We want More
In-house counsel in Japan are demanding more from firms: more creative advice, better response times and a knowledge of what the client does. ALB and Workshare brought together a group of in-house counsel and partners together to discuss this, recruitment, privacy and compliance issues and a range of things in between

Michael Hancock is the director of legal and compliance at HSBC in Tokyo, a role he has held for a year. Previous to that he was at Lovells for 19 years and is well placed to answer the all-consuming question: 'What do in-house counsel look for in external counsel?'

"There's no magic formula, but personal chemistry is very important," Hancock says. "We want firms that are proactive and good value for smaller, less profitable matters as well as the big-ticket items."

The different approach taken by Japanese and foreign firms was picked up on by Panasonic's senior legal counsel, New Zealand lawyer Catherine O'Connell.

"Japanese firms are very specific, in that if we ask for advice on A,B,C they will give advice only on A,B,C. We need to be more proactive and tell them to give us more advice on a practical basis."

FedEx international counsel Kaori Miyake got straight to the point.

"Sometimes Japanese firms don't respond in a way I would like in terms of language, presentation and substance."

Those gathered around the table were careful to stipulate that there are many areas where the local firms are considered to be comparably better than their foreign rivals. For a start, the partner rates are cheaper and many more senior Japanese lawyers can speak English, as opposed to the number of senior US and UK lawyers who can speak Japanese.

"We have regular conversations with clients, and they can raise any issues," respected litigation veteran Tasuku Matsuo from Matsuo &Kosugi says.

Atsumi & Partners managing partner Hiroo Atsumi says his firm is dedicated to providing consistent advice, regardless of where the client is from.

"There's no difference between the types of advice we give Japanese or foreign clients, and they are normally looking for the same thing from us," he says. "We are comfortable dealing with both."

However, the venerable Mr Matsuo gives a word of caution.

"A lot of foreign clients don't know Japan or have a good knowledge of the corporate market," he says. "You just have to look at the international reaction to the Livedoor situation to see this."

Privacy and compliance
The more stringent privacy regulations passed in Japan over the last three years have had quite a profound effect on the storing of client information and client interaction. This has created some problems.

"There's a lot of publicity about these new laws, and I know my local tennis club is struggling with it," Michael Hancock says.

For others around the table, the impact of privacy laws with electronic communication is acute.

"For lawyers in private practice, there's still a lack of privacy from direct marketing in that our e-mail address and contact numbers are listed on lae firm websites," Vinson & Elkins of counsel Paul Fredrick says. "I spend some time each day getting rid of junk mail, so one issue for law firms is the creation of firewalls to stop the junk getting through."

These laws have meant that privacy issues are now a way for some firms to differentiate themselves from others in seeking a competitive advantage.

"The chairman of Panasonic has said that he wants us to be the biggest and best firm in respect of privacy issues," Catherine O'Connell says. "This means we have to be very stringent in respect of our compliance obligations as it is a focal point of the corporation."

It is exactly these types of issues and ensuring that systems are in place to protect the integrity of your documents that keeps legal software company Workshare busy.

"These privacy laws have heightened the concern that firms have with regard to sensitive information leaking from an electronic document," says Samia Rauf, Workshare's Asia Pacific sales director.

There is a general view that Japan's new laws are more stringent than those in the US, but still not as tough as in Europe.

"While I welcome the provision of these new privacy laws, it has created some confusion and to some degree has been detrimental to starting or the continuance of business relationships," Miyake says.

The next generation and the future
"The impact of the opening up of the market, allowing foreign firms to form joint ventures with its bengoshi counterparts, will provide more opportunities for young lawyers and will see more young lawyers join foreign firms," says Kenichi Nakano, an attorney at law at Anderson Mori & Tomotsune.

He even adds wryly. "This will be not so good for Japanese firms, but will be good overall."

"The law and Japanese legal market is changing and becoming more competitive, and that is a good thing for in-house lawyers looking for advice from external counsel," says Tatsuya Iwakami, the head of the legal office at Siemens Asahi Medical Technologies.

The issue of the standard of recent graduates in Japan is a major talking point, with the opening of more law schools seen as a positive move.

"The quality of in-house practitioners in Japan is good, but many are not technically qualified as lawyers because they failed the notoriously tough bar exam," Michael Hancock says. "Most of them are as good as any outside lawyers, yet they are denied the chance to call themselves a lawyer which is a great shame."

Dr Wolfgang Pape, general manager of the EU-Japan Centre for Industrial Cooperation, noted that in the past many prospective Japanese lawyers went overseas to study because of the low admission rates in Japan, and now young students interested in the law will be encouraged to stay in Japan.

However, some of the old guard do not believe this change is a positive step.

"Japan is still in many ways a feudal society, and it is hard to change things too quickly," Matsuo says. "I am not so optimistic about law school reform as there are lots of hopeless people at law school. Many people think this, but do not say it. I am speaking the truth."

Following Mr Matsuo's words, discussion quickly moved on to emerging trends in the legal industry in Japan.

"While the environment in which lawyers operate is changing, the nature of lawyers is not," says Yoichi Yamada, the general counsel at GE Yokogawa Medical Systems. "As an in-house lawyer I am not focused just on legal matters, but also look at marketing, emerging business matters and growth and expansion strategies."

"In giving actionable advice to the company, an in-house lawyer needs the three skills of legal sense, business sense and good judgment in decision making," Miyake opined, to a general nodding of heads. "Without these qualities, you will not make a good in-house lawyer."

Those from the law firms, not surprisingly, talked about modernisation and recruitment as the challenging areas they will confront in the future.

"It is becoming a lot harder to recruit the right people, and a big issue for us is to introduce a system where we can measure applicants," says Hiroo Atsumi. "Recruiting may need to be different than just recruiting people from law schools."

Deck explains Bakers switch
At the beginning of March, Tokyo-based finance partner David Deck made the seemingly unlikely move from Linklaters to Baker & McKenzie. He tells ALB why he did it

When you're at the very top, there's only one direction in which you can head. So when news came through that securitisation guru David Deck had quit leading finance firm Linklaters in Tokyo on 1 March to take up an "opportunity" with Baker & McKenzie GJBJ Tokyo Aoyami Aoki Law Office, ALB wanted to know more.

With a clientele that includes Merrill Lynch, ING Barings Japan and Citibank, former Shearman & Sterling partner and Tokyo office head Deck specialises in securitisation transactions, leveraged lease financings, project financings, cross-border M&As, venture capital and private equity transactions.

Up until his spell with Linklaters, he had a history of lengthy service with his firms - enjoying some six years with Milbank, Tweed, Hadley & McCloy before the decade he spent with Shearman. In contrast, he clocked up a little over two years at Linklaters.

But he had been extremely busy during his relatively brief spell at Linklaters - overseeing, among other things, the firm's groundbreaking merger with a sizable team of lawyers - including two of the name partners - from finance firm Mitsui, Yasuda, Wani & Maeda to form Japan's first fully-merged firm.

Perhaps of more interest, however, is the fact that Deck has departed from the best-structured finance and securitisation team in town ... that is, the best team since the arrival of Paul Kruger, Mary Matson et al from Magic Circle rival Clifford Chance mid-way through 2005.

So just why did US-trained attorney Deck make such a move? The answer, it seems, may be in the question.

Deck himself talks of the "fabulous opportunity" of heading up Bakers' securitisation and asset finance practice for the Asia-Pacific region. "Bakers was in search of someone to lead the charge for securitisation in Asia," he said. "It has been doing a lot in this area and you don't find that same breadth of scope within securitisation at other firms. Here you have available to you deal expertise and tax advice, which is very important."

Through strategic hires, Bakers has been steadily building its global profile in the banking and finance area. Deck's recruitment follows those of other finance partners Clotilde Dirnat from Herbert Smith in Paris, Nick Tostivin from Linklaters in London and, in August 2005, Laurence Pettit from White & Case in New York. And then there was the four-partner structured finance team acquisition from Norton Rose in London.

Meanwhile, on the asset finance side, Deck says his practice has really developed into an Asia-Pacific one - adding that Bakers' network of offices and staff around the region [such as the 200-odd attorneys in China and the 60-plus attorneys in Indonesia, through Hadiputranto Hadinoto & Partners] could not be matched.

But while the merits of the role at Bakers may be self evident, Deck also speaks of some 'cultural' frustrations with his former firm.

One is the tendency for UK firms to keep much of the decision-making powers in the hands of London-based counterparts. Says Deck: "While Linklaters is still a London firm, Bakers is a truly international firm with a decentralised management."

To prove the point, Deck cites his colleague Jeremy Pitt, who retains the position of global head of banking yet also sits in the Tokyo office. And as if further evidence were needed, Deck tells of a global securitisation seminar the firm is holding in Paris at the end of March in which securitisation practitioners from the 70 offices across 38 jurisdictions will attend. "There's a great deal of sharing of information and the firm is expending a lot of energy doing this."

Another frustration is centred on the issue of multi-law capability, and the extent to which so-called 'international' firms claim to offer their global clientele a truly integrated US, UK and local law service [with the addition of the latter only possible in Japan since 1 April last year].

"When it comes to a US practice, Linklaters is still a UK firm. It didn't have any depth on the US side," says Deck. "So although it's predominantly a panel firm around the world on the UK side, it's not on the US side ... and I was therefore mostly practising UK law."

With three of his new Japanese partners predominantly covering the securitisation area, Deck is hoping to increase the number of foreign attorneys in Tokyo in this field and in asset finance. And as he completes his first month with the global behemoth that is Baker & McKenzie, he certainly has no regrets over his decision to move.

"Securitisation in Japan is a growing market, with the number of asset classes expanding," he says. "I'm really into doing first-of-a-kind transactions, such as when I did the first securitisation of commodities. And at Shearman, I worked on the first securitisation of non-performing loans with Morgan Stanley. So when you look at the deals that Bakers has done, the breadth is incredible. It has the technology within the firm to do any type of securitisation."

Business Partner
Itochu has one of the more effective in-house teams in Japan. At the centre of it is a progressive lawyer of considerable energy, Claire Chino. ALB met her at Itochu headquarters in the Aoyama district of Tokyo

"To be a pro-active legal department' is our motto," says Claire Chino, general manager of Legal Department No 2 and corporate counsel at the giant Itochu Corporation, a trading behemoth of over 4,000 employees and myriad products and services.

In a jurisdiction where in-house teams have traditionally taken a back seat rather than a board seat, the pro-activity of Itochu's legal department, personified by Chino, is impressive. Sitting at the corporate level of the organisation as a whole but internally split according to Itochu's seven 'division companies' - machinery, aerospace and multimedia, metals and energy etc - the legal team comprises 28 people. A mix of overseas-qualified/locally educated lawyers and secondees, these people aim to marry their corporate independence with divisional commercial objectives. "We pride ourselves on being both the accelerator and the brake," Chino says.

"If the geographical risk is too high, or if we feel we're moving into something prematurely, given the company's current level of expertise in that area, we'll flag that risk. But on the other hand, we'll try and get in early and help structure a deal to avoid any obstacles. It's unfair to let the business guys work on a big project - these things can take years - and then say no to it only in the final stages."

Thus the legal team is involved in decision-making at the divisional company level, where managers will have independence in investment decisions up to a certain point, as well as at the corporate level. (Whether or not the general manager with responsibility for the entire legal team sits on the board or not depends on the individual at the time; the current incumbent is an executive officer.)

Outside help - a win-win arrangement
While the in-house legal team is part of the fabric of Itochu, external lawyers are an important part of the fabric of the in-house legal team. Infused with secondees from several Japanese and international firms and equipped with retainer-type arrangements with a number of firms, the team outsources work with an eye firmly on that motto. "We don't just want a legal answer; we want pro-active advice on how we can move forward," Chino says.

The secondees and the retainers are there to achieve a "win-win" situation for all parties concerned, she says. The secondee program allows the external lawyers to get sufficiently close to the business. Equally, the Itochu legal team gains greatly by working closely with legal professionals. Chino prefers not to reveal the names of the firms her company usually engages, but does stress that mutual trust and a long-term vision are extremely crucial to the success of the secondee program.

For Itochu, Osaka firms are also significant players because the company has its roots in that city. Perhaps surprisingly, Big Four firms are typically instructed only two or three times a year "for the mega projects where we need big numbers of lawyers just to turn the thing around" or where "insurance" is required. Meanwhile, the retainer firms are often relatively small and the relationship is based on comfort with the relevant individual.

Foreign law
Itochu is a conglomerate with fingers in many foreign pies, and so it regularly uses Chinese firms in China, for example. Equally it has many operations to which UK or US law applies and for which international firms are the obvious choice. As for which international firm, Chino stresses the importance of the Tokyo offices of these international firms having a Japanese law capability.

She herself was vocal in advocating the further liberalisation of the domestic legal market that we have now seen, purely because she'd seen too many instances of clients receiving two bills where one would have been just fine. "When I was in private practice for an international firm, we'd have to be very wary of the extra cost to the client of bringing in Japanese lawyers, even though those lawyers were clearly needed," she says.

"Under the previous structure, the domestic firm would bill my firm and we'd have to present the client with two bills - hardly ideal. Now with Japanese and foreign lawyers in the same firm they can manage the workload a lot better and more efficiently and package the bill. It's very important to me now as an in-house lawyer that the UK and US firms we use regularly both have real Japanese law capability."

Chino sees Baker & McKenzie, White & Case, Morrison & Foerster and Freshfields Bruckhaus Deringer as being the standouts with regard to Japanese law capability, adding that she is yet to see the advantage of Linklaters teaming with a sizeable chunk of the erstwhile Mitsui, Yasuda, Wani & Maeda.

New landscape
Whatever firms she has around to help Chino sees her team's role, and by extension that of the whole profession in Japan, as being anything but static. This is not a surprise, given the current legal system reform underway. The newly established Japanese law schools will produce their first graduates next spring, and it is expected that the number of Japanese lawyers will increase steadily over the years. It is anticipated that the lawyers' scope of work will also change from the current emphasis on domestic work to cross-border transactions. Chino is hopeful that these new breed of lawyers will contribute to energising the Japanese legal and business communities as a whole.

And as the traditional company culture and ways of doing business in Japan gradually succumbs to globalisation and the pressures that a decade of stagnant economic growth bring to bear, so does the space that the in-house lawyer fills get wider. The recent catalysts are the high-profile Livedoor hostile takeover case and widespread reforms to the Companies Law.

"The function of the legal department is definitely changing. There's much more focus on what we call 'corporate legal' now," Chino says. "We have to advise management on defending hostile takeover bids; we have to advise the business guys on new business opportunities and new investment vehicles available as a result of the changes in the Companies Law; we have to figure out what kind of poison pills are going to be allowed and how we can best fit that into our strategy. A lot of things are changing."

But with that living motto guiding her through day after busy day, Chino is unfazed. "It's an exciting time to be a lawyer in Japan," she says.