When Lovells decided to shut its Berlin office earlier this month it was the final move in a long process of strategic reappraisal. The resignations of finance partners Thomas Lindemann and Andreas Schwennicke in May this year were simply the final straw.
“When they decided to set up on their own in Berlin it triggered another review to assess our strategic needs in Germany,” says Lovells managing partner David Harris.
However, Lovells Berlin was far from being a basket case. In 2005-06 its profit per unit was running at £12,500 compared with the firmwide average of £11,000. But the banking team’s location was a strategic oddity – Lovells needed a finance presence in Frankfurt and the Berlin team was unwilling to relocate.
Berlin is an anomaly in many ways. Clifford Chance acknowledged this when it decided to shut down its 10-partner office there in November 2004 after an analysis of profitability showed that the Berlin office was underperforming the rest of the firm by 25 per cent.
“If you’re not doing government or regulatory work as your main focus, there’s a questionable rationale for having an office there in the first place,” says Harris.
So why have so few law firms been able to make money out of the capital of Europe’s largest economy? For the handful of international firms with solid Berlin presences, there are three ways to make a go of it.
1. Make Berlin the only German office
Some US firms have made Berlin their sole German office, through which work can be funnelled. This was the preferred tactic for Wilmer Cutler (before its merger with Hale & Dorr) and Hogan & Hartson.
WilmerHale and Hogan have been able to rely on a healthy referral flow from the US, so for them it has been irrelevant in which city their lawyers are based. Berlin is regarded as being the best place to live in Germany – the pay scales are lower, but the lawyers are happier. Attracting talent is easy – young beautiful things flock to the capital in their 20s. Most move on when they realise partnership is only to be had in Frankfurt, Munich and Düsseldorf.
2. Focus on regulatory work
As Lovells’ Harris indicates, high-end public affairs work is key to Berlin visibility. Public affairs work can pay, and pay well.
Freshfields Bruckhaus Deringer Berlin head Wolf Spieth has built his regulatory and public law practice into one of the most profitable in Freshfields’ German operation. “It’s an essential thing to be in Berlin,” he says.
Freshfields’ client base includes a number of federal governments, but also Berlin-headquartered companies such as Deutsche Bahn and Landesbank Berlin, and corporate partner Annedore Streyl has attracted notice for her work with companies in regulated industries. Spieth’s Berlin operation is the dominant force in the capital.
However, Freshfields does have a rival for public and regulatory work in the shape of WilmerHale. It took former transport minister Matthias Wissmann and his sidekick Martin Seyfarth, the former chief of staff at the federal transport ministry, and they now have the leading lobbying practice in the city.
Notably, Hogan & Hartson and WilmerHale both have established lobbying businesses in Washington DC, so this practice focus does not scare the horses as it might do in other firms.
3. Focus on media work
Berlin has little indigenous industry; its last major industrial company, Schering, just got swallowed by Bayer. But it does make sense to build a media practice there. Christoph Wagner at Hogan & Hartson has acted for Axel Springer and on Haim Saban’s takeover of ProSiebenSat1.
Macfarlanes‘ best friend Nörr Stiefenhofer Lutz was the first to get in on the act back in the 1990s and has maintained a high profile in this area through young partners Alexander Ritvay and Christian Pliester.
That puts some perspective on Lovells’, and indeed on Clifford Chance’s, comments on the closure of their offices. If law firms cannot make it in Berlin, then that might have more to do with strategic mistakes of the past rather than inherent problems of the local market.
As one Lovells malcontent puts it: “We have offices in Zagreb and Ho Chi Minh City, but not in the capital of Europe’s biggest economy. That has to be nonsense.”