The Global Village: Regionalizing Law and Business

Presented to
Harvard Project for Asia & International Relations
August 21, 2004
Shanghai

Paul S. P. Hsu
Chairman & CEO, PHYCOS International Co., Ltd.
Professor of Law, National Taiwan University
President, Epoch Foundation

I. Globalization of Economy and its Effect on Economic Growth and

Economic Interaction within the Asia Pacific Region

1. Impact of Outsourcing and Supply Chain Management

In the coming decade, the ever-growing outsourcing activities and

supply chain management undertaken by an increasing number of
industries around the world are likely to have a major impact on the
global economy. Countries that manage to equip themselves to play
a role in the supply chain of global production and services are likely
to stand a better chance of resolving employment issues along with
enhancing their economic growth. Countries that fail to do so will be
the losers. The question is: are some of the countries already too late
in the game? And of those countries, can any claim to have a
self-sustaining economy and therefore be immune from the impact?
The test for both categories of countries will be a harsh one. Such a
test will factor whether national policy can entertain free movement of
capital, goods, technology and human resources. The dire question is:
what will happen to countries that fail the test? Will they become
outcasts of the global economy and therefore be reduced to a region of
poverty and instability? Do they deserve help from the international
community?

2. Structure Issues

Structure issues examine how to stimulate sustainable economic

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growth in a country by building a sound legal, economic, political and
social framework. It involves facilitating an environment that
supports thriving entrepreneurship. Such entrepreneurship drives
economies to grow and witness increased standards of living.
Structure issues are also characterized by developing a highly educated,
innovative, and creative populace that can apply those traits to
businesses and continued economic growth.

For instance, ministers of the twenty-one APEC member economies

have endorsed three APEC Best Practices Guidelines at the APEC
Ministerial Meetings in 2001, 2002, and 2003 respectively. The
fourth Guideline is currently being developed for the 2004 APEC
Ministerial Meeting. The four best practice guidelines are:

(1) APEC Best Practices Guidelines for Entrepreneurship and Start-up

Companies (2001)
(2) APEC Best Practices Guidelines for Enhancing Women’s
Entrepreneurship and Start-up Companies (2002)
(3) APEC Best Practices Guidelines for Enhancing the Financing Chain
for SMEs at Different Growing Stages (2003)
(4) APEC Best Practices Guidelines on Life Long Learning (2004)

These guidelines are designed to serve as a model for future

development of all APEC member economies. They can be applied to
other countries as well.

In the next decade, the major capital exporting countries are likely to
become the world’s most important source for funding of capital. The
basis for such wealth is a combination of vast and continuous
investment in infrastructure building, the updating of manufacturing
industries, the enhancement of research and development and the
development of high value added service industries. The speed with
which such investments have borne fruition must be attributed to the
liberalization and internationalization of the financial and capital
markets.

These are fine examples of how structure issues can be incorporated

into the international policy forum for consideration and discussion.

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3. Building a Strong Private Sector

Due to the highly motivated entrepreneurial spirit of individuals and

the business community, the private sector has steadily gained strength
and influence. Combined with a sensitivity to market needs, the
private sector has contributed to the forward-looking mentality of
academia and government officials. This switch in outlook has
resulted in the realization that any government-sponsored economic
initiatives will not be a success without the active participation of the
private sector. Thus, can we expect the purpose and role of
government undergo a major change? In other words, will
government shift from being a directional force to a more supporting
role by meeting the needs and demands of private sector activities?
Can government become a truly service oriented organization?

II. The Unique Characteristics of the Legal Environment in the

Asia Pacific Region

With the exception of countries that are former colonies of western

nations, and as such, have inherited a western legal system, many
countries in the Asia Pacific region have initiated the study of both the
western legal systems and the attempt, over 100 years ago, to build an
economic and social system that is ruled by law. The historical and social
background of many countries still generates much debate today on
whether law is merely an instrument for implementing the objectives and
wishes of the administrative branch of the government or if it should bear
its own virtue and value. Such on-going debate does forge some unique
characteristics of legal environments as described below:

1. Although the concept of judicial independence is being upheld in

theory within most of the Asia Pacific jurisdictions, the line between
an independent judicial system and administrative authority is not
always clearly drawn.
2. The line between legal advice and business advice is also not so
clearly drawn.
3. The concept of a society ruled by law does not have its traditional
roots in most of the Asia Pacific jurisdictions, although such a concept

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 has been greatly emphasized in recent years.
4. Behind the codified legal system, the traditional values in a particular
community or society still impact heavily on the regionalized
“jurisprudence” which effects how laws are enforced, as well as the
way judges interpret the law.
5. The added value of counsel to the client often includes the counsel’s
network of relations with authorities in the jurisdiction under which
the client’s business is conducted.
6. Formalities often overshadow legislative intent of the law.

In my 34 years of law practice and teaching law in this region, I can

identify many occasions in which I found myself struggling to
simultaneously accomplish the formidable task of introducing the concept
of rules of law, ascertaining and explaining the legislative intent and
enforcement of a particular piece of legislation, and obtaining the
business and legal objectives of the client. When you are caught in such
a dilemma, there is definitely an element of frustration that is often offset
by the exhilaration of accepting the challenges. This, at times, is a reward
in itself. This is particularly the case where you have to utilize all of
your legal skills and mental faculties, including your knowledge of the
law and jurisprudence so that you can elaborate on the true legislative
intent. You must also employ your deep understanding of cultural
differences, as well as your sophisticated negotiation skills in order to
accomplish your mission and satisfy your client. I do ascertain, after
handling each case, whether the result is satisfactory or not. Regardless,
the feeling of excitement resulting from accepting an interesting
challenge often outweighs the moments of frustration. The
philosophical element is, I experience this cycle over and over. Life will
go on and things still move ahead despite all the difficulties and
frustrations you may have to encounter.

III. The Relationship Between a Corporate Client and its Outside

Counsel

When I attended law school in the United States, and began to work with
American corporate clients, I was reminded many times that outside
counsel was not supposed to provide business advice to the client. I
remember once when the in-house general counsel of a well-known

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multinational corporation sternly lectured a group of outside counsel from
the Asia Pacific region and warned that any outside counsel giving
business advice to his corporation would be fired. I even remember that
this particular meeting took place in Hong Kong in 1972. However, a
dramatic change took place in 1974 when the new in-house general
counsel of the same corporation got together with the same group of
outside counsel in the Asia Pacific region. When asked whether outside
counsel was supposed to only give legal advice and not business advice,
the new in-house general counsel replied: “We need all the advice we can
get”. This of course leads to an interesting and important issue: “What
does a corporate client expect from the outside counsel?” Should
outside counsel be given the opportunity to understand the total business
operation and business objectives of its corporate client? Should
corporate executives and their in-house counsel interface with outside
counsel on a more regular and more frequent basis? Should outside
counsel be requested to provide business advice when the situation
requires it, or is his role limited to giving advice on the local laws and
regulations, and their interpretation? Should outside counsel be actively
involved in the establishment and maintenance of the relationship
between the corporate client and the local government agencies? Only
with clear answers to these questions will a corporate client be ready to
select and instruct outside counsel who, in turn, will be able to maximize
the value of his or her assistance to the corporate client.

One very important role of outside counsel is to “fill-in” the cultural gap
between the foreign client and the country in which the client operates.
To be truly effective, the outside counsel must understand the culture of
the country where his corporate client comes from. I must emphasize that
to understand the culture of another country, the mere knowledge of the
language of the country is not sufficient. To comprehend how people
from a particular culture think and what their priorities are is most
important. One secret to obtaining a profound level of understanding is
to be direct. Being shy and reluctant to ask questions when there are
questions is not helpful at all.

Another important consideration is whether outside counsel should be

invited to be involved in certain decision-making processes. To tap this
important issue, we need to first examine the corporate culture of the

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client. That is, how this client traditionally uses its inside counsel. If
inside counsel is not always involved in decision-making processes, it
will certainly be difficult for outside counsel to assume that role.
However, I have also heard a corporate client declare that when using
their outside counsel extensively in their decision making process, they
were not using this particular outside counsel as legal counsel, but rather
as a business consultant. This explained the mind-set of this corporation
as viewing outside counsel’s role as not being limited to only giving legal
advice.

In the Asia Pacific region, while many corporations from Europe and
North America are contemplating their entry strategy to break into the
growing Asia Pacific market, adopting the right corporate strategy
becomes extremely important. A serious mistake of those who
formulate corporate strategy will be to fail to seek legal advice or for
those who give legal advice to fail in providing counsel regarding
practical business considerations. In my opinion, such mistakes are
being made every day and this is certainly one of the most important
areas that require improvement. In formulating a perfect working
relationship between corporate clients and outside counsel, it is extremely
important for the corporate client and outside counsel to reach a common
understanding as to how to develop the legal counsel’s role in relation to
the business objectives of the corporate client.

IV. Blur the Boundary Between Law and Business

Sometimes, I can’t help but think that to develop a prefect working

relationship between legal counsel and business executives in order to
serve the maximum benefit of the corporation, the education process must
begin on the college campus. Students at law schools and business
schools should be encouraged to adopt a cross disciplinary approach in
selecting courses. I have been advising law students of mine seeking
legal/business opportunities to acquire advanced education and to
consider taking some business courses or even consider obtaining an
MBA degree. Of course, many owners of businesses in the Asia Pacific
region have minimal institutional education but they manage to come up
with some brilliant corporate strategy. However, I am afraid that these
days will gradually fade away as we settle into the 21st century, where the

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nature of businesses become more sophisticated while new technology,
new products, increasingly complicated as well as innovative financial
market and products, and new ways of doing business are constantly
being introduced. Owners of businesses should seek out the best quality
of business and legal advice on a continuous basis. In ending, I would
like to introduce a very stimulating article by Martin B. Robins titled
“Recipe for an overdue change – why corporate lawyers sometimes need
to give business advice” as appeared in American Bar Association –
Business Law, Volume 12, Number 6, July/August 2003. The following
quote is of particular relevance: “Make no mistake, these
(recommendation) represent a substantial departure from the traditional –
and at one time appropriate – role of the senior business lawyer as a
technician and presenter of options. What is being urged here is to
require counsel to educate themselves as to the broad confines of the
client’s business and industry and, most important, to sometimes confront
the client on what some clients feel is the client’s “turf.”’