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For two hours Wednesday evening, Larry Sonsini’s top lieutenants sat cloistered in his Palo Alto office, strategizing over one of the biggest deals of Sonsini’s long career: whether he should take the helm of the New York Stock Exchange. Sonsini — a member of the exchange’s board of directors — was offered the job in the wake of Richard Grasso’s resignation Wednesday as the NYSE’s chairman. Grasso left amid a growing scandal over his nearly $140 million pay package. Clearly, heading the exchange — even on an interim basis — would be a prestigious capstone on an already celebrated legal career. But by the end of the meeting with his partners, Sonsini had decided to say no. It’s still not clear exactly what made the Wilson Sonsini chairman turn down the job. A firm spokeswoman said only that Sonsini himself suggested to the stock exchange board that it not make an interim appointment at this time. Sonsini declined requests Thursday for an interview, and it’s still possible that the board could ask him again to take over. But in begging off the chairmanship, Sonsini may have considered an array of less-than-attractive scenarios. For one, Wilson Sonsini — a firm he has spent 37 years helping build — would be left without its biggest rainmaker and central decision maker. And in taking on the role of chief regulator on the world’s most famous stock exchange, Sonsini would be inviting greater scrutiny of his firm’s record as the go-to legal adviser during the dot-com boom. “They could have asked themselves, do we want our role in the tech economy to be part of all the press attention?” said the chairman of another Bay Area firm with a large technology practice. Sonsini is also the lawyer for companies traded on the NYSE, such as Hewlett-Packard Co. — thus exposing himself to criticism that he’s regulating companies in which he has a personal interest. “Why would you want to be in the middle of that controversy, especially when you have some potential conflicts,” said Patrick McGurn, a vice president of Institutional Shareholder Services Inc., a Rockville, Md.-based firm that advises big investors on proxy battles and corporate governance issues. Sonsini also faces questions over how the board as a whole handled Grasso’s compensation, McGurn said. Grasso quit Wednesday after revelations about his pay package enraged members of the exchange. Sonsini participated in the conference call during which the board voted to ask Grasso for his resignation, Wilson Sonsini’s spokeswoman confirmed. It was also during that call that Sonsini was invited to take the chairman’s post. “It’s one of those double-edged blades,” McGurn said. “Being asked to join the NYSE board has a certain cachet, or at least it did. But the blade swings in the opposite direction, and you can be criticized if you don’t do an adequate job as a director.” McGurn, who has close dealings with many large institutional investors, said Sonsini was a compromise candidate who had managed to avoid being linked to camps supporting or opposing Grasso. Despite all of those potential problems, Sonsini was tempted by the job, said a person familiar with the firm’s internal discussions. But ultimately, he didn’t want to leave the firm suddenly, the source said. “It was important for the firm [that he] be deliberate,” said the source. “And he felt strongly the [NYSE] board should use its existing structure.” In his role as a board member, Sonsini participates on the NYSE’s committee on corporate governance, which was set up in February to examine the agency’s own governance structure. The committee will make its final proposal to the board next week. Sonsini kept his job prospect secret except from his management team, which includes partners Donald Bradley, Donna Petkanics, Mario Rosati, John Roos and Jeffrey Saper, each of whom took part in Sonsini’s deliberations. The rank-and-file partners, meanwhile, were learning of Sonsini’s opportunity through news outlets and from a sudden barrage of calls and e-mails from friends and clients. After the initial shock wore off, many partners were excited for Sonsini and for the firm — as long as it was temporary. “People were talking about an interim position, so there was a sense that the firm would be fine and it would be a nice opportunity for him,” said one senior partner who spoke on condition of anonymity. Partners and clients said Wilson Sonsini has built a deep bench of talent. A Sonsini departure wouldn’t hurt the firm — if it were temporary. “We would lose him, but only in the interim,” John Croll, general counsel of Sun Microsystems Inc., said. “But one of the hallmarks of his leadership at Wilson is he has hired and groomed terrific lawyers.” New York securities lawyers, however, aren’t so sure that a seat on the exchange board is the best thing for a firm like Wilson Sonsini, which is so tied to the depressed tech economy. Joel Greenberg, a Kaye Scholer partner in New York, said a partner like Sonsini is hard to replace, and moving huge books of business from one partner to the next generation is not an easy task. “On the one hand, the firm would be perceived as having an intimate relationship with an important regulatory agency,” Greenberg said. “The negative is Larry is very important to that firm.” Greenberg was optimistic, however, that Sonsini could have maneuvered around any conflicts issues arising from his representing companies traded on the exchange. “If there were conflicts issues,” Greenberg said, “he could have dealt with them.”

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