The networking game

The fact that Germany is a tough market to crack was made clear by the decision of Slaughter and May and US firm White & Case to shut their Frankfurt offices 18 months ago.

But far from sounding a mass retreat, the closures sent a clear message to the city's foreign contingent: change or perish. Other firms decided to change.

Last year saw a marked shift away from practising English or US law only towards building up full service German practices – and UK firms have been at the vanguard.

Clifford Chance was the first convert to the new thinking. Jan ter Haar, the firm's resident partner in Frankfurt, says: “The decision was taken in 1993 that the only way to do things properly was to be a local firm. We needed German capability.” The firm had wanted to develop its relationship with Gleiss Lutz Hootz Hirsch & Partners. But the two firms went their separate ways with two Gleiss Lutz lawyers staying with the international firm to form the nucleus of its German practice.

That side of the firm got a boost last year when 13 lawyers, including three partners, defected from local firm Wessing Berenberg-Gossler Zimmermann Lange. A month later, Allen & Overy took on Peter Hein and Gill Driscoll from the blue-chip firm Bruckhaus Westrick Stegemann.

The moves showed that foreign firms were prepared to open their cheque books for the right talent. And German firms, which had largely dismissed foreign attempts to break into their market, sat up and listened. Clifford Chance now had a critical mass – 43 lawyers in Frankfurt, 32 of them German. Hans Piehl of Redeker Schon Dahs & Sellner says: “It showed that the foreign firms meant business.”

Other UK firms have the same objective of constructing viable German practices. In February 1996, Linklaters & Paines launched its revamped German practice, a joint venture with Schon Nolte Finkelnburg & Clemm operating as Linklaters & Schon SNCF.

Caspar Lawson, Linklaters' Frankfurt-based partner, describes the structure as “a partnership of two partnerships”. The new firm has 10 lawyers, mostly German, and is anticipating growth this year.

But why did Linklaters need to set up such a formal structure? Why not recruit local lawyers – as it had done in its Paris office – or establish an exclusive affiliation with its German associate, as other UK firms, such as McKenna & Co and Denton Hall, have done?

Part of the reason is that Linklaters already had a fairly close relationship with Schon Nolte, with the two firms swapping lawyers, and Linklaters was reluctant to lose the value of this by competing directly.

An exclusive association was also seen to be inadequate. Lawson explains: “If we are going to provide a seamless service to clients, we need to be close to each other – and both firms have the same interest in making the office a success.”

But local observers see problems with such set-ups. One argues that such firms may have difficulty attracting the best graduates because there are fewer guarantees of becoming a partner in a foreign firm and it is likely to take far longer.

Another problem is that, to lock German clients in, the foreigners need to be full service. This means building up national networks because the German legal market is region-based (see box). Most foreign firms concentrate on premium transactional work, making a Frankfurt presence sufficient.

At Linklaters & Schon, practice areas are capital markets, mergers and acquisitions and project finance. Linklaters can access Schon Nolte's 80 lawyers when necessary.

But some firms are expanding within the country. Baker & McKenzie, which operates in Germany as Doser Amereller Noack, has offices in Frankfurt and Berlin and is opening in Munich. US firm Shearman & Sterling has offices in Dusseldorf and Frankfurt.

Freshfields seems to be considering the full-service approach. It has a Frankfurt office with 15 lawyers, nine of whom are German-qualified. But it is reviewing its German strategy and has held exploratory merger talks with local firm Deringer Tessin Herrmann & Sedemund.

Such a move would give Freshfields a formidable position in Germany and may upset the careful strategies of the country's foreign law firms.