Today, there are numerous publications and much discussion on compliance such as handling scandals. On the other hand, it seems that there are not enough practical cases about the way how to manage a small-scale legal departments as pertains to operation of legal and compliance organizations which are responsible for handling compliance matters.
According to statistics from FY2014, there are almost 4 million corporations in the Japanese market. About 99.7% of these corporations are small- and mid-sized corporations. From the numerous perspective, as the legal requirements placed on corporations become more complex, a heavy burden is placed on small- and mid-sized corporations.
In Japan, according to a report analyzing the actual conditions at legal departments in the company today, the average number of personnel at legal departments in the company is 8.8 people. When looking at these numbers in further detail, there is major difference between the average of 17 people at large-scale legal departments and 2.5 people at small-scale legal departments. Furthermore, in terms of the number of the corporations, large-scale legal departments account for 15.0% of all departments, while small-scale legal departments account for 50.1%. Moreover, in terms of the ratio for recognition of current challenges, small-scale legal departments deal with antimonopoly law at a rate which is about one seventh times that of large-scale legal departments, while the rate of correspondence for the law revision is less than one third. These are the significant differences.
On the other hand, when compared to large-scale legal departments, analysis reveals that small-scale legal departments are particularly inferior in terms of acquiring in-house lawyer, influencing the behavior of management, frequency of the handling of consultation from management team, and collaborating with other departments.
Also, consultation from management team on legal matters (average for all legal organizations) is increasing in the following order, starting from the most frequent: corporate governance, anti-fraud, legal risk management.
These facts indicate a notable lack of response at small-scale legal departments, both in terms of quantity and quality. Indeed, these are a group of corporations which have a considerably high possibility of becoming emergency reserve. Ben W. Heineman, Jr., a senior fellow of Harvard Law School has stated in his assertion: “Small and medium-sized companies have the same obligation to obey the law as large companies. They must prioritize their compliance risks and spend more where the risks are higher. But they cannot ignore the law. If the acquirer finds a problem, as noted earlier, it may tell the target: "drop the purchase price," "turn yourself in or deal is off" or simply "sayonara." So, not addressing the compliance issues creates deal risk as well as enforcement risk for small and medium-sized companies.”
These results and opinions must be rationally accepted by small-scale legal departments, and those departments must immediately work to appropriately strengthen legal organizations.