The role of in-house counsel in Japan has evolved significantly over for the past few years as the reluctance to embrace the concept of in-house legal departments has changed — largely out of necessity.
In-house lawyers have become more common in Japan as a result of judicial system reform intended to strengthen legal expertise to meet growing demands within corporate entities. According to a December 2018 article appearing in the Japan Times, the Japan Ministry of Trades and Industry recommended that Japanese corporations strengthen in-house legal departments to meet global benchmarks. Japan’s Ministry of Economy, Trade and Industry also has called on companies to establish a reporting line between management and in-house legal departments in two reports, issued in 2018 and 2019, respectively.
“In recent years, an increasing number of Japanese companies have been trying to establish a global reporting line connecting the legal department of overseas branches and subsidiaries with that of the head office,” said Hideyuki Sakamoto, president of the Japan In-House Lawyers Association and chief legal officer of the Gibraltar Life Insurance Co. in Tokyo. “As most members of overseas legal departments are qualified lawyers outside of Japan, it would be better for headquarters to have a team of Japanese in-house lawyers.”
Additional contributing factors include an increased focus on international merger and acquisition activity, and the emerging prominence of the Chief Legal Officer (CLO) within the Japanese in-house legal function.
CLO in Japan
A CLO in Japan is someone who coordinates the functions of the legal department and is mostly likely to report to the Chief Administrative Officer (CAO). This is distinct from North American or European CLOs where the majority report to the Chief Executive Officer (CEO) and are widely viewed as strategic advisors to the company. Executive leadership in Japan is less likely to seek input from Japanese CLOs on business decisions, operational issues, internal public policy or risk areas. An empowered CLO enables a reduction in external legal spending, serves as an advisor in areas beyond legal matters, and supports a culture of legal and ethical compliance. This growing influence ensures the CLO is well positioned to proactively guide the company through change and minimize exposure to risk associated with regulatory and compliance issues in today’s global business environment.
Japan is subject to the shifting global environment and is at the forefront of global change due to its ties to the Asian region. Research shows that the role of CLOs in Japan is influential within the organization across issues impacting Corporate Social Responsibility, indicating readiness to accept their input beyond core legal functions. As the Japanese in-house legal function and role of the CLO continues to evolve, global shifts across the in-house sector will further influence Japanese in-house functions and roles in the near future.
Demand for In-House Legal Expertise Will Continue To Grow
The increased value placed on in-house legal departments in Japan is largely due to heightened awareness of legal and governance risks to international businesses, triggered by violations of overseas compliance regulations that have led to charges of accounting fraud and falsification of data. As a result, in-house legal departments in corporate Japan, once small and not highly regarded, have grown substantially over the past decade due to an increase in regulatory lobbying activity and the need for globally united legal departments.
As the profile of the country’s corporate legal departments has risen over the past decade, the number of in-house lawyers in Japan has skyrocketed. Below are a few statistics from the Japan In-house Lawyers Association, which are relatively small compared to Western corporations considering Japan’s large conglomerates and highly developed economy:
Total Japan Companies that Employ In-house Lawyers
Total In-house Lawyers Employed by Japan Companies
Lawyers at major Japanese conglomerates point to an increased reliance on in-house counsel for work related to lobbying for deregulation and rulemaking in highly regulated industries. “Historically, this type of work was handled primarily by senior management—not by legal departments”, said Masako Takahata, general counsel of the Japanese energy and environmental advisory firm Industrial Decisions Inc. “But it now makes more sense to have in-house lawyers handle such work because most of the Japanese government officials the companies deal with are also lawyers”, said Takahata, who also serves as director and chair of the international committee of the Japan In-House Lawyers Association.
Hiroki Hatakeyama, in-house counsel at Yahoo Japan, agrees. In his role as senior manager of the company’s public affairs division, he deals with government agencies and is involved with policy. “The number of cases in which government agencies and private enterprises, including digital platform operators, have worked together on the specifics of regulations and rule-making is growing,” Hatakeyama said, adding that the heightened role of the in-house lawyer in these situations has also given them greater say within the company. Yahoo Japan, a front-runner in Japan’s highly regulated IT industry, has rapidly increased the size of its in-house legal department in the past decade. Other companies that have seen their in-house legal staffing grow include e-commerce platform operators and financial institutions such as Line Corp. and Sumitomo Mitsui Trust Bank.
And growth is likely to continue particularly in sectors that deal with data and privacy. E-commerce giants such as Yahoo Japan have faced growing compliance challenges related to personal data management in recent years as Japanese authorities have tightened regulation of trading on digital platforms. Last year, for example, Japan implemented the Act on Improving Transparency and Fairness of Digital Platforms—a law that requires digital platform providers to comply with a host of new regulations.
“Yahoo engages in a wide range of internet-related businesses and items requiring legal consideration have become particularly complex,” said Hirohisa Fujiyoshi, vice president of Yahoo Japan’s legal division. And lawyers, he explained, are best equipped to meet the challenge. “There is a growing need for employees with general legal knowledge in addition to a strong logical mindset,” he said.
REMOVED IN PLACE OF CHARTAs of June 2022, 1,372 companies in Japan employed in-house lawyers. Ten years ago, only 458 did, according to in-house lawyers association data. Similarly, the number of in-house lawyers in Japan totaled 2,965, according to the Japan In-house Lawyers Association. Ten years ago, there were only 771.
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