Notwithstanding debates regarding the business models of international firms, referral agreements and increased competition, the consensus is that DLFs still dominate the legal sector in Japan. A glance at the empirical evidence seems to support such a view. After 22 years it is DLFs who are the largest, who have the greatest pulling power for domestic clients and local graduates and, arguably, are the most profitable.
Dixon says this is due to size and age-old issues like fees and legal costs. “The bulk of international work for the last several years in Japan has been inbound; hence domestic lawyers are key to serving clients. Many transactions require large numbers of attorneys – merger due diligence, large scale securitisations; few foreign firms have sufficient numbers of Japanese attorneys in a sufficient variety of fields to provide full service for these large transactions,” she says.
A theme running through this decade has been large-scale consolidation among DLFs most of which have sought critical mass to maintain their competitive advantage over each other and the threat of foreign firms. It started with Nagashima Ohno’s merger with Tsunematsu Yanase & Sekine back in 2000, and was followed by others involving the present big four, such as Anderson Mori’s combination with Tomotsune & Kimura, and Mori Sogo’s merger with Hamada & Matsumoto. The result, when including the latest merger of Asahi Koma & Nishimura & Partners, is that each of the Big Four now boast in excess of 300 lawyers.
Fees are another area where DLFs still hold sway. “Foreign firms are rather expensive,” Dixon says, “with hourly rates for junior associates matching the hourly rates of very senior attorneys in Japanese law firms. Although some foreign firms charge a lower rate for their Japanese lawyers compared to their non-Japanese lawyers in order to remain somewhat competitive with local firms, they rarely match the market completely.”
They are also unable to match the local firms in terms of their ability to attract the nation’s best and brightest lawyers. “Japanese lawyers remain very independent,” Ishiguro says. “When they finish university, they look to come and work at one the Big Four firms – this has been a trend of the last decade and it will continue in the future, not least of all because of some of the difficulties that international firms are facing in their US and UK headquarters. Domestic firms are the preferred choice because of this and the high quality work we can offer.”
Hara also notes that despite the international appeal some FLFs operating in Tokyo may have, DLFs continue to attract young Japanese lawyers because of their ability to offer the same high calibre international work as their foreign counterparts.
“Although many Japanese law firms have been handling a lot of domestic work lately, we still offer our lawyers the ability to work on complex crossborder transactions and allow them to get the international exposure that is considered important that way,” he says. “In choosing to come to a domestic firm they can see a clear path to partnership and progression – this is not always clear in international firms.”
However, lawyers at FLFs said that even if young lawyers wanted to come on board, there would be no guarantee that international firms would employ them with one partner stating that the technical ability and English language proficiency of some Japanese graduates is not comparable to that of US or UK law school graduates.