Newsletter
LIMITS ON BOARD'S POWERS TO SET DIRECTORS' AND SU-PERVISORS' REMUNERATION
In an interpretation dated 20 January 2004, the Ministry of Economic Affairs stated that if the level of directors' and supervisors' remuneration was not defined in a company's articles of in-corporation, it must be decided by a resolution of a shareholders' meeting, and could not be set by a resolution of the board of directors. Furthermore, the articles of incorporation could not empower the board or the chairman to set directors' re-muneration.
However, this interpretation is not entirely in keeping with companies' operational practice. Thus, on 8 March 2004 the MOEA issued a further interpretation stating that by resolution of a shareholders' meeting, the articles of incorpo-ration may empower the board of directors to set directors' and supervisors' remuneration at the level generally paid within the same industry.
The MOEA's 8 March 2004 interpretation re-laxes the previous regime. However, the Com-pany Act provides that a director may not vote on a matter if it involves his own personal interests, such that the interests of the company may be harmed. Directors' remuneration does involve directors' personal interests. Thus it would ap-pear that based on directors' fiduciary duties of loyalty, they should abstain from voting on such matters. In other words, directors' remuneration should not be set by the board, or disputes are likely to result.