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German corporate counsel may be lagging behind their British and US counterparts still in terms of flexing their muscles, but indications are that this is soon to change.Over the last year, in-house lawyers working in the largest economy in Europe have found themselves at the centre of a massive storm. Buffeted on one side by a wave of change in the legal marketplace created by the advance of the Anglo-Saxons, German companies face record levels of M&A activity and corporate restructuring.M&A activity is expected to be boosted further by a new tax regime that was introduced at on 1 January this year, which will see capital gains tax exemptions for German companies that are selling shares in domestic or foreign companies.Although this has created a period of instability for in-house lawyers, the changes have also had their benefits.Corporate restructuring has led to a need for more in-house lawyers as companies have set up subsidiaries that require their own in-house teams. Three years ago the number of German in-house lawyers stood at 6,000. It is now estimated at 10,000.With the invasion of the UK and US law firms comes fierce competition for high-quality local lawyers and this has had an impact on the in-house sector.Historically, German in-house counsel have suffered from an image problem – perceived as second-class lawyers, much the same as their UK counterparts were until 10 years ago. Lawyers who worked for corporations tended to move in-house immediately after qualifying and were perceived as being less academically sound than the lawyers that worked in private practice. This meant that, until recently, there was very little movement of lawyers between private practice and in-house.But, this is changing, according to Nick Shilton, a consultant at City recruiters TMP QD, who moved to Germany in February 1999 when QD Legal became the first recruitment consultant to place legal consultants on the ground in Germany with the opening of its Frankfurt office.At the beginning of December 2000 QD opened a second German office in Munich and is planning a third in Duesseldorf next year in an attempt to tap into the growing demand from international firms for competent local lawyers.“The perception in some sections of the market is that in-house is behind private practice from a qualitative point of view,” Shilton says, “but you now find some very talented people going in-house – people who would be snapped up by the law firms.”As UK and US firms move in they bring with them US/UK salaries and German firms are responding in turn. In June last year, Hengeler Mueller Weitzel Wirtz raised its basic rate of pay to dm140,000 (£44,789), matching Freshfields Bruckhaus Deringer, which increased its basic pay to the same level at the beginning of the year. All merged German and Anglo-German firms have either matched the rate or are in the process of matching it.Traditionally in-house lawyers in Germany have not been paid as much as those in private practice. But as recruiters move their sights to the in-house market in their search for top quality local advisers, all predictions are that this is set to change.“The in-house market is extremely buoyant at the moment,” says Naveed Ahmed of international recruitment consultants Laurence Simon. “For the first time, general counsel find themselves having to substantially increase the salaries of their in-house lawyers to fend off US law firms, which are willing to pay top dollar to attract staff.”European and US investment banks and telecoms/technology companies are also joining in the battle for the talented players. The banking sector has historically rewarded its lawyers competitively, but Ahmed says the past year has seen some banks slowly redefine the way they pay their in-house lawyers and come up with innovative remuneration packages to attract new talent and hold on to the existing team.If companies want to retain the top in-house talent they are well advised to bring them on to the management board. But German in-house lawyers complain that they still lag behind the US and UK counterparts in the management stakes.“There is a different concept here of lawyers,” said one in-houser. “They are still treated as a separate entity from the business. It is disappointing that general counsel rarely make it on to the board.”But this is also set to change, as the US model of the lawyer/businessman infiltrates German corporations and good in-house lawyers become a valued commodity.

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