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China And US Agree: Let's Kill All The Lawyers.

By Dan Harris and Steve Dickinson

"Let's kill all the lawyers." William Shakespeare. Okay, so we lawyers are not the most loved people in the world, though US surveys consistently show that though the overwhelming majority of people dislike lawyers, they overwhelmingly like their own lawyers. Surveys also show everyone likes me. I do not know how whether Chinese companies dislike lawyers, but my firm's own experience tells me they are generally unwilling to pay US legal fees. And since right now US legal rates (at least those at my firm) are laughably low as compared to European and Japanese and Korean legal rates (in large part because the US dollar is so weak right now), I think it fair for me to generalize in saying that Chinese companies do not value lawyers very much at all. Paul Denlinger has a great post on why this might be so. The post is entitled, "Why Many Chinese Entrepreneurs Don't Like Lawyers," and I find his analysis sound. The post begins with Paul noting that "Chinese entrepreneurs don?t like to work not just with American lawyers, but lawyers of any nationality" and with positing this question:

So why is it that Chinese entrepreneurs don?t like to use lawyers and legal services, even when using them the right way, and intelligently, will help them to greatly expand their businesses?

Paul's answer lies in the differing legal structures of China and the United States. Paul very accurately describes the face of China law for Chinese companies:

For many Chinese, ?the law? is whatever the Chinese government says it is. Just because some new kind of business is done in China, does not mean it is legal, it is just tolerated. It usually means that it is so new to the slow-moving bureaucracy that it hasn?t figured out whether it should be legal or illegal, so it?s ?tolerated?. Your business may be tolerated, then the government says it is ?illegal?, or it may be tolerated, then the government says it is ?legal?. Then it might switch from ?legal? to ?illegal? and told to shutdown almost overnight. This happens, and continues to happen all the time. This is part of the price of doing business in China. Here?s another example. The Chinese government says that new businesses in China have to list their ?business categories? and the business they are in. Think about it; does this make sense? From a business point of view, it makes little if any sense. Let?s say a consulting business needs to do a marketing survey. They may run afoul of the law because this is not allowed; they registered as a consulting business but need to do a marketing survey for a client who wants to enter the Chinese market. So while it makes perfect business sense to do this, the bureaucrats and regulators prevent it from doing so, because from their POV (the government regulators), categorizing businesses makes more sense. Among Chinese business people, there is a large degree of frustration at these sudden changes which come out in the morning, and may change before the sun goes down. For Chinese entrepreneurs, this is the face of the law. So, in order to succeed, they spend a huge amount of their time avoiding the regulators and getting warned, or even shut down. If the regulation comes from Beijing and they are in Hangzhou, they will go talk with Hangzhou city government officials to avoid getting crushed because local Chinese officials have the power to ?interpret? the law. Sometimes this means ignoring what Beijing says, without openly confronting Beijing.

For Chinese entrepreneurs then, the law is random and to be avoided. Then when these Chinese entrepreneurs go overseas, their views and actions do not change. They fail to realize that the law can actually help them and so they see no point in using lawyers unless and until they are in big trouble. Believe me, I have seen this. Many times, Chinese clients have come to us in the US and for a very small fee, we could save them considerable risk, hassle and/or penalties, but they will not pay it. They view US law as something to be ignored or avoided. The idea of confronting it and dealing with it as a means of laying a strong foundation for the future seems almost alien to them. Lawyers are to be used when you are in big trouble, but not before. Paul also attributes Chinese aversion to lawyers to their aversion to a cost structure different from what they are accustomed to in China:

Moreover, they know that the advantage of Chinese businesses lie in their cost structure, and fear losing it if they go overseas. This means that they act very cheap when they go overseas, and acquire reputations for being cheap and micro-managing their foreign employees, trying to extract every little bit of time and value out of them. In the long-term, this hurts the reputation of Chinese companies as a whole. In fact, company cost structures evolve and adapt to the market and society they are a part of. No country can have the same cost structure as China, just as no country can have the same values as America does.

Again, Paul is dead on. I have tried getting past this cost hurdle with Chinese companies by telling them about US companies with more than a thousand (1000+) lawyers in their in house legal departments alone (Citicorp and General Electric) and of how my firm has clients who expect to spend around 2% of their gross revenues in legal fees each year. The Chinese companies tend to remain resolute. But things do change and they will change. Our best corporate clients are those who have been through US litigation and once Chinese companies start getting sued in the United States they will come to realize the importance of preventative lawyering. I have seen this with our Russian clients and I expect it will eventually happen with Chinese companies as well. They will probably still hate us, but at least they will pay us.

Full post as published by China Law Blog on March 21, 2008 (boomark / email).