【河井】 ありがとうございました。それでは基調報告その2をLaurence W. Batesさんにお願いします。この方は、簡単にプロフィールをご紹介させていただきますと、ハーバード・ロースクールを1986年に修了され、ニューヨーク州で1987年弁護士登録をされました。ポールワイス、モリソン・フォースターなど著名な法律事務所でニューヨーク、北京、東京で執務をされたのち、GEジャパン及びアジアで22年間、GEジャパンのジェネラル・カウンセル、GEキャピタルのジェネラル・カウンセル、GEメディカルシステムアジアのジェネラル・カウンセルなど要職を歴任された後、2014年4月より、LIXILグループコーポレーション、シニア・マネジメング・ディレクターおよびチーフ・リーガル・オフィサーの立場にあられます。それではよろしくお願いいたします。（拍手）
【Bates】 Thank you very much for the kind introduction, and the invitation from the JFBA to be here today. It’s delightful to see so many familiar faces, from 30 years of working in business and in the legal profession in Japan.
I could, in the limited amount of time I have, not possibly talk about all of the roles that Homma-san just described in his presentation. So I thought I would focus on three aspects of the role of general counsel, that are particularly important in my experience today. Including first, compliance, and using that with some concrete examples to show the dual role, as I see it, of the general counsel as the guardian of the company’s reputation on the one hand, and on the other hand as a true business partner to the business. And then I would like to share with you a few thoughts about the role of the general counsel as a business leader and a manager of a legal function. And finally, time permitting, I would like to talk about this role of external affairs and government and regulatory affairs and what the general counsel can bring to that kind of work.
Well, I thought I should share with you what actually caused me to join GE back in 1992.
I remember in late 1991, when I was living in Japan, I was actually teaching in Todai at that point. I heard a television story about salespeople who had been arrested by the Japanese prosecutors at a subsidiary of GE called Yokogawa Medical Systems, and at the same time, two university professors, I think at Chiba National University and Yokohama Municipal University, who had been arrested at the same time for bribery.
And I didn’t even know that GE was involved in this. I didn’t know that GE had a medical systems business. But literally one week later, I received a phone call from a recruiter, asking me if I would be interested in a position with GE in this subsidiary.
Three months later, I entered the company, and what I discovered was an incredibly demoralized place.
I was the first general counsel to be invited into the company, and what had happened is these arrested people were on trial. They had actually spent time in jail pending their charges, and ultimately they were convicted and given suspended sentences.
As tragic as that was, even more poignant to me was the fact that the company’s business had been cut in half because of sanctions that were imposed by the Japanese government, this is mostly a government type of business or was at that time, and business had been cut in half and it was a complete shock to the system of the organization.
So I think GE, being a publicly listed US company, kind of realized it was late to the game to accept the way that it had traditionally done business in the United States as also being necessary to do it the same way, with the proper legal culture, in a subsidiary in a place like Japan.
So, the expectation I think in hiring a US lawyer, although I was a very young lawyer with not a lot of experience in this area, but the expectation I think was that we would turn the house literally upside-down, and understand in detail every possible risk that could affect the business. And bringing to that effort the mindset of a US company that always thinks about the extra-territorial application of its laws outside of its own country. And I think in going through that process, I think the expectation was also that the US law is very extra-territorial in its application, including the anti-bribery law, the anti-trust law, and the trade sanctions law. And to bring this mindset that always there could be a US investigator behind you, even though this was a Japanese bribery case, there could be a US investigator who is looking at the risks that you might not be effectively dealing with in foreign subsidiaries.
So I think this is kind of the safeguarding the company’s reputation angle in GE’s thinking at the time, in bringing me into that situation to really understand the risks and figure out a way to manage them. But it also required being a business partner, because one had to set up the infrastructure and the process in order to do that.
It required the safeguarding of the company’s reputation kind of required legal skills and judgment skills, but building the infrastructure as a business partner, I think, required general leadership skills and diplomatic skills. Because it fundamentally meant that I had to be a change agent to help change the culture of the company.
I remember so many difficult discussions with the business leadership team or these compliance committees that we formed. And I remember also staying awake sometimes at night or waking up at night. Could I really succeed at this job and this expectation of changing the culture? Can a company do business in a new way? I had my doubts.
In those days, some of you who are older in this audience might remember, it was very common to do all sorts of entertainment with Japanese government officials or the employees at state-owned enterprises or universities. That was very common. It was long before the National Public Ethics Law that came into effect in 1999.
And so when we proposed among many changes that we were going to actually almost completely prohibit entertainment to government officials or employees of publicly-owned hospitals, it was kind of a shocked feeling among the management. Could we possibly do business and could we possibly compete against those who did business the old way?
So it took time, but it taught me that ultimately, we would have a competitive advantage vis-à-vis a competition if we were ahead of the curve, because customers and partners would ultimately feel prouder, happier to deal with a company like ours. And when our business people started to feel that way, then I felt I had been successful in my role as a general counsel.
So I start with compliance because my view of it, in my 22 years in GE, and now my three and a half years in LIXIL, even though Homma-san called it a quasi-legal function, I actually feel it’s fundamental to the DNA of a successful general counsel.
And you know, I might note that I think in Japan, many of the companies that I have seen put in place the role of general counsel are those that have faced a crisis similar to what GE faced at that time. And so it’s often compliance that changes the mindset of the management to actually put a general counsel in place, unfortunately.
Some people say to me, and I think it’s in the excellent report that Nakazaki-san have shared with me, some people say that there may be a trend, even in the US, to separate the compliance function from the legal function. And that has happened in some US companies, especially financial services. And I think that’s due to the so-called Dodd-Frank legislation that was adopted in the wake of the 2008 financial crisis.
And is this the right thing to do? I’m highly suspicious of it, even with financial services companies, because I think the reality is, and it was true in GE when I was based in Japan in a subsidiary, we did not have sufficient legal resources, let alone compliance resources if they are separated, outside of the United States, in order to have the luxury of separating them. I think you would lose the skills that a lawyer could bring to the game. And so, even now, in LIXIL, it’s even more so for me, because in many of the markets, we operate in 140 countries now. We don’t have lawyers in most of those countries, and to the extent I can build the team, country by country or region by region, I’m not going to hire both legal and compliance to start with. I’m going to hire a smart lawyer who can be expected to manage compliance as well.
I guess the last thing I’ll say about compliance right now is, even if I did have that luxury, even if I could separate legal from compliance because I have enough resources in legal and enough resources in compliance, which is not true, but let’s assume that I did, I think I would lose something if my lawyers did not feel responsible for compliance. I want my lawyers who do M&A and who do IP or who do litigation to always be thinking of compliance as part of their jobs.
So, that’s compliance, which obviously is very near and dear to my heart. But I think another very significant aspect that Homma-san touched on of being an effective general counsel is being a business leader in a large organization, and being able to manage a function within that large organization.
And it starts, perhaps, with the position and Homma-san talked a lot about this, but the position that the general counsel sort of occupies in the senior management of the organization. Whether the general counsel sits on the board or not, can he really be an effective general counsel if he is not reporting management-wise directly to the CEO? I think these two things are very important to consider when identifying a role as a general counsel.
In LIXIL we have a holding company, LIXIL Group Corporation, and then we have, it is an Iinkai Secchi Gaisha, so we have a committee-based system, and we have a monitoring mechanism with a Shikko Yakkai of executive officers below the board. So we have the group board and we have the Shikko Yakkai of the LIXIL Group. And as far as the Shikko Yakkai is concerned, it was very clear from the beginning that I would be expected, in this general counsel role, to sit on the Shikko Yakkai, of which there are ten members today, along with the CFO, the Chief Technology Officer and the like. So ten officers including the CFO sit on that board. And I think the expectation is, because everybody who sits on that Shikko Yakkai has, or course, a fiduciary duty to the company and to the shareholders, I think the expectation is, we’re going to bring our brains and our judgment, whether we’re a lawyer or a finance officer, whoever we are, to the important decisions that are made by that body.
Yet the lawyer also, the general counsel sitting on that board or that Shikko Yakkai, also brings a particular expertise to the room, to the table.
And I think there is always a question whether the lawyer has explicit responsibility for being what, in the United States, would be called the “company secretary.” In the US it would almost always be the case that the general counsel plays the role of the company secretary and is responsible for building the agenda for the board meetings to make sure that the right issues are on the agenda, and for managing the minutes of those meetings.
I note that in Japan, that still seems to be managed often by other functions at the board level, and even in my company, at the group board level, the chairman has a secretariat office, but we cooperate very closely, and then at the Shikko Yakkai level, my team handles the minutes and the agendas.
And I think there’s one more aspect as a general counsel to being managing the minutes of the meetings, or at least having the opportunity to review them before they’re published. Because in especially US litigations, remember I mentioned investigations and extra-territorial application of the law, but the minutes are often the first things that the investigators will discover in their investigation process. And I think it’s really important to document important decisions in a proper way.
But there are many aspects to the management role beyond the sitting at the board table and handling the company’s secretarial affairs. Think of it another way. Think of it as managing an M&A transaction, for example.
I think in the old days, when I worked in the law firm here in Japan, and we would support M&A transactions with Japanese colleagues of the firm. Often we were dealing not at all with the legal people in those Japanese companies, but only with the business guys who were driving the deal.
I think that has at least in my experience changed completely in the organization I am in today and I have an M&A legal team in my organization reporting to me, who handle every aspect of the transaction from beginning to end. That includes selecting the law firm at the beginning and managing the law firm, to the initial structuring from tax and other perspective of the deal, to the due diligence including compliance, and to all of the documentation and negotiation. The legal team is really driving all the different stakeholders working with the BD leader of course, but to come together and see the transaction through.
And I think there’s really two skills that the lawyers who lead that deal have to bring to the table. It’s communication skills on the issues, and most of these transactions now are global and in English, and so communication skills in both English and Japanese, and project management skills, bringing many stakeholders together.
And so I just used the M&A example as one which is really indicative of the leadership role that a lawyer today has to take, either as the general counsel or working on the general counsel’s team.
And one other thing I would add to that, it’s business acumen as well. If the lawyer is not close to the business, and doesn’t understand, for example, when drafting a non-compete clause, which can go on for several pages, exactly how your business operates in respect of the competition in whatever market you’re talking about. That’s a perfect example of where you have to tie your leadership skills, your legal skills, but to the actual business situation.
And I guess the last thing I would like to talk about with the management role of the general counsel is HR Management. And building a team and hiring the right people and developing them.
I’d say, as busy as I am and it’s been through my GE career and it’s been through my LIXIL career, as busy as I am day to day, I find there are certain days that I spend, that I do nothing except HR matters.
You know, even in GE, it was a mindset change to go out into the market and to hire excellent lawyers, Japanese bengoshi or other lawyers like some of you sitting in this room today. It was a mindset change to get the company to think that way.
Often, the HR people will bristle, will be a little bit surprised sometimes when they see the style of certain lawyers, lawyers are often a little different from a lot of other people in their personalities. In Japan, I think lawyers have pursued lawyer careers because they can be more independent as compared to a company. So there’s a style issue that is not familiar often inside of a Japanese company.
And then besides the style issue, there’s also literally a compensation issue. And we constantly have to struggle to provide definitions within the grading system inside the company to be able to hire the right skills in a lawyer that we need to add to the team. So there’s always a debate over compensation.
And bringing those people in creates other challenges, because we need to get them to be able to work effectively with the team that’s been there in the case of a Japanese company for a long time, many of whom are not admitted lawyers, and how to get those people collaborating and leveraging each other’s skills. It’s a constant challenge.
And so I find myself spending a lot of time dealing not just with the HR function, but with the individuals in the organization, doing things like skip level meetings to understand what my direct reports of my direct reports are thinking without their bosses presents, getting people to talk, to share their concerns, their worries about what’s going on in the company. I have to spend a lot of time doing that, and I think that is part of the role of a manager being a general counsel.
Maybe for my last few minutes here I could talk about government and regulatory affairs, which I think is still in many general counsel roles, certainly here in Japan, but even sometimes in the United States, not considered a natural part of the legal function. So it’s kind of a new area for a lot of general counsel.
So, essentially, the way that I learned it in GE from Ben Heineman whom Homma-san quoted earlier, the role of the lawyer, as he saw it, when he was developing the legal function in GE, had to extend beyond compliance, as important as that was, beyond making sure that the proper legal advice was being given to all the business functions and the company was doing the right thing. But also, how do we shape the external environment that we operate in? How do we change the external environment to affect the policy debate around laws and regulations.
And you know one of the things that I learned along the way of doing that aspect of the role was that you have to be able to communicate what is good in a win-win way for not just the company or the industry, but for the country or for the government policy or what have you. It can be given to all the business what is my company’s interest. It’s got to be kind of a win-win approach to come up with the right policy or legal change.
And he thought, and I agree with him, that the skills that a lawyer brings are the ability to look at complicated legislative drafts, complicated regulations, and understand the policies behind them, and how they can be shaped in a way that creates a better situation for everybody.
And there’s one example, there’s many examples in my career where we’ve done these kinds of things, but there’s one example that I remember from GE in Japan maybe twelve or fifteen years ago, which related to the road vehicles transportation law of Japan.
This is actually a very simple one. If you buy a car, you have to have the owner registration and the end user certificate in the car, and all the details need to be registered with the local bureau.
But GE in its GE capital business used to have a company called GE Fleet Services, which used to lease large numbers of automobiles to end users. So it was a leasing business for automobiles where there would be more than 100,000 vehicles in a particular company under one owner.
And so every time we did a restructuring or did an acquisition or wanted to change a name or what have you, in theory, we were supposed to take away the keys from all of the users of the cars, and try to get the re-registration details done within 15 days. And you can imagine for 120,000 vehicles or whatever, this was an absolutely impossible regulation to comply with.
And as a lawyer, we don’t like to be non-compliant with the law. So we worked on a strategy with the Ministry of Land,Infrastructure,Transport and Tourism, MLIT, to change the law, and the argument was that, this is an industry that is consolidating, it will be good for competitiveness of this industry to promote M&A in this industry, so this would be a good thing to do. And after a period of time, it took like a year and a half as I recall, we were actually able to get the law changed with the support of the ministry. And I think that could only have been led by a lawyer with that kind of mindset.
And another aspect of being able to carry out this role as a general counsel of government relations, I think is being very involved in relevant industry associations. Of course professional associations like the bar association too, but industry associations relevant to your business.
So, in GE, I was encouraged to spend a significant amount of my time working with, at that time, the American Chamber of Commerce in Japan, as a way of building alliances through good relationships with other foreign companies operating in Japan, and advocating for legal and policy changes with the Japanese government.
So often, we would actually write position papers, which were very legally intensive, on issues of concern, to GE, and put them through a committee in the American chamber, and we could usually do that very quickly. Keidanren is too, but the Keidanren takes a long time. But the American chamber, we could get a policy position out there within a few weeks, and already it would be in the public debate.
So, I guess the last thing I would say about this is in 2013, which was my last year at GE, I was actually elected president of the American Chamber here in Japan. And one of the big things we were very involved in working on for many years, I’m sorry to say now because it’s dead for the moment, was the TPP. And that was an incredibly engaging debate for many years, to try to get Japan and the United States to agree that Japan should be part of that arrangement.
And I think many of you know that the TPP was about not only tariffs, tariff reductions are one thing, but this had to do with regulatory harmonization and intellectual property rights and a whole range of very important legal issues for business, which our company was very much engaged in at the time, as being potentially very beneficial. So lawyers again could play an incredible role in the public policy debate on something like a trade agreement.
So, that more or less concludes what I wanted to say within my hours. If you want me to take any questions, I am happy to do.
（Laurence William Bates）