In-house legal departments, once small and of little importance in corporate Japan, have grown substantially over the past decade, prompted by an increase in regulatory lobbying activity and the need for globally united legal departments.
“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 the headquarters to have a team of Japanese in-house lawyers.”
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. As of June of this year, 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.
To be sure, these numbers seem relatively small compared to Western corporations, especially considering Japan’s large conglomerates and highly developed economy. But the reluctance to embrace the concept of in-house legal departments is changing—largely out of necessity.
The move toward a globally connected legal department, for example, has been propelled by heightened awareness of legal and governance risks to international businesses, triggered by overseas compliance violations and acquisition failures, according to Sakamoto. In addition, several big-name Japanese corporations, including Toshiba, Olympus Corp., Kobe Steel and Nissan, have also been caught up in scandals in recent years, ranging from accounting fraud to falsified data.
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.
Lawyers at major Japanese conglomerates also point to an increasingly greater reliance on in-house counsel for work related to lobbying for deregulation and rulemaking, especially 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, a Japan-qualified in-house counsel at Yahoo Japan, agrees. In his role as senior manager of the company’s public affairs division, he is involved with policy and deals with government agencies.
“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 a greater say in the company in areas such as rule-making, he added.
As of June of this year, an estimated 1,372 companies in Japan employed in-house lawyers. Ten years ago, only 458 did, according to in-house lawyers association data.
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 the growth is likely to continue, especially in sectors that deal with data and privacy. E-commerce giants such as Yahoo Japan have been facing 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 regulations it had not faced previously.
“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 able to meet the challenge.
“There is a growing need for employees with general legal knowledge, in addition to a strong logical mindset,” he said.