Lawyers Have Day In The Sun
When Nomura securities holds its annual general meeting this month in Tokyo, the proceedings will be monitored by some eagle-eyed lawyers. In other countries their presence would hardly merit comment. But in Japan, where lawyers have long been all-but invisible, it represents a striking first.
Nomura, Japans largest securities company, has hired outside lawyers for the meeting in an effort to fend off complaints and legal actions by share holders. Nomura is also hoping that the presence of lawyers will help improve its reputation for transparency after a recent scandal over its payments to corporate racketeers.
Lawyers appear to be gaining a new role in Japan as the country pushes ahead with deregulation. The issue cust to the very heart of the cultural tensions thrown up by the Japanese governments plans to reform the financial and other sectors.
The system of corporate culture in place since the second world war has given lawyers a far lower profile than in other leading industrailised countries, notably the US. Although Japan is awash with business rules, most are little more than a symbolic front. True the government uses the law to punish individual crimes. But important business decisions and conflicts are usually resolved behind the scenes without any formal contracts or public law courts.
This system was effective in the clubby atmosphere of traditional Japanese business. Individual shareholders had little incentive to launch legal suits against companies and their directors since corporate governance tended to be exerted by the banks that owned companies shares and lent them money.
Many Japanese are still proud that their country is different from western societies, sometimes disparagingly called keiyaku shakai or contract socieities. As one senior businessman says: Japan is just not like the US. We do not go around wanting to sue each other. We do not want that here.
It is far from clear, however, whether this clubby approach to business will continue to suit the market based, liberalised economy that Japan now aspires to become.
Some foreign lawyers do not think so. Mr. Alexeander Pease, partner with UK law firm Allen and Overy in Tokyo, argues that Britains Big Bang of 1986 shows financial innovation occurs when there is a clear, fair and impersonal system of law. This must now happen in Japan, he says.
Hitoshi Yamada, a partner with the Kojimachi Chuo law office, agrees. Japanese companies increasingly want to use legal solutions rather than those given by governments and bureaucrats. He adds: Shareholders also want to use the law more - the number of shareholder lawsuits has exploded.
Evidence of this is on display in Osaka, Japans second financial centre, where leaflets have been circulated to drum up support for share holders rights. A campaign group has been launched by a dozen lawyers and accountants in protest at a recent wave of corporate scandals in Japan.
The group, which has around 150 member who own shares in 296 companies, already has some legal successes to its name.
It recently forced the directors of Takashimaya, one of Japans most prestigious retailers, to pay damages to the company to compensate for payments to corporate extortionists. It has also won bribery cases against the Hazama and Kajima construction companies, and is now suing directors of Sumitomo Corporation for failure to prevent last years copper scandal.
The activities of Osakas lawyers have inspired similar legal action by shareholders against the directors of Nomura. Dal-Ichi Kangyo Bank, which is embroiled in a similar financial scandal, is also facing threatened action.
Since 1993, when a change in the law made it easier for shareholders to sue company directors, 270 suits have been brought. The recent shareholder actions look set to introduce a level of corporate accountability not previously associated with Japan, says Mr Andrew Roberts, a partner with the UK firm Linklater and Paine. We expect that foreign investors will be encouraged by this trend.
None of this quite adds up to corporate revolution. Nor does it mean that Japan is ready to embrace an Anglo-Saxon legal culture. Suits so far have been brought on behalf of small shareholders rather than large institutional investors or main shareholders such as banks.
Neither do business leaders appear to welcome the trend. The Keidanren,
Japans mighty business federation, is lobbying parliament to make it harder to bring shareholder suits.
And there is still one very practical obstacle to rapid change - a shortage of lawyers. Only 2,000 judges, 1,200 government prosecutors and 1,600 independent lawyers are qualified to operate in Japan. The government is trying to rectify this, by raising the number of students permitted to pass the law exam each year from 700 to 1,000 in 1999.
This increase will probably be too slow to cope with demand. The scarcity is already causing strains: most cases take several years to pass through the courts and financial companies complain of a shortage of lawyers in specialised fields.
If other companies wanted to copy Nomura by hiring lawyers for their annual meetings the system would not be able to cope. Because most Japanese companies hold their shareholder meeting on the same day, there probably arent enough independent lawyers to attend all the meetings, says one observer. I think this shows we need more lawyers.