Working as In-House Counsel ("Soshiki-nai Bengoshi") in a Japanese Company: Key Ethical Dilemmas and How to Address Them

Japanese Attorney at Law - Bengoshi L.L.

• 7 min read

The role of in-house counsel, known in Japan as soshiki-nai bengoshi (組織内弁護士), has seen a significant rise in prominence within Japanese corporations and organizations. These legal professionals, who are qualified lawyers (bengoshi) employed directly by non-legal entities, navigate a unique landscape where their duties as employees intersect, and sometimes collide, with their fundamental ethical obligations as members of the legal profession. Understanding these key ethical dilemmas and the approaches to addressing them is crucial for both the in-house counsel themselves and the organizations they serve.

The Fundamental Tension: Employee Status vs. Professional Independence

The most defining characteristic and primary source of ethical challenges for in-house counsel is their status as an employee. Unlike their counterparts in private practice who operate independent law firms, in-house lawyers are part of the corporate or organizational structure, subject to employment contracts and the direction of their employer. This inherent employee-employer dynamic can create tension with a cornerstone of legal ethics: the lawyer's duty to maintain professional freedom and independence (dokuritsusei, 独立性).

Article 50 of Japan's Basic Rules of Professional Conduct for Lawyers (弁護士職務基本規程) directly confronts this issue:

"A lawyer who is an employee or staff member of, or a director or other officer in, a public or private entity (excluding lawyer corporations and foreign law joint enterprises) (hereinafter referred to as an 'in-house lawyer') shall be aware of their mission as a lawyer and their freedom and independence, which are essential to a lawyer, and shall strive to perform their duties according to their conscience."

This rule serves a dual purpose: it reminds in-house counsel of their unwavering professional obligations that transcend their employment status, and it implicitly encourages employing organizations to respect and facilitate this necessary independence. For instance, if an organization were to instruct its in-house counsel to take an action that would constitute a clear conflict of interest for a lawyer (e.g., acting against a party from whom the lawyer had previously received confidential information in a position of trust), the in-house counsel would be ethically bound to explain the conflict and refuse the instruction. The organization, in turn, should not penalize the lawyer for upholding their professional ethics.

The importance of lawyer independence has led to different regulatory approaches internationally. Some European jurisdictions have historically been very restrictive regarding lawyers being employed by non-legal entities while retaining their bar status, due to concerns about compromised independence. The European Court of Justice, for example, has generally denied legal professional privilege to communications with in-house counsel in EU competition investigations (as seen in the AM&S and Akzo Nobel cases), citing their employment status as a factor diminishing the requisite independence. In Japan, while the path to becoming in-house counsel has been significantly liberalized (now requiring only notification to the bar association under Article 30 of the Lawyers Act), the ethical imperative of independence remains paramount.

Key Ethical Dilemmas for Japanese In-House Counsel

Beyond the overarching challenge of maintaining independence, several specific ethical dilemmas commonly arise for soshiki-nai bengoshi:

1. Identifying the "Client" and Managing Internal Interests:
A bedrock principle for any lawyer is clarity on who their client is. For in-house counsel, the "client" is unequivocally the employing organization or corporate entity itself. It is not the individual executives, managers, department heads, or other employees who may seek their advice or give them instructions.

This can lead to dilemmas when:

  • Different departments or individuals within the organization have conflicting objectives or interests related to a legal matter.
  • An executive requests advice or action that might benefit them personally or their specific department, but may not be in the best overall legal or ethical interests of the corporation as a whole.
  • In-house counsel must navigate these internal dynamics, always prioritizing their duty of loyalty to the corporate entity. This requires careful judgment in providing advice that is legally sound for the organization, even if it may be unwelcome to certain internal stakeholders.

2. Scope of Permissible Duties: Avoiding Unauthorized Practice by the Employer:
The in-house lawyer's role is to provide legal services to their employer. A significant ethical and legal boundary is crossed if the employing entity (which is not a law firm) uses its in-house counsel to provide legal services to third parties as part of its business operations.

For example, it would generally be improper for:

  • A retail company's in-house lawyer to offer legal advice services to its customers.
  • An in-house lawyer of a financial institution to handle unrelated personal legal matters (like debt consolidation with other entities) for the institution's clients.

Such activities could be construed as the non-lawyer employer engaging in legal business for reward, which is prohibited under Article 72 of the Lawyers Act (the hiben katsudō prohibition against unauthorized legal practice). The in-house lawyer involved could also face scrutiny under Article 27 of the Lawyers Act for improperly allowing their name or license to be used by a non-lawyer entity for such purposes.

While an in-house lawyer could theoretically engage in private practice outside of their employment, this is often impractical due to full-time employment commitments and presents a high risk of conflicts of interest with their primary employer.

3. Handling Organizational Wrongdoing (Basic Rules Art. 51):
This is one of the most challenging areas for in-house counsel. Article 51 of the Basic Rules of Professional Conduct states:

"An in-house lawyer who, in connection with the duties they are in charge of, becomes aware that a person belonging to their organization is committing, or is about to commit, an act in the course of business that violates laws or regulations, shall take appropriate measures within that organization, such as explaining to or advising that person, the head of the department to which the in-house lawyer belongs, or the head of that organization, its board of directors or board of trustees, or other senior body."

Key aspects of this rule are:

  • Internal Action is Primary: The duty is to take "appropriate measures" within the organization. This typically involves reporting the wrongdoing "up the corporate ladder" to successively higher levels of authority until the matter is appropriately addressed.
  • Confidentiality Remains Paramount: Crucially, Article 51 does not create a general exception to the lawyer's overarching duty of confidentiality (shuhi-gimu) owed to their employer-client (the organization). This means that external whistleblowing to regulatory authorities or the public is generally not permitted under this rule, unless it falls within the very narrow, general exceptions to confidentiality (such as to prevent imminent and serious physical harm to a person, or if a specific law mandates external reporting and overrides the lawyer's confidentiality duty).
  • The "Last Resort" of Resignation: If, after exhausting internal reporting channels, the organization fails to rectify serious illegal conduct, and particularly if the in-house counsel is being asked to participate in or condone such conduct, their ethical position may become untenable. In such extreme circumstances, resignation from employment might be the only way to uphold their professional integrity. However, this is a very significant step for an employed lawyer with potentially severe personal and professional consequences.
  • The Proactive, Preventative Role: Rather than only reacting to wrongdoing, in-house counsel have a vital role in proactively fostering a strong culture of compliance and ethical conduct within their organizations. By championing good governance, robust internal controls, and ethical decision-making, they can help prevent situations where Article 51 dilemmas arise. This proactive stance aligns with the lawyer's broader mission to realize social justice, which includes promoting lawful and ethical corporate behavior.

4. Maintaining Professional Judgment Under Pressure:
In-house counsel may face pressure, whether overt or subtle, from management or business units to provide legal advice that is "convenient" for achieving short-term business goals, even if it involves questionable legal or ethical risks. They might be pressed to approve a course of action quickly or to downplay potential downsides. Upholding the independence and conscience mandated by Article 50 of the Basic Rules in such situations requires considerable fortitude and a clear commitment to providing objective, professional advice, even if it is unwelcome. The lawyer's role is to be a trusted advisor who helps the company navigate risks appropriately, not simply to endorse all business proposals.

Addressing the Dilemmas: Strategies for In-House Counsel

Navigating these ethical dilemmas successfully requires a combination of a strong ethical compass, institutional support, and proactive strategies:

  • Cultivating Professional Independence: In-house counsel should actively work to establish and maintain their professional independence within the organization. This can involve building strong relationships based on trust and competence, advocating for clear reporting lines for the legal function (ideally with access to senior management and the board), and consistently demonstrating unwavering professional integrity.
  • Clear Communication and Education: It is vital to educate internal stakeholders (management and employees) about the lawyer's ethical obligations, the specific role of the in-house legal function, and the importance of candid legal advice for the company's long-term health.
  • Developing Robust Internal Policies: In-house counsel can play a key role in advocating for, drafting, and implementing clear internal corporate policies on compliance, ethics, conflicts of interest within the organization, and the proper handling of legal matters.
  • Knowing When to Seek External Counsel: In-house lawyers should be ready to advise their organization to seek advice from external counsel in situations where:
    • A conflict of interest is too acute or complex for in-house counsel to handle impartially.
    • A matter requires highly specialized expertise that is not available in-house.
    • A truly independent, external perspective is necessary (e.g., for certain sensitive internal investigations or when the company needs to demonstrate to third parties that an issue has been reviewed by outside experts).
  • Professional Networking and Support: Engaging with other in-house counsel through professional organizations, such as the Japan In-house Lawyers Association (JILA), can provide valuable peer support, shared learning, and resources for navigating common ethical challenges.

The Evolving Landscape: Confidentiality and Privilege

As discussed in relation to the general duty of confidentiality, while the in-house lawyer's ethical duty to protect the secrets of their employer-client is strong, the extent to which internal corporate communications with in-house counsel are shielded from external compelled disclosure under a robust legal privilege (akin to the U.S. attorney-client privilege) is a developing and somewhat less certain area in Japan. The criterion of "independence," as highlighted in EU jurisprudence, continues to be a relevant factor in these discussions. Ongoing debates in Japan about strengthening protections for attorney-client communications generally may in the future provide greater clarity for in-house counsel as well.

Conclusion

The role of the soshiki-nai bengoshi in Japanese companies is both rewarding and uniquely challenging from an ethical perspective. The inherent tension between their status as an employee and their obligations as an independent legal professional requires constant vigilance and a firm commitment to core ethical principles. Key dilemmas revolve around identifying the true client (the organization), maintaining professional independence in the face of internal pressures, correctly defining the scope of their duties to avoid facilitating unauthorized legal practice by their employer, and navigating the complex responsibilities when faced with potential organizational wrongdoing.

Successful in-house counsel in Japan are those who can effectively integrate their legal expertise and ethical judgment into the corporate environment, acting as trusted advisors who not only help the business achieve its objectives but also ensure it does so lawfully and ethically. This requires not only individual integrity but also a supportive organizational culture that respects the unique and vital role of its in-house legal professionals.