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General Counsel in Japan – about a different cultural legal environment
You have just returned from an interesting visit in Japan where you had again the chance to interview some General Counsel and attorneys. What kind of challenges does a General Counsel face in Japan?
The General Counsel in Japan faces similar challenges to those faced by their US or European counterparts. They are challenged by the sheer increasing legal work in particular caused by new regulation and risk management issues. The General Counsel is also experiencing an expanded scope of responsibility which is also reflected in him joining the executive management team. This new role, however, requires a broader set of skills and talent, which is why talent management and development has become an important issue.
What about the „more for less“ challenge? How is a Japanese General Counsel challenged to improve cost efficiency?
The situation is somewhat different in Japan. Japanese General Counsel, at least so far, do not yet feel a very high pressure on controlling their cost like their colleagues in other countries. Legal departments in Japan are not so big in size and therefore the generated overhead cost are not yet noticed by top management or becoming an issue. Further, corporate governance has a different spin in Japan – although shareholders have become a more important stakeholder group than before, the pressure to improve the return on equity by reducing the bottom line is still gentler than in other countries. The same applies to legal cost in general.
What about the lawyers working in Japanese legal departments – is there any difference worthwhile to being mentioned?
One of the most striking differences is that the majority of the legal departments are not staffed with qualified lawyers. The in-house legal department staff may have of course studied law at top universities, however, they have never practiced law, not passed a bar exam or admitted to the bar. Just a handful of corporations have a qualified lawyer heading the legal department. You may also keep in mind that a career in a corporate legal department is considered a life-long job, i.e. these legal department staffs have a very deep understanding of the business. With that they are closer to the business and act rather as risk-taking advisors than as risk-averse cops.
Let me share another interesting piece of difference I have noticed. Looking at the numbers today there are some 33’000 lawyers admitted to the bar. This is already a low number, but when you look at the numbers of in-house counsel, it becomes even worse – although there was recently a dramatic increase (800% between 2005 and 2013) there are still only some 1000 lawyers working in-house. Now you may understand why an in- house counsel is considered a kind of „black sheep“ in the family of lawyers in Japan. The reason for this drastic increase in in-house jobs is in part due to the fact that in-house lawyers do not anymore need to be approved nowadays – it is sufficient to simply get registered.
This is indeed a striking difference on what we are used to see here. Where does this change come from?
Looking at the demand side, Japanese corporations have realized they need to better manage their risk and reputation. From the supply side there is an interest of the society for an embedded and working legal system which reduces the time to get a case heard. This requires some reforms to the Japanese bar exams in order to increase the number of admitted lawyers. As a further reason, a lot of young qualified lawyers are joining the legal departments since their main aspiration, to get a job at a court or a career to become a partner in a law firm, may not be realistic anymore.
Are there any changes going on in the legal market?
In general the head of legal has full power in retaining external lawyers. However, you may consider that the Japanese legal market is a very fragmented one. There are just a handful of law firms with a few 100 lawyers. The Japanese corporations are used to dealing with individuals, not law firms, in the domestic law firm scene. The person is still very respected and paid on a retainer basis, not on an hourly billing system we are used to see in the US or the UK. However, changes are happening here as well: looking at the corporate scene the law firms are more and more getting organized like law firms in the US and the UK, i.e. with a lot of young lawyers working long hours. And western law firms have opened their own offices in Tokyo to solicit work from Japanese corporations.
As an economist, what kind of factors have you found determine the „make and buy“ decision of a corporate client?
This is a question on which there is much to say. Let me point out one thing only that I have identified so far. The more intangible asset is at stake, notably intellectual property tied to R&D, brand, and advertisement, the more likely it is that work is being protected by keeping the associated legal services in-house.
What have you seen in terms of „new normal“ after the financial crisis?
I do not see much quantitative change. The numbers in absolute terms at Fortune 500 companies seem not to have changed a lot. However, the variation in how the „make and buy“ decision is approached by corporate clients has increased very much.
Any final thought when looking into the future?
I think that there are other persons who have a much more promising crystal ball than I do. What I see is that some sort of disruption in the legal market will happen. The question is however, when this will occur. With regard to the „where“ I do not expect to find the drivers in magic circle firms or with General Counsel of big legal departments. I rather foresee that relevant changes will occur in the middle and lower levels first, or from outside the legal sector, where a mindset of entrepreneurship plays a bigger role.
Ms. Mari Sako is Professor of Management Studies at Said Business School, University of Oxford, where she teaches and researches about global strategy. She is trained as an economist, and had taught at London School of Economics, and held visiting positions at MIT’s Sloan School of Management, Kyoto University, and Tokyo University. Her research on ‘General Counsel with Power?‘ (2010) has gone beyond the UK-US comparison, and involves studying her country of origin, Japan.
01/2015Read more interviews