In a case where the owner of a certain company (major shareholder who owns at least a majority of the company’s stocks) invited a CEO (representative director) from the outside, but afterwards does not like them and tries to dismiss them, what should the owner consider?

You might think that in this case, since the owner holds a majority of the shares, is it only a matter of holding a general shareholders meeting and dismissing the CEO. Certainly the owner could hold a general shareholders meeting and dismiss the CEO, but in fact, there is some serious work after a dismissal.

Paragraph 1 of article 339 of the Companies Act stipulates that “Officers [Note: Directors are also officers. See Article 329 paragraph 1 of the Companies Act] and financial auditors may be dismissed at any time by resolution of a shareholders meeting.” But on the other hand, paragraph 2 of that article stipulates that “A person dismissed pursuant to the preceding paragraph shall be entitled to demand damages arising from the dismissal from the Stock Company, except in case where there are justifiable demands for such dismissal."

In other words, the dismissed director can claim damages against the company, arguing that there was no justifiable reason for dismissal. This article can be further explained in these terms: "While securing the freedom of dismissal to shareholders, it prescribes a kind of statutory liability with the aim of protecting expectations for the term of office of directors and harmonizing the interests of both parties." With this purpose in mind, the conclusion is often that "the extent of damage to be compensated is the amount of profits obtained during the term of office that the dismissed director served within."

In short, the owner may have concluded that it is possible to dismiss the CEO, but if it is found that there is no justifiable reason for dismissal, he has to pay compensation for the remaining terms as damages.

Moreover, judgement regarding justifiable dismissal also is strict on the owner side. There is no doubt that violation of laws and the Articles of Incorporation, failure of mind and body, and significant inappropriateness to the duties are included in the justification, but it is not clear whether or not failure of management judgment is also included in justifiable.

Moreover, judgment regarding justifiable dismissal also falls on the owner's side. Certainly, whether there was a violation of laws and the Articles of Incorporation, a failure of mind and body, and significant inappropriate behavior when executing duties are considered when examining justifiable dismissal. But, there is also examination as to whether or not failure of management lead to a situation where dismissal occurred.

Therefore, because disliking someone is not a justifiable reason, and a failure of management such as poor business performance is not necessarily a justifiable reason, we have to say that there is a certain legal risk in dismissal. After all, I think that it is appropriate that before hiring a CEO the owner should make a contract that stipulates in which situations the owner can dismiss the CEO and how much the owner will compensate for damages in that case.