The National Pulse
Japan Is Set to Relax Foreign Partnership Rules, and Competition for Mergers Is On
Posted Jan 25, 2005 5:38 AM CDT
By Jill Schachner Chanen
The Japanese government this spring is expected to lift restrictions that have prohibited Japanese lawyers from becoming partners with foreign lawyers. The potential changes have been described as nothing short of seismic.
The deregulation follows the liberalization of the Japanese legal education system and a loosening of the annual bar passage quota—all of which have many bengoshi, or Japanese lawyers, nervous.
The Japanese bar has long mirrored traditional Japanese society: tightly knit, carefully controlled and extremely civil. Fewer than 500 lawyers are admitted to the bar each year, and most practice in traditional fields such as litigation or before government agencies. “The role of lawyers in this society is somewhat less ubiquitous than in the United States,” says John Steed, who heads the Tokyo office of Los Angeles-based Paul, Hastings, Janofsky & Walker. Admission to the Japanese bar has been highly selective, he says, with only 2 percent of applicants gaining admission to the Legal Training and Research Institute, which has long been the only method of becoming a lawyer, judge or prosecutor.
Steed says many bengoshi fear becoming partners with foreign lawyers will taint their legal culture. “The fears are of letting Japanese lawyers partner with these alien creatures who are proponents of lawsuits against McDonald’s for coffee being too hot,” he says. They also worry about competition from western lawyers, says L. Mark Weeks of the Tokyo office of Orrick, Herrington & Sutcliffe.
According to Columbia University law professor Curtis Milhaupt, foreign lawyers could become members of the Japanese bar until after World War II when the government required foreign lawyers to pass the Japanese bar and meet the same requirements as Japanese lawyers. “It made it virtually impossible for foreign lawyers to become qualified,” says Milhaupt, who directs the school’s Center for Japanese Legal Studies. Since then, many restrictions have been eased. But with globalization and the depressed Japanese economy, the government has been forced to confront further relaxation of the rules.
Greater Demand for Lawyers
Steed says many American and European institutional investors are investing heavily in Japan and have found few Japanese lawyers with the skills and experience to represent them. Foreign law firms have had to set up complicated joint ventures with Japanese firms to represent clients in these transactions.
Nonetheless, Steed says, the looming liberalization of the rules has forced some Japanese lawyers to realize they cannot compete with foreign firms in practice areas like capital markets. “I believe that sophisticated Japanese law firms are willing to acknowledge that deficiency and are willing to join up with foreign firms.”
The changes have set off a feeding frenzy among U.S. and European firms to hire key bengoshi. “If you look at any given practice area, because there are so few [experienced] bengoshi, we all know who we want,” Weeks says.
When the foreign lawyer practice rule changes were announced, many U.S. and British firms began jockeying for position and opened merger talks with Japanese firms. One of those dances resulted in the breakup of the old-line, well-respected Japanese law firm Mitsui Yasuda. After the collapse, Orrick was among the firms that hired the lawyers left behind.
Milhaupt says that breakup reverberates through Japan’s legal community and might make it difficult for Japanese lawyers to commit to foreign firms.
But Weeks disagrees. Before the merger fallout, he says, Orrick was struggling to hire Japanese lawyers. Senior bengoshi worried about leaving colleagues behind, and younger ones worried they would not get sufficient training at American firms. Attitudes changed after the first bengoshi joined Orrick. Now, Weeks says, “We are getting resumés every day.”