Growing pains

Quality work but in a freestyle environment. Is it an impossible dream? Two German boutiques think they can do it. By Aled Griffiths


There is nothing inevitable about the hegemony of large, international practices in Germany. And at least two German firms think that they have proven this. Hölters & Elsing, with offices in Düsseldorf, Frankfurt and Berlin, and P+P Pöllath + Partner, with offices in Munich, Berlin and Frankfurt, mix it with the big boys day in, day out.
Even now, almost 15 years after the firm began life, Holters & Elsing name partner Siegfried Elsing still displays the enthusiasm you might see in a start-up. “We’re masters of our own fate,” he smiles. “If it should ever go wrong, then it’s down to us and no one else.”
Over at Pöllaths, partner Andrea von Drygalski remembers the founding of the firm as anything but an easy option. “We knew we wouldn’t be working any less hours, but we wanted to decide ourselves what sort of work we did,” she says.
The two firms might conceivably meet across a negotiating table, but each is very different from the other: 15-partner Hölters &
Elsing has taken on the atmosphere of a Mittelstand company that is run by its owners – true to its roots, but with not dissimilar structures to some of its larger cousins; Pöllaths, meanwhile, which also has 15 partners, revels in the informality of its organisation – the firm’s management is defined by its absence.
Given the histories of the firms, their structures are not surprising. Hölters & Elsing is a set-up of the old school. In 1989 name partner Wolfgang Hölters dissolved the boutique Zwanzig Dibilius & Hölters (he started his career at the firm that became Wessing, now Taylor Wessing) and joined up with Elsing, who had just returned from a stint in the US at Hughes Hubbard & Reed. Prior to that, Elsing had been a partner at Triebel & Weil in Düsseldorf (which is now part of Lovells). “We both wanted more influence,” remembers Elsing.
The history of Pöllaths, on the other hand, can be seen as a reaction to the founding lawyers’ professional lives up until then as they attempted to correct the structural mistakes they had experienced earlier. “It was a luxurious version of the mid-life crisis,” says name partner Reinhard Pöllath with a smile. “We’d left Rädler Raupach [Bezzenberger] [now the Munich office of Linklaters Oppenhoff & Rädler] to go to Baker & McKenzie to be part of a bigger organisation. Pöllath & Partner was a return to the roots.”
This was to be every Bavarian lawyer’s ideal firm. “We kept returning to the idea of a law firm in a farmhouse, all of us sitting around a table. Even then the partner meetings took place while having a stroll at weekends,” says von Drygalski. Even now the Pöllaths prefer to go skiing or make the trip to Alps resort Schloss Elmau in order to discuss firm business. Before US firms had thought about dressing down in Gap jeans, this Munich Six were plotting the ‘Lifestyle Firm’. “It was about being happy and maintaining our individuality and combining that with our working lives,” says von Drygalski. “You ought to be able to conduct your profession without unnecessary stress.”

You can go your own way
What unites Pöllaths and Hölters & Elsing is the partners’ desire to determine the course of their own business. It is a philosophy expressed regularly in interviews through high-minded qualities such as ‘freedom’, ‘autonomy’ and ‘individualism’. The partners at both firms want to be seen as entrepreneurs, something that does not necessarily differ from their contemporaries at larger outfits, although the latter rarely enthuse quite so grandiloquently about the nature of their professional lives.
The size, success and deal emphasis might justify close comparison of the two firms. Hölters & Elsing, though, has a far wider area of activity (call it ‘corporate full-service’), which includes M&A, ongoing advice to listed companies, real estate development, dispute resolution (Elsing is a leading arbitrator) and telecommunications. By contrast, Pöllaths is almost exclusively active in fund-based corporate work, from the initial fund structuring (Andreas Rodin in Berlin) to transactions and exits. Even the property work is predominantly fund-based. The only exception is the substantial private client practice: the Quant family (the owners of BMW) is one of the firm’s most well-known clients.
Thus it might seem contradictory that Pöllaths comes across as a less structured firm; but it is precisely that clear – not to say one-dimensional – focus that allows the firm’s management to be conspicuous by its absence.
One example is the lack of a partnership contract. “You have to be able to deal with each other on the basis of the basic,” asserts Pöllath. Partner Michael Best (who arrived two years ago from Munich firm Peters Schönberger & Partner) remembers that he found such informality attractive. “In the place of a contract, there was trust. I found that particularly attractive.”
Pöllath’s personal aversion to static bureaucratic structures stems from his CV: after leaving Rädler Raupach he worked at (rather than for) Baker & McKenzie, where he enjoyed a unique of-counsel status, and the move to set up his own firm was driven by a desire to be responsible for himself, his clients… and nothing else.
“I never wanted to be forced to cross-sell,” emphasises Pöllath, and even goes so far as to say: “If we have to have a partners’ meeting, then something must be wrong.” Although he later admits that a firm with 50 lawyers cannot avoid such get-togethers, the attempt by von Drygalski at the end of a photoshoot to keep her partners in the room so they could tick off a few organisational points is met with an ironic and collective groan from her colleagues. Herding cats would be kids’ stuff by comparison.
By contrast, Hölters & Elsing is regarded by many outsiders as a more top-down organisation, dominated by its name partners. Critics point to the exit in the 1990s of a number of partners, notably Dr Johannes Grooterhorst (to establish his own firm) and Dr Barbara Deitman (to Baker & McKenzie), as evidence of a hierarchy that contradicts its claims to entrepreneurship. But this is to ignore the far broader-based firm that has been built up, something which necessitates more formalised structures and assigned responsibilities divided among the partners.
The departures from Hölters & Elsing were also the impetus to reform the remuneration system. Out went a strong merit-based approach and in came a profit-share, which recognised the benefits of less profitable practice areas for the firm as a whole. Although it is a long way from lockstep, real estate partner Dr Michael Alberts, who devised the new system, admits that “the hint of lockstep does help teamwork, even if a purely seniority-driven remuneration system would not be the right thing for a dynamic firm like ours.”
At Pöllaths, even this concession might be seen as suffocation. “Every partner produces his own profits,” insists Pöllath. “The partner takes out his billable hours and the premiums are shared out in relation to performance. Everything else goes into the pot.” All the partners are excessively happy with the result and, true to the firm’s philosophy, the system’s effectiveness is demonstrated by its invisibility.
Pöllaths partner Matthias Bruse describes it as “the attempt to regulate something
without having to talk about it”. Property partner Ralph Wagner insists: “No one here is an underperformer, but the remuneration system does give us all a substantial degree of freedom.” But the most important aspect in conceiving the profit-share was the move away from lockstep. Pöllath regards it as an essentially illiberal tool, and a blunt one at that. “Lockstep’s just a gigantic, mystifying, untransparent system for the maximisation of peer pressure,” he argues.

You can’t grow your own way
Both firms see the test of their strategies as being simple. “Everything gets tested in the market – whether we get the quality deals and how profitable the firm is,” says Pöllath. Many of Pöllath’s competitors argue, for example, that the move to large cross-border private-equity deals was leaving the firm behind. Meanwhile, other Düsseldorf M&A lawyers do not doubt the quality of Hölters & Elsing’s corporate skills, but insist on the need for large teams of specialists for complex, multijurisdictional transactions. Elsing does allow the possibility of a different set-up. “We’re not dogmatic,” he insists. “If the circumstances were different then we’d think about a different constellation. But we’re doing just fine.”
Despite these criticisms, the two firms point to a turn in the market that is in their favour. Clients are much better informed,
have experienced less than optimal transaction management from large firms and have also seen what mid-sized firms can achieve on premium deals.
“Some clients have the confidence to instruct firms without hiding behind a huge letterhead,” says Pöllaths’ Bruse, while Jürgen van Kann, a Hölters & Elsing partner in Frankfurt, regards the size argument as irrelevant. “Pure size can never be a sufficient marketing argument,” he says. “If only size mattered, then only the three biggest firms would get any work – all the others would get turned down.”
Most importantly, argue these lawyers, the individual skills they need to be successful entrepreneurs themselves are those that in the deal market are most highly prized among clients. “Eighty per cent of the lawyer’s performance is individual performance,” argues Hölters. “Individual creativity, organisational skills, flexibility, a service-minded approach and legal excellence are what matter. Even megadeals in Germany don’t need more than five or six lawyers. Everything else is just overbilling, which is not in the client’s interest.”
Both Hölters & Elsing and Pöllaths, though, are honest enough to point out the restrictions of moderate size. While there are few economies of scale in law firms, the ability to invest far more heavily in marketing – both to clients and graduates – is a clear advantage. “We have to do everything ourselves,” complains Pöllath. “Our website is pretty amateur.”
Whether they like it or not (and there are some lawyers at both firms who are distinctly uneasy with the proposition) both Hölters & Elsing and Pöllaths will reach a size in the medium term where such resources will not be a problem – but at what cost? Further growth is inevitable. Both firms have built up a pyramid which, even if it demonstrates a less drastic leverage than at some competitors, still has to be supported every year from the bottom with new and ever more associates. Neither firm needs a formal associate budget, but they know that growth is unavoidable.
So to what extent are Hölters & Elsing and Pöllaths in a transition phase? The golden boutique days seem long gone and they are slowly being replaced by a firm structure that can quite simply never resemble a group of friends gathered around a farmhouse kitchen table.
If both firms must grow, some outsiders point out that they are fated to transform into organisations precisely the opposite of what the founding partners set out to achieve. This is particularly problematic if the moderate size of the firm is seen as one of the guarantees of the individualist, entrepreneurial culture. Of the two, Hölters & Elsing seems to have embraced steady expansion rather more readily than Pöllaths, where the partners display a healthy mistrust of anything that smacks of bureaucracy.
From the beginning, lawyers who join either firm do so in order to get hands-on experience as soon as possible. “Associates don’t come to us to sit in a cell and write legal opinions. You have to learn to convince clients on a face-to-face level. That’s what’s important for developing your business,” says van Kann at Hölters & Elsing.
As such, the younger lawyers at both firms, who by definition have not experienced the exciting glow of the early start-up days, do not see size in itself as the defining characteristic. It is rather the manner of the training and how that forms young lawyers into entrepreneurial legal advisers who can impress businesspeople that will determine whether both firms can retain their much-vaunted cultures.
As such, both Hölters & Elsing and Pöllaths are aiming to reproduce a virtuous circle that differs from the systematised client development approach of their large competitors. Their ability to produce further generations of individualist lawyers can guarantee the deal flow that allows the luxury of looser management structures – which is precisely the environment in which individualist lawyers can flourish. In contrast to those corporate lawyers who could not bring themselves to set up their own firm, this next generation want to see no contradiction between big deals and the wide-open spaces of personal freedom.
The deal flow
Hölters & Elsing
Wolfgang Hölters is well known for his M&A work for Deutsche Post, a client now being partly served by younger partner Jürgen van Kann in Frankfurt. Siegfried Elsing turns up on big-ticket arbitration work, as well as being the front-line adviser in Germany for one of Europe’s leading industrial corporates (which is sensitive about being named).
Offices: Berlin, Düsseldorf and Frankfurt
Partners: 15
Associates: 30
Recently advised: Deutsche Postbank on the acquisition of Credit Suisse (Deutschland) Asset Advisory and CS-Direct from Credit Suisse Group; the selling consortium (ABN Amro Capital France, 3i France) on the sale of Atlantic Zeiser Group to Orrell Füssli; Deutsche Post on the acquisition of further participation in DHL International from Deutsche Lufthansa; and MHM Services on the disposal of Basler.
P+P Pöllath + Partner
Reinhard Pöllath hit the headlines when he became acting chief executive officer of family-owned coffee distributor Tchibo; his colleague Andreas Rodin was described by one private equity house as “the pope of fund structuring”. Any notion that the firm would not be involved in high-volume international deals seems to have been scotched by Matthias Bruse’s leading role in advising EQT’s buyout of Haarmann & Reimer.
Offices: Berlin, Frankfurt and Munich
Partners: 15
Associates: 37
Recently advised: EQT on the acquisition and merger of Haarmann & Reimer and Dragoco Gerberding & Co; the management of Edscha on the buyout by Carlyle; Société Générale Private Equity/Burton Holding on the acquisition of participation in Burton-Apta from Villeroy & Boch; Alchemy Partners on the acquisition of CompAir; Bridgepoint on investment in Eurocom; venture capital work for Infineon Ventures, Wellington Partners and Apax.