The year dot

If you weren't worrying about Germany, technology or assistant salaries this year, where were you? The first year of the third millennium has been characterised by a rush to the Continent, a drive into the new economy and a battle for the best young lawyers, which, combined with yet another turbulent year for the bar, made for 12 months of strategic manoeuvring gone mad. The German ball started rolling right at the beginning of the year when Clifford Chance, Freshfields and Lovells all brought mergers into effect. The signing up of Pünder Volhard Weber & Axster, Deringer Tessin Herrmann & Sedemund and Boesebeck Droste respectively marked the tip of the iceberg for the storm into Germany.

Others followed close behind – Linklaters & Alliance agreed to team up with Oppenhoff & Rädler in the summer, as Freshfields signed up Bruckhaus Westrick Heller Löber despite The Lawyer revealing a last minute bid from Herbert Smith to run off with the bride (3 April).

Instead, Herbert Smith ended up with magic circle player Gleiss Lutz Hootz Hirsch Rechtsanwälte in a deal that sees the two firms in alliance, while Herbert Smith pushes for a full merger.

US firms had a bite of the cherry too. New York firm White & Case pulled off the first major merger between a US and a German firm when it secured a marriage with Feddersen Laule Ewerwahn Scherzberg Finkelnburg Clemm.

Gaedertz is now the firm to watch – still touting itself around after partners voted against a merger with Norton Rose (The Lawyer, 20 November). Eversheds has also been linked to the firm, and Gaedertz has a mid-tier client base that means an international merger could be the only way to stop work leaving for larger rivals.

As the rush continues things are getting harder, and rival firms are seeing rich pickings as fallout from unstable link-ups becomes available. Freshfields managed to secure Bruckhaus by agreeing to change its lockstep structure to fit more neatly with the pay structure of the German firm (The Lawyer, 19 June), and Linklaters saw US firm Hogan & Hartson scoop up a group of more than 10 partners from Oppenhoff, when its merger went through (The Lawyer, 14 August). The Oppenhoff team was led by telecoms and media partner Christoph Wagner, who jumped ship because of a conflict of interest between his client BSkyB and clients of Linklaters. And Clifford Chance saw its telecoms specialist and former German managing partner Thomas Heymann leave for US firm Willkie Farr & Gallagher, which was setting up an operation focusing on new technology.

The move into telecoms, media and technology saw Munich emerge as the German equivalent of Silicon Valley and US firm Brobeck Hale and Dorr followed SJ Berwin's lead to set up an office there. It remains the city to keep an eye on.

The high-tech revolution has swept through London just as dramatically. The Lawyer 100 survey 2000 showed the star performers to be the likes of Taylor Joynson Garrett – with its focus on Silicon Valley clients, intellectual property (IP) and corporate – and Olswang, as well as firms such as Weil Gotshal & Manges and Travers Smith Braithwaite which were riding high on the private equity wave.

Linklaters emerged as the winners in The Lawyer IPO 2000 survey, acting on the most offerings both by volume and value, for both investment banks and issuers. The firm worked on flotations worth £17.2bn, compared to a deal value of £4bn at magic circle rival Allen & Overy (A&O) (The Lawyer, 18 September).

Now, at the end of the year, even Slaughter and May has decided to break with tradition and set up its first industry-focused group to do new economy work. A team of corporate and IP partners led by William Underhill and Nigel Swycher will lead the firm's assault on the market (The Lawyer, 27 November).

And it is not just the battle for high-tech clients that has consumed the firms, but the fight to get online themselves. Interactive deal rooms are emerging as the new way to win clients, and A&O, Linklaters and Clifford Chance are all battling to be centre stage in the eyes of clients that want to work on the web. In September, The Lawyer revealed that Linklaters and A&O were going head-to-head and launching web-based services at the same time (18 September).

The thriving new economy helped law firms pull in record earnings this year – with the legal services industry passing the £6bn mark for the first time. This year the business was worth £6,038.2m, compared to £5,024.7m for 1999.

But the booming Silicon Valley caused problems as well – sparking an assistant salary war that swept first to New York and then into the City. SJ Berwin was the surprise firm to spark the London battle – deciding to ramp up newly qualified rates to nearly £45,000 in February in a move aimed at wooing the IT, telecoms, private equity and corporate finance lawyers that were being tempted away to US firms (The Lawyer, 21 February). The magic circle followed suit in its March reviews, which came into effect in May, and bumped up pay from £35,000 to £42,000 for newly qualifieds.

As the market heated up, the pressure of the hikes was revealed when The Lawyer found Herbert Smith's property department under pressure to boost profits following the 30 per cent increase in assistant pay (The Lawyer, 24 April).

It was only a matter of time before the US firms in London hit back. New York practice Milbank Tweed Hadley & McCloy announced it would move all London lawyers onto New York rates, while Cadwalader Wickersham & Taft raised remuneration from £45,000 to £54,000 for newly qualifieds.

Macfarlanes and Gouldens were among the smaller City practices which reacted with big increases, and then the wave swept through the magic circle in November with unprecedented mid-term rises. Slaughter and May introduced pay increases for assistants of up to 15 per cent (The Lawyer, 23 October), and the rest of the magic circle upped compensation in line.

Last month, the battle moved to bonuses, when New York firms announced $40,000 (£27,970) payouts for first years that many agreed to pay in London. How the UK firms will respond is yet to be seen, although Clifford Chance Rogers & Wells is paying the rewards to US lawyers already.

The bar felt the pinch as well. At the start of the year, George Carman QC's set dissolved (The Lawyer, 24 January), and he has since retired. Even pre-eminent magic circle set One Essex Court has had its pedestal firmly shaken, losing several tenants including leading tax silk Graham Aaronson QC and VAT expert Michael Conlon to Pump Court Tax Chambers and Michael Bloch QC and Terence Mowchenson QC to Wilberforce Chambers. Perhaps of more concern was the loss of two tenants to rival magic circle sets – Michael Rollason to Brick Court and Jeffrey Gruder QC to Essex Court.

The threat from solicitor-advocates may not yet be very visible in the courts but it is still real, and many chambers continue to drive towards consolidation to protect their position. This has led to several mergers and many more that have failed, most publicly that of Monckton Chambers and 4-5 Gray's Inn Square (The Lawyer, 3 July). The alternative has been to focus on the management of chambers which for much of the bar has simply meant ousting the senior clerk, bringing in a chambers director with only nominal power and then realising the mistake 18 months down the line.

However, despite the now commonplace doom and gloom stories that spell the imminent demise of the bar, it is still there. Even One Essex Court claims to be full of Christmas cheer. Head of chambers Lord Grabiner QC says the past three months have produced the set's highest earnings ever.

Matrix Chambers launched to a fanfare of publicity and has maintained the public's interest throughout the year. It has even managed to win over some of its colleagues at the bar, initially sceptical about the branding of the set as a specialist centre of human rights expertise. It has certainly shown some initiative, recruiting several star names – although Michael Beloff QC is still hedging his bets – and unusually employing paralegals.

In The Lawyer's first annual survey of barristers' performances in the House of Lords (The Lawyer, 30 October) Blackstone justified its status as The Lawyer's chambers of the year, winning top billing both in the individual and chambers rankings.

All in all, it was a year when good management and sound strategy was more important than ever. In such a competitive market, making the right move is always vital, but positioning firms so that the international reach, the technology and the salaries are all right is not easy.

If the market should take a dip – and the dotcoms are, quite frankly, making it look unsteady – it is likely to be the firms where the leadership has been steadiest that will emerge the strongest.