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The derivative action, also known as the derivative suit (in the United States), Aktionärsklage (Germany), kabunushi daihyo sosho (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. This chapter provides a general theoretical framework for the book and links the ongoing international discussion about the pros and cons of the derivative action with the seven jurisdiction-specific chapters in this volume. The balance of this chapter is organized on the basis of three perspectives from which derivative actions can be analysed. It starts, in section II, by providing an economic perspective, which identifies the primary features and functions (including the functional deficits) of the derivative action as a mechanism for improving the efficiency of corporate governance. It then examines a striking paradox in the economic incentives that drive derivative actions: most empirical evidence suggests that derivative actions normally result in a net economic loss for the plaintiff shareholder pursuing the action (and even for the individual company involved), but they are still commonly viewed by most legislators and judges as an indispensable deterrent against reckless behaviour by directors, controlling shareholders and others who may owe a duty to the company. In a similar vein, this section pays special attention to the difficulty of designing a derivative action that incentivizes shareholders to pursue derivative actions, which enhance corporate governance efficiency, while at the same time preventing their abuse (i.e., the Holy Grail). Next, in section III, this chapter examines the derivative action from a historical perspective, by tracing its modern origins to the common law jurisprudence of the United States and the United Kingdom in the nineteenth century. The German historical experience is also briefly considered, so as to highlight its long history of rejecting the introduction of a US-/UK-style derivative action (until 2005), instead relying on functionally equivalent corporate governance solutions. This historical overview provides an important context for understanding the derivative action in Asia, as most leading Asian jurisdictions have transplanted some or all of the legal framework governing their derivative actions from the United States, the United Kingdom or Germany. This chapter concludes, in section IV, by viewing the derivative action from a practice-oriented perspective, which focuses on how the derivative action is actually working in selected major non-Asian jurisdictions. This section includes an examination of the United Kingdom (with a focus on the statutory derivative action, which was recently implemented in the Companies Act of 2006), the United States (with a focus on Delaware corporate law and the Model Business Corporations Act), France (with a focus on its role as a forerunner in derivative actions legislation in continental Europe) and Germany (with a focus on its recent introduction of a statutory derivative action that was ambitiously, but not necessarily successfully, designed to avoid the pitfalls of the US system).
