Competing Views of Lawyers Can Affect Negotiations Between Firms

As I was helping a client try to conclude a long negotiation of a partnership agreement the other day, I was reminded about the huge gap in U.S. and Japanese attitudes toward lawyers and their role in business transactions.

Many years ago I worked for a Japanese trading company on a deal to provide hundreds of millions of dollars in project finance to a U.S. manufacturer. Legal fees for our side alone were several million dollars and the resulting documents filled nearly two feet of bookshelf space.

In contrast, the contract between my company and the Japanese heavy equipment firm with which we had teamed up was only two pages! My boss explained that there was a long history between the two companies and that any issues that arose would be worked out between the companies, so drafting a long contract was unnecessary. It was a good example of the differences between U.S. and Japanese approaches.

U.S. corporations, especially large ones, see lawyers as highly valued team members. They carry a broad portfolio of responsibilities, including corporate governance, commercial and financial transactions, intellectual property protection, litigation and human resources.

American executives capture their business relationships in contracts and see them as integral to their business strategies. Companies also fully expect to use the courts and litigation in the ordinary course of business, and, as a result, view their legal representatives as chief advocates doing battle on their behalf.

In contrast, Japanese companies see the attorney as an administrative specialist and scarce resource. (In 2009 Japan had about 27,000 lawyers while the U.S. had more than 1.1 million.) Japanese executives occasionally even express fears that attorneys may drive a negotiation off-track.

As in the case of my former employer, partnerships are always viewed in the context of long-term relationships, and customer-client responsibilities (or personal commitments by executives of the companies) can transcend whatever is written in a contract. Courts are seen as an undesirable last resort for resolving problems.

How should you navigate these different views of lawyers and contracts?

First, strive to create a business deal that works for both sides. A contract is useful to the extent that it helps both sides communicate their goals and needs. However, words on a page should reflect the business understanding rather than be used as a lever for unfair advantage.

Second, understand that a contract alone is never enough to create a strong partnership, especially in U.S.-Japan business. A good contract provides a clear roadmap for resolving areas of opportunity or disagreement between partners. However, a strong relationship requires give and take on both sides, regardless of what is written down – and the Japanese partner (in particular) will expect this.

Finally, seek professional legal advice sooner rather than later, especially if you are working for a Japanese company. Not only will a good lawyer help you understand and prioritize risks and opportunities appropriately, he or she can be a strong advocate for your position, an active manager of the negotiation process, and a key help to quickly concluding a successful agreement.

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