Is the cooperative consensus that has typified a liberalised Japanese legal market finally giving way to greater competition? ALB investigates.
As this edition of ALB went to print, the 22nd anniversary of the enactment into law of the Special Measure Law Concerning the Handling of Legal Business by Foreign Lawyers (the law) passed without ceremony or fanfare. Proof that for many in the Japanese legal fraternity, liberalisation is an ongoing process – evidence that there is still plenty more to achieve despite an impressive evolution.
Japan’s present day legal sector is virtually unrecognisable from the one that existed prior to 1987. The
presence of foreign law firms (FLFs) has irrevocably reshaped the complexion of the legal sector, lifted standards and changed the way business law is conducted in the country. Not only has their presence proved useful in helping wean Japanese business off government support and onto the welcoming bosom of business lawyers, it has also helped the development of domestic law firms (DLFs), who have gone from strength to strength.
The Japanese ‘Big Four’ (Anderson Mori & Tomotsune, Mori Hamada & Matsumoto, Nagashima Ohno & Tsunematsu, and Nishimura & Asahi) have gone from modest-sized firms to legal leviathans, casting a shadow over the legal market. After 22 years it is the DLFs who dominate the arena.
And while this is not likely to change in the foreseeable future, the cooperative consensus that has so far typified the relationship between DLFs and FLFs in Japan is set to change. In fact, the more observant may have already noticed signs of this occurring: from joint law ventures to the hiring of Japanese graduates by FLFs and gaiben by DLFs – if the past 22 years were about cooperation, it seems the next 22 will be about competition.
Home comforts
Prior to the 16-year-long slump of the Japanese economy that began in 1990, there was little call for the involvement of law firms in the business transactions of Japanese companies. With government bureaucrats heavily involved in economic development and business decision-making, and little in the way of litigation, lawyers were, according to Toru Ishiguro of Mori Hamada & Matsumoto, an "unnecessary evil”.
But things changed as the samurai nation emerged from the despairing depths of the “lost decade”.
Suddenly law firms faced a different world, Toru ishiguro,where businesses made Mori Hamada & their own decisions Matsumoto in an increasingly litigious society, forcing even the most conservative industries to become more aggressive. As a result, law firms played a much bigger part in the domestic economy, as businesses came to realise the importance of the need for advice. Nagashima Ohno & Tsunematsu chairman Hisashi Hara estimates that in the 1980s, 80% of legal work was garnered from cross-border transactions. Compare that to the current market, where Hara says the breakdown of work
handled by the top domestic firms in Japan was articulated as a clear 70:30 division. Seventy per cent was accounted for by domestic work, while 30% was supplemented by cross-border M&A and transactional type work, with FLFs attracting the lion’s share of it owing largely to their international clientele.
But even this is changing. In fact, the changes here have been one of the more noticeable trends in the
market over the past 12 months. So, are Japanese lawyers coming full circle and returning to their roots as transactional lawyers?
According to Ishiguro, upping the amount of cross-border work coming into the firm is high on his firm’s agenda. “There has been a general move among all domestic players to invest more attention into cross-border elements of the market and we are now seeing the fruits of this policy pay off,” he says. Ishiguro’s firm has long had an international desk, but has recently seen its market share and that of other DLFs increase substantially in a short period of time. Nagashima Ohno & Tsunematsu is also making in-roads, but Hara says that any increase in this area will have to preserve the amount of local law work DLFs are doing. “All of the Big Four firms feel that domestic work has become so important and we don’t really want to harm that,” he says. “But cross-border work now is extremely lucrative, so the challenge is how to use what we have resourcefully and how to pick up this work without having to say no to local law work, which has enabled us to grow and thrive.”
One need only look and see just how much of the M&A market DLFs have to realise that they may have struck this balance already– a balance that will serve them well in an economy that is once again teetering on the precipice of another lost decade. And while there are those that say DLFs returning to their roots, coming full circle and increasing the amount of cross-border work they handle is an added bonus, to others, it is a necessity, as the cooperative status quo between DLFs and FLFs slowly but surely gives way to increased competition.
This is a HTML version of the ALB Special Report: Japan 09 feature in April issue.
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