Germany's elite level out as recruitment market slumps

For some years lawyers at larger firms have been wondering whether German firms can keep on growing with impunity. While there are firms with more than 2,000 lawyers in the UK, and even a relatively small jurisdiction like the Netherlands can support a number of firms with more than 300 lawyers, there was a general feeling in Germany that the rapid growth of the late 1990s was not supportable.

According to research published in this year's Juve Handbook, most of the leading firms in the German market have remained relatively stable, having reached a stage where incoming associates can be matched by retirements and the departures of associates who are not making partner in those firms that have become more highly leveraged over the past few years.

The exceptions are, of course, those international firms that are building their own operations in Germany. Firms such as Ashurst Morris Crisp, Latham & Watkins and McDermott Will & Emery, for example, have a considerable way to go before they can match the offices of the UK magic circle.
Larger firms are concentrated at the upper end of the market chasing the same business. In corporate work especially there has been a remarkably higher frequency of potential conflicts, as can be witnessed by the decision of a number of law firms a few years ago to advise parallel parties in auctions. That would have been completely unthinkable 10 years ago: law firms would not even have asked their clients. It stems from the remarkable success of a number of firms in cornering this market, convincing clients that there is nowhere else they can go to receive such quality of advice.

In reality, few German lawyers agree on whether the bar regulations actually allow such parallel instructions, which explains why the firms in question have spent a small fortune on legal opinions from academic sages. Not surprisingly, they all got the answer they wanted, even if such opinions have turned out to be completely contradictory.

At the moment, firms justify their actions by pointing out that it is completely transparent and that clients have given their permission.

This is the reason why the smaller offices of foreign (mostly US) firms have found the German market to be particularly welcoming, especially as regards finance investors, which have grown impatient at the conflicts in some of the larger firms. Such houses are also better informed about the legal market, and last year they started to hand out instructions to other firms for the first time. The tendency at German blue-chips to cut costs and introduce panels of law firms will in all probability lead to a similar development. The result among law firms is that, if in certain fields a more restrictive policy about conflicts develops, then lateral moves - either to other firms or to spin-offs - will be an inevitable conclusion.

During the wave of international mergers, a number of law firms cut back the number of equity partners in order to integrate the remaining partners better into a more profitable international counterpart - Linklaters Oppenhoff & Rädler being the most notable example. At the moment, many firms are adopting highly restrictive partner promotion policies. Without a doubt, far fewer associates are making partner now than a few years ago. In some firms this is the case in absolute terms; in all firms it is the case that the percentage of associates making partner has been reduced. Inevitably, nearly all of these associates have to leave the firm, since they are a relatively high cost factor at a time when firms are not working at full capacity and billing rates.

This situation is particularly frustrating at those firms where associates see the partnership as containing lawyers who would not now have the mettle to make partner if they were candidates in 2003. One particularly unfortunate example is the German practice of Coudert Brothers. When Coudert merged with Schürmann + Partners in 2000, it had 75 lawyers. In contrast to every other major firm in the market, it has shrunk: it now has just over 50 lawyers in its Frankfurt, Berlin and Munich offices. Sources within the German offices point to a highly restrictive partner policy that has been imposed from outside. In addition, the firm has lost a number of partners over the last three years to Ashursts and Osborne Clarke and there has been considerable speculation over the future of the Munich office.

An uncertain future awaits disappointed associates. Most see themselves as partnership candidates, but other firms looking to add to their ranks (in particular the small and mid-sized German offices of foreign firms) see them as precisely the most unattractive class of candidate. In most cases, these associates have little client relations and certainly no portable business.

The contrast to the boom years is particularly stark, since in that business climate it was precisely this class of lawyer that firms did everything to keep. German law firms had discovered that a slightly longer partner track allowed senior associates both to bill heavily and undertake a supervisory role.