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  • Writer's pictureTony Herbert

MEMORIES OF A&O IN JAPAN


This is for Tony Grundy, invited to write about English lawyers in Japan; it is written so that he can pick whatever he likes out of these faltering memories.


What was my first exposure?


It was in the mid-1970s. English lawyers had only recently got involved in dealing with Japanese bond issues. The Americans, however, were well installed. How did we succeed in sneaking our way in? I suspect there were two main reasons. First, the British merchant banks (to use the terminology of the time) were flexing their muscles. This must have been the principle reason for my early involvement. Warburgs had secured a mandate to do an issue for a corporate and followed their normal practice of instructing English lawyers – on this occasion, happily, me. The second reason was, I am bound to confess, cost. We were then capable of doing these transactions in a more straightforward, and therefore cheaper, way than the Americans – they being firmly programmed to view documentation from the standpoint of the rigors and perils of the US capital markets.


We worked on the Warburg transaction with John Christensen, a delightful, highly competent US trained lawyer, who had been one of the few “grandfathers” allowed to practice as Japanese lawyers after the Second World War. He had established and was senior partner of McIvor Kauffman & Christensen (check spelling). His assistant was Kunio Aoki, at that time a retiring figure, but who later became one of the doyens of the Japanese capital market scene (his firm changing its name to Aoki Christensen).


John Christensen was an excellent tutor, straddling as he did the conventions and requirements of Japan and the Anglo-Saxon financial world. The Warburg people and I, having studied the financials of the Japanese company, came with a menu of ideas for innovative covenants and events of default. John had to explain that the Ministry of Finance would not contemplate any of these things. What had the Ministry to do with the free negotiation of financial terms? I remember John explaining the concept of freedom in this context by the very American example of Henry Ford’s famous dictum that his customers could have whatever colour car they liked so long as it was black.


The transaction was also memorable, at least for me, by the fact that the company had engaged no less a figure than Kunio Hamada as their adviser. He had relatively recently set up his own firm of Hamada & Matsumoto (his junior partner on the transaction being Mr Matsumoto (first name?)). In retrospect, it was striking that the Japanese lawyers involved, in a relatively small transaction, represented the crème de la crème of their profession.


I should add a postscript by saying that, as perhaps should have been predicted, the company went bust some years later. As a result, a bank had to guarantee the bonds, under a provision that we were (amazingly) allowed to sneak in, so the investors got their money back.



What other transactions did I get involved in?


The initial transactions were bond issues, straight and floating, but also – I think right from the word go – convertibles. One of the transactions I got involved in was an early – I think the second – warrant issue. These were bond issues with warrants into the share capital. Rupert Beaumont of Slaughter and May was the pioneer and I was instructed to follow his work very precisely, in some disregard of copyright.


At some point, I would guess early 80s, a market developed for issues of pure equity, done in the form of so-called European Depositary Receipts (EDRs). Although the equity element in the convertibles and warrant issues had always been crucial, of course, it became more of a focus in EDR issues. My first involvement was for Nomura, for whom I had never acted. I got a call from someone in Nomura’s London office who asked whether I would act on an issue of EDRs of one of the most important Japanese trading houses. He asked for an estimate. I got the job (with no price-cutting involved, I hasten to add).



I then got a further call from the same Nomura man, asking what was obviously a question of immense importance. Would I insist on “verification notes”? I assured him I would not, which was obviously the answer he was wanting.



What was the Japanese approach to verification?



First, a word about verification notes. They were a laborious method of ensuring that prospectuses were accurate. They had been devised, I had always understood, by Linklaters, probably aided and abetted by S&M, to ensure that British businessmen told the truth when selling shares to the public. It was a process that never caught on internationally. Rightly, in my view, so far as Japan was concerned. The Japanese are famously meticulous about ensuring that facts, as published, are correct. They are less reliable in ensuring that no omissions are made.


Wall Street lawyers had always had a very different approach. They tended to be hostile to written records of verification – or due diligence, to use their phrase, which has now become universal. Their approach was to go for oral cross-examination, both at the drafting sessions and, separately, with senior management.


It was the Wall Street approach which was adopted in Japan, although it was modified, in my experience, pretty drastically to take account of Japanese susceptibilities. Drafting sessions took place largely in Japanese, with the lawyers acting, as necessary, as interpreters. I remember too many occasions when one asked a question about the proposed wording of the prospectus: say, “What is the basis for saying that the company is the greatest supplier of widgets to the market?” Long discussions would take place in Japanese. Then one’s friendly lawyer would summarise it all by saying that the wording was accurate. Perhaps verification notes were not such a bad idea after all.


The meeting with senior management also took on a distinctive character. Free-flowing, no-holds-barred questions and answers were not encouraged. A meeting would be organized. The questions would be typed up and circulated in advance. The answers would be carefully prepared in advance.



What about the logistics of working before things like email?


My routine, in the early days, was to go out for meetings starting on Monday (I think), stay till say Thursday and fly back with the marked-up document for printing. The initial meeting took on a typically formal character and was always known as the “Kick-Off Meeting”. Not a bad procedure. Much exchanging of business cards. Sometimes, senior figures from the participating firms would appear at the Kick-Off Meeting, not to be seen again.


The drafting meetings tended to take place in somewhat claustrophobic rooms, liberally supplied with ashtrays in those benighted times. I often found myself doing a lot of redrafting in the evening, sustained by dinner in the teppanyaki restaurant in the basement of the Okura Hotel, where it was almost compulsory to stay. One advantage of staying there was the opportunity of meeting the other legal hacks who were busy on other deals. I particularly remember the pleasure of meeting Nick Wilson of S&M on these occasions – I always regarded him as the doyen of the English legal mafia, although latterly he moved on to other greater things.


Back to the logistics. The Japanese were the earliest devotees of the fax machine, partly as its predecessor, telex, was very badly adapted – or, indeed, adaptable – to the terrors of the Japanese alphabet (to use the wrong term). I remember the Japanese to have been much more expert handlers and users of fax than we were. It certainly made transmission of copy to the printers in London a much simpler process.




28 August 2015


Tony Herbert









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