As Covid hit Germany in March 2020, the federal government moved decisively to implement multiple measures to mitigate its impact. Policies including an economic stimulus package to the tune of €130bn helped businesses survive. But it couldn’t stop the pandemic from pounding the country’s gross domestic product (GDP), causing an historic 10.2 per cent fall in the second quarter, and wreaking havoc on key German industries such as the automotive, manufacturing, aviation and tourism sectors.
For law firms operating in Germany, there was real concern over the knock-on effect. How catastrophic was the fallout going to be?
State of the legal market
The answer is complex but, largely speaking, the legal sector’s sufferings have not been nearly as bad as feared. Although ongoing work / transactions were still being completed in March, workload dropped significantly after that, due to the overall uncertainty regarding the immediate future. However, there were areas that were even busier than before (employment, restructuring and, given the massive shift to digital, IT, data protection and cyber security).
In early summer following the end of the first lockdown, business picked up again. Almost all law firms and practice areas seemed to recover quickly from the initial shock, returning to pre-Covid levels of work. This hasn’t changed – activity in the last quarter of 2020 appears to be extremely high and some firms are even ahead of budget.
Recruitment through Covid
The picture for recruitment, however, has not been so strong. At Fox Rodney here in Germany, we have been and are still involved, inter alia, in a number of strategic searches, but we still saw hiring slow down considerably, as many roles were put on hold. Many firms stopped undertaking new hires unless there was a real strategic need to commit. Opportunistic hires – where firms get the chance to unexpectedly scoop up new talent – fell by the wayside. Firms are still open for proposals (and we have seen some very interesting moves happening this year) but they are far more hesitant than they were pre-Covid; there needs to be a particularly strong rationale to proceed.
This is reflected in data we gathered from Legal Monitor’s global market mapping database*. In 2018-2019, international firms in Germany hired c. 85 partners. In 2020, this dropped to 48 hires from January to the end of October. In some firms the falls are particularly notable: one firm that made 12 hires in 2018 to 2019, made just one in 2020.
According to the same data, all practice areas saw a drop in recruitment numbers in 2020, except for insolvency/restructuring. But even here we expected it to be busier than it was given the market conditions. We anticipate, however, that as companies in hard-hit sectors face further financial pressure in the months ahead, we will see a wave of activity in restructuring and insolvency hitting next year, with a commensurate rise in recruitment activity.
For candidates too, push/pull factors have needed to be even stronger to convince them to move roles. In an uncertain market, candidates are understandably cautious to leave their current firms. Hiring firms have needed to engage with candidates with even stronger propositions and, again, there have been fewer opportunistic moves that characterise a more buoyant marketplace.
But while this has been difficult, there are positive signs for the future. Germany experienced considerable economic recovery following the first lockdown, with even the hard-hit industrial sector expanding production and sales from May. This is tempered by concerns over the severity of a second Covid peak this winter, but news of successful vaccines and their likely swift distribution from early January 2021, is generating optimism for a brighter year of recovery ahead.
In the meantime, Covid has taught us a few beneficial lessons, not least in the effectiveness of flexible working and the need for good communication. Without either, business could not have been conducted at all. We did hear of some associates who were left in the dark with no communication at all from their respective firms but, the odd horror story aside, firms performed remarkably well in these testing times.
Covid will leave its mark in the shape of many more opportunities for candidates requiring flexibility. And for law firms it will mean more investment in digital and technology, which will further improve flexible working options, open up paths to a wider talent pool working further afield, and potentially reduce the long-term costs of office overheads.
As for immediate recruitment, we are expecting placements to pick up again in 2021. How firms will then fare will be interesting. In the financial crisis, there were more opportunistic firms who saw it as a chance to take on laterals they might not have secured in better times. There has been less of that through Covid, which may result in a talent gap come any significant market uptick.
We will wait and see on that score. But what is clear is that the legal sector has yet again proved its resilience in these challenging times. Firms based in Germany have a particularly strong track record of performance and face the new year with robust and positive foundations on which to recover and grow.
By Helmut Rogalla, Managing Director, and Jan Heuser, Associate Director, Fox Rodney, Germany
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*Source – Legal Monitor