Changes in the role of lawyers and corporate governance in Japan - how do we measure whether legal reform leads to real change?

• Published date: 22 March 2009
• Author: Aronson, Bruce E.
• Date: 22 March 2009

There are certain Western schemers, envious of Japan's ability to keep moving ahead.... These schemers have plans for infesting our society with hundreds of thousands of men cunningly trained in the arts of stopping all constructive activity, of bringing entire societies to a dead standstill. Yes, I speak of lawyers.

[Due to numerous reasons, including] expansion of the role of the legal profession as "doctors for the people's social lives," ... greatly increasing the legal population is an urgent task.... The essential task is to secure and improve, both in quality and in quantity, the legal profession needed by the people of Japan. (2)

INTRODUCTION

Japan's dramatic rise as the first non-Western nation to modernize successfully and to compete economically with the United States had a tremendous impact on American thinking in the 1980s. Japanese automobile manufacturers out-competing Detroit's car makers somehow seemed more threatening than any effort by similar German companies. In addition, Japan seemed to be addressing issues of modern society more effectively than the United States, and numerous American commentators began to search for the "secret" to Japan's success. Unfortunately, many of the "secrets" uncovered by popular commentators involved supposedly ingrained Japanese cultural traits, such as informality, cooperation, and consensus, which were allegedly much more efficient and productive than our complicated systems of checks and balances, markets, and legal rules. This unchanging culturalism frequently substituted for, rather than provided, any real analysis of Japan's strengths. It was also of little value as a prescription for America, as it was impossible to import. It did, however, sell many books and newspapers.

Fortunately, John Haley met this critical need for scholarship reflecting a more reasoned and thoughtful analysis. He was uniquely qualified to undertake this daunting task and to light the way for a generation of scholars to follow his path. Starting in the 1970s, well before our current emphasis on empirical and interdisciplinary approaches, Haley utilized a number of current methodologies to challenge cultural stereotypes and analyze the Japanese legal system and society.

His seminal work, The Myth of the Reluctant Litigant, (3) remains the gold standard for comparative studies due to its integration of three highly useful approaches. First, Haley used empirical data to challenge conventional wisdom. His data indicated that it was a lack of legal infrastructure rather than a cultural predisposition against the use of litigation that accounted for relatively low litigation rates in Japan. Second, he employed a historical perspective, arguing, for example, that if conciliation procedures were made mandatory in the interwar years for the purpose of suppressing litigation and societal upheaval dating from the 1920s, it was unlikely that a cultural reluctance to litigate was the cause of a decline in litigation in the postwar years. Third, he looked beyond a bilateral comparison between the United States and Japan to examine available data on litigation from a variety of countries, concluding that while Japanese litigation rates were low, they were not extraordinarily so; if anything, the United States was the outlier due to its unusually high rate of litigation.

Even after slaying the culturalism dragon (in the academy, even if not necessarily in popular discourse), Haley has continued to examine the relationship between the legal system and society (and has not shied away from using the term "culture"). He has valiantly attempted to describe what makes Japan different from the United States and other countries, and has also spent a great deal of thought on the question of continuity versus change in Japan. (4)

While often reminding us of continuity when others emphasized change, Haley has also been active in the debate about what would constitute real change in Japan. In a 2005 article on the subject of whether there is a "Heisei transformation" (the "Heisei article"), (5) Haley identifies three areas--electoral politics, the legal profession, and corporate governance--that would need to change in order to effect a transformation of Japanese society. (6) He defined what would be a transformational change in each of these areas and concluded that while we may be in an era of Heisei reform, there has been no Heisei transformation.

While I do not necessarily disagree with any of Haley's conclusions in his Heisei article, that article highlights the difficulties we encounter in discussing the question of continuity versus change. One difficult challenge, which Haley has begun to address in his recent work, is the appropriate method for measuring and evaluating such change. (7) Research efforts either tend to focus rather narrowly on case studies and emphasize change that has occurred, or, conversely, look for a complete systemic transformation and, finding none, conclude that all of the new laws and activities do not constitute any significant change. In either case, the choice of a focus or standard for measuring change seems highly outcome determinative.

One result of this binary approach is that conclusions are fairly predictable depending on the standard or lens employed: there is much reform, but never any transformation. This is an unsurprising and likely accurate result if we only view change through a very narrow or very wide lens. Systems rarely, if ever, transform in the absence of war and occupation: evolution, rather than revolution, is the norm. On the other hand, in reality, incremental change may be highly significant to individual actors (businesses, consumers, etc.) in a society. The perplexing challenge is to find a way to reconcile the "macro" view of systems with the "micro" view of real world actors.

This Essay explores the criteria for judging the significance of change brought about by legal reform through the examination of two significant areas in Japan about which Haley has written in the Heisei article and elsewhere: the role of lawyers and corporate governance. Although the prevalent view is that no transformational change has taken place in either area, altering the criteria or the weight assigned to them can significantly affect the conclusion. If we focus on the role of elite lawyers and the expansion of their role in society, there arguably is a significant change occurring in the legal profession in Japan. With respect to corporate governance, a greater emphasis on the monitoring of management, rather than on the often used maximization of shareholder value, might still lead to the same conclusion that there has not been any system-wide transformation, but may also better highlight important changes in specific areas of corporate governance in Japan.

I. THE ROLE OF LAWYERS

The legal profession has been an ongoing focus of Haley's work. In The Myth of the Reluctant Litigant, Haley characterized the traditionally small number and limited role of lawyers in Japan as parts of the lack of legal infrastructure that formed an institutional barrier to litigation. (8) More broadly, one of his consistent themes has been that, due to a lack of formal enforcement power and mechanisms, many actors (the state, the judiciary, business) resort to informal, extralegal measures to conduct their activities, and that this phenomenon is a distinguishing characteristic of Japanese society. The Japanese legal profession and legal education system have recently undergone a great deal of reform, (9) creating a pressing need to evaluate the significance of such reform.

What would constitute a transformation of the legal profession? In his Heisei article, Haley mentions three criteria: (1) a significant increase in the number of lawyers and demand for entry into the legal profession; (2) an improved professional legal education, provided by new graduate-level law schools that go well beyond mere preparation for the bar exam; and (3) societal recognition of the expertise and value of the new law school graduates, as compared with generalists who have completed an undergraduate degree in law, so that these law school graduates will find new avenues of employment in business and government. (10)

This is a reasonable set of criteria for attempting to measure any transformation in the importance of lawyers and the law in Japanese society. However, the first criterion, the supply of lawyers, should be supplemented by incorporating a corresponding element for the demand for legal services. The second criterion, legal education, which measures an important cause or condition of possible change, could be de-emphasized in favor of an attempt to look at actual results. The third criterion, new positions in business and government for law school graduates, clearly considers results but looks at long-term issues that would represent a complete "transformation" of the legal profession. In order to think about the possibility of current or ongoing significant change in the legal profession, I would instead focus more narrowly on the role of lawyers, specifically on the question of whether the role of lawyers and the range of their activities have expanded significantly.

The demand for legal services is a critical factor that underlies any significant change in the legal profession. (11) Lawyers tend to be conservative and "follow the client"; it is unlikely that the supply of legal services would increase in anticipation of a future increase in demand. (12) The legal profession is important precisely because of this phenomenon--the legal profession would gain in importance only as a result of other societal changes that create new, significant demand for legal services.

An expansion of the role of lawyers and the range of their activities is probably the best proxy for measuring whether business and government use lawyers (and care about the law) as opposed to their traditional resort to...