Freshfields Bruckhaus Deringer
Without doubt highly impressive figures from the German offices (35 per cent more turnover than any other firm), even though profitability still lags some way behind that of other major jurisdictions within the firm. The one exception is, as ever, the enigmatic Hamburg office, which even London partners regard with some awe. Most interesting is, however, the degree to which the paths of the German Bruckhaus offices and its old rival Hengeler Mueller have diverged. Freshfields Bruckhaus Deringer is slowly but surely (and not without some resistance from sections of the partnership) becoming integrated into the worldwide Freshfields model: higher leverage but considerably lower fees per fee-earner than at Hengeler. Although revenue per partner figures do not stand out as being anything special, there is still considerably more leverage that can be added.
Clifford Chance Pünder
What will impress competitors more than the profitability figures – which due to the relatively low number of equity partners guarantees is a function of high leverage in the German offices – is the billing power of Clifford Chance Pünder in Germany. The huge finance and corporate departments have gone some way to shaking off the reputation that Pünder had gained (somewhat unfairly) for having less premium work than its major rivals. Particularly important is the fact that Clifford Chance Pünder generates almost as much fees per fee-earner as its major rival Linklaters Oppenhoff & Rädler.
Linklaters Oppenhoff & Rädler
Huge strides have been made by the firm over the past two years (few could have imagined a few years ago that the German offices could bill almost DM300m (£98.3m)), but these figures demonstrate that there is still some way to go. Keeping pace with Clifford Chance Pünder must be the yardstick, and many will be surprised that the rival can generate as much fees per lawyer as Linklaters Oppenhoff & Rädler. The figures seem to demonstrate that the re-engineering of the practice is not yet at an end in Germany. Not only is there more pruning of the practices that can be undertaken, but leverage and partnership track might have to be increased as well – probably along the lines of Clifford Chance Pünder.
One Hengeler partner sums it up: “We can afford to be cheaper than our competitors because, while we still staff transactions with small teams, our major competitors have gone the way of the Anglo-Saxons. Our clients may pay more per hour or per lawyer, but they don’t pay for leverage.” Thus the model at Hengeler Mueller is resolutely focused on premium work in a way that none of its competitors can afford. Fees per fee-earner are the highest in the market, and even though Freshfields Bruckhaus Deringer might turn over more per partner, the low cost base at Hengeler (marketing budget? Overseas offices? Business development? No thanks) will guarantee high profitability. Just think what it could do if it had more aggressive billers. The question is whether there is a restriction on the absolute size of the firm if it remains purely German. The firm’s present strategy demands taking further market share from its major competitors if further growth is to be supported.
Shearman & Sterling
Without doubt one of the star performers in the German market at the moment. US partners look on with some amazement at the ability of the four German offices to shore up other less successful parts of the network (to which the US must be included at the moment). Many regard Shearman & Sterling here as a German firm with a US name, but this is not the case. Although the number of lawyers includes a considerable number of part-timers, the leverage is still much higher than many competitors think. The result: the second-highest fees per partner figure in the market, generating outstanding profitability. There were strong performances across the board – not just corporate and M&A, but also in tax.
Baker & McKenzie
These figures will astound many competitors. Few doubt the strength and profitability of the M&A, banking and employment practices, but no one would have imagined that fee-earners at Baker & McKenzie rate second only to Hengeler Mueller as regards billings. Baker & McKenzie lawyers have long complained that the German offices of the firm are underrated, and these figures would seem to justify their self-belief. A look at Baker & McKenzie’s transaction list over the past year points to how the firm has managed to become so profitable: its corporate lawyers have managed to force their way into the German blue-chip market to an extent that puts them in the position to threaten the leading firms.
Equally surprising will be the figures for Gleiss Lutz. Although its lawyers are universally praised, the firm still has some way to go before matching its competitors on fee generation and profitability. The relatively low fees per fee-earner figure does not tell the whole story, however. As can be seen from the revenue per partner figure, the real leverage is higher than at first sight, and the firm is also regarded as having a tight hold on its cost base. In the view of many managing partners this makes it highly competitive as regards partner remuneration.
CMS Hasche Sigle
Widely admired for its ability to integrate its practices, the next step must be increasing profitability firmwide, especially when the firm has introduced lockstep. With these figures, the prising away of important partners still remains a distinct threat. However, with the hardest work behind it, most other managing partners regard CMS Hasche Sigle as the firm with the strongest potential as regards profitability growth. The fees per fee-earner figure is especially healthy.
The converse is the case with Lovells. Also regarded as one of the management successes over the past two years, the strong profitability at the firm is down to its strong focus on improving the practices, concentrating on transactional work and improving the leverage ratio. The fees per fee-earner figure is notably weaker than CMS Hasche Sigle, for example. Raising this is particularly difficult, especially when the firm is seen by some financial intermediaries as an attractive alternative to the leading firms precisely because of its pricing.
Allen & Overy
The lessons of Allen & Overy (A&O) in Germany are: a strongly-managed and profitable firm will attract the partners it needs; and a focus on finance brings with it a number of advantages – relatively highly leveraged work, lucrative instructions and (just as importantly) very high levels of collections. Few before now would have imagined that A&O was one of the most profitable firms in the German market. Together with the growth of the corporate practice, the past year has demonstrated that the firm is now a major force to be reckoned with.