplant. It examines three features of this process which are associated with its. The first of these is that the long attempt to introduce elements of American style executive compensation and legal rules related thereto has resulted in the black letter law on director compensation in Japan becoming significantly different from, rather than similar to, its American counterpart. This is in part owing to functional differences in the rules, but also the result of a long process of legislative tinkering with the rules in Japan that over time have created a vastly more complex system. The second is that normative ideas related to how and why executive pay is regulated have evolved along significantly different paths in Japan and the United States over the course of the long transplant, which has created an odd reversal in the evolution of rules in each relative to each other. Finally it looks at the role of scandal provided by the Carlos Ghosn case which revealed a major problem with how imported norms on pay created incompatibilities with pre-existing systems they were incompatible with. Ironically instead of providing a metaphor for a transplant being run out of town as a result of this incompatibility, the case seems, at least at the firm level, to have further encouraged the adoption of American style mechanisms for regulating pay. To the general literature on transplants this paper offers a case study which suggests that the dynamics of long transplants are quite different from the traditional “one-off” transplant where the act of reception of the rule is treated as conceptually distinct from what follows (how it is accepted in its new context). The features outlined herein certainly do not represent a model in themselves, but rather demonstrate how a long transplant, simply by providing time for actions, reactions and random events like major scandals to occur, can cause the rules to evolve in ways that earlier notions of transplants fail to account for. To the literature on Japanese corporate law the paper suggests that, to the extent that it continues to rely on the transplant concept to explain reform it needs to take into account the prolonged and extended nature of the current reform process which applies not just to the rules on director compensation but to a number of other areas as well.