In Japan, a seismic shift is occurring in the balance of power between law firms and in-house legal departments.

The titans of Japan's major global companies, who for years had managed to make their brands household names worldwide without bothering to establish large legal departments, are now actively expanding their in-house legal teams.

With Japan's big-name corporations having repeatedly faced allegations of corruption in recent years, their leaders are recognising the value of a strong in-house legal department in a world that is quite different from traditionally non-litigious Japan.

"They've started changing how they perceive the role of their in-house legal teams," said Ken Siegel, head of Morrison & Foerster's Tokyo office, who has been based in the Japanese capital since 1994.

And the change is not just in the size of in-house departments. In part because of the scandals that have rocked Japanese corporations, management is also giving in-house teams a bigger voice and a more prominent role in governance, lawyers said.

In December, The Nikkei, the world's largest financial newspaper, released a survey in which 123 companies - nearly two-thirds of the respondents - said they would be expanding their legal departments over the next three years. And nearly 72% of those companies specified that they would be hiring more in-house lawyers.

The change has been relatively quick - especially for a country like Japan, where the old ways of doing business have persisted for decades. According to data compiled by the Japan Federation of Bar Associations (JFBA), less than 4% of 1,196 companies surveyed in 2009 said they employed full-time in-house lawyers. In 2015, the survey, which included 1,208 companies, showed the percentage employing full-time in-house lawyers had jumped to 12.5%.

This is not to say outside counsel no longer have a role to play in Japan's legal landscape. Many Japanese companies have not yet bought into the concept of in-house legal departments. According to The Nikkei survey, 40% of respondents reported they had no senior lawyers - known as bengoshi - in their in-house legal departments in 2017.

But there is little doubt that the relationship between in-house and outside counsel has shifted.

Tony Grundy, who is of counsel at the large Japanese law firm Mori Hamada & Matsumoto, said the in-house legal function among Japanese companies had long been underdeveloped. Traditionally, outside counsel in Japan dealt with a client's business department instead of its legal staff, he said.

In addition, some companies saw no need to employ bengoshi, who go through years of training and are highly respected in Japan, because in-house legal departments didn't focus on offering legal opinions. "Historically, the Japanese in-house legal team was much more focused on the day-to-day - usually domestic transactions," Siegel said.

That was good for outside counsel, of course - including global firms such as Morrison & Foerster and White & Case, which have built up large Japanese law practices. But over the last four to five years, Japanese companies have started hiring bengoshi in larger numbers to beef up their in-house teams. And they started restructuring them "so they are able to do global transactions and global disputes as part of their routine process," Siegel said.

Filling the increased in-house demand will take time. According to the JFBA, the number of corporate in-house lawyers as of the end of 2016 totalled just 1,707; that was less than 5% of the 37,680 working lawyers in the country that year.

But the number of in-house lawyers is not likely to remain small for long. Japan's in-house bar has already expanded significantly: The 1,707 headcount in 2016 was already three times the number in 2011, and nearly 12 times the number in 2006.

What's driving the change, at least in part, is the way Japanese companies have spread out globally over the years. "[Having a small or non-existent legal department] worked in Japan, but may not be optimal outside," said Grundy, who is now based in Singapore and focuses on Southeast Asia.

Of course, big-name Japanese corporations such as Canon, Mitsubishi, Sony, Honda and Toyota, have been operating overseas for decades. But as they grew and eventually established overseas headquarters in developed markets such as the US, their legal units began to assimilate and change so that they more closely followed the US in-house model.

"US legal departments have a compliance function and have other responsibilities that reach right up to the top of the company," said Siegel.

In time, the overseas operations of the country's big companies started to have some influence with corporate headquarters back home, which began looking at the in-house legal structure. But Japan is a country famously resistant to change, and the shift only appeared to truly take hold after the pitfalls of Japan's system finally caught up with its corporate giants.

This past November, at least three large Japanese corporations - Kobe Steel, Mitsubishi Materials and Toray Hybrid Cord, admitted to having falsified product test data. The scandals, alongside Toshiba's accounting fraud last year and Takata's safety cover-ups in 2013, have prompted questions about Japan's corporate governance and compliance.

"Japanese companies are recognising they need to adopt a different model, as so many big companies were exposed in the data falsification," Grundy said.

The change will mean outside counsel like Grundy will have more interaction with lawyers at their clients' organisations - something Grundy said he welcomes. Siegel agreed, despite the fact that some of the work outside counsel do might now be taken in-house.

"It will mean the legal department taking over some of the work, but on balance it makes it better for us," said Siegel, "We will have a better constituency within our client to advocate for legal results and anticipate legal issues before they arrive."

For some clients, the change could come quickly. Some companies have hired foreign lawyers, Siegel said. A few dozen already have US counsel on board.

While changes in business culture in Japan have always been challenging and gradual, the country's corporate legal departments will continue to globalise - especially in Tokyo, Siegel said.

"The practice will continue to evolve, with more people in-house and better people in-house," he said. "That will raise the bar for us a little bit. It's a healthy thing."