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Sun Microsystems Inc. Headquarters: Santa Clara CEO: Scott McNealy General Counsel: John Croll Fiscal 2002 Revenues: $12.5 billion Total Employees: more than 35,700 Total Lawyers: 150 Products include:UNIX-based network servers, computer workstations, software Source: company

John Croll’s first day on the job as general counsel of Sun Microsystems Inc. was April Fools Day 2002. Given the circumstances, it was hard to find much to joke about. The computer workstation maker’s stock price that day closed at $9.52 — an 84 percent freefall from its high during the dot-com boom — and the company was in the process of firing 10 percent of its 43,700-employee workforce. Employee stock options were under water, and raises were on hold. Croll immediately faced the prospect of cutting dozens of lawyers and hundreds of thousands of dollars from his budget. He also had the morale-crushing task of telling 25 of his 45 managers they would lose their titles as part of a company-wide effort to revamp a bloated and inefficient management structure. And just as the budget tightened and the legal department faced cutbacks, Croll and his team braced for an onslaught of work. Congress was in the midst of creating the Sarbanes-Oxley Act — a 9.0 regulatory earthquake that would provide the biggest changes in corporate regulation since the Great Depression. Even in the most cohesive of work environments, the challenges would have been tough. But Sun’s legal department is big, far-flung and, despite being part of a tech-industry superpower, has been hamstrung by outdated technology. Lawyers traditionally have interacted more with engineers and salespeople than with each other. And attorneys dug paper files out of cabinets whenever they needed a standard document. Croll “came on at a really hard time in the economy,” said Laura Fennell, vice president of corporate legal resources. “It was after the dot-com bubble burst � the economy was still cratering.” In the last 17 months, Croll has embarked on an aggressive reorganization of Sun’s legal department. He’s streamlined management, forced lawyers to get to know each other, and tried to improve morale by allowing attorneys more flexibility in job assignments. “He forced us to be a team,” Fennell said. “He’s forced us to make sacrifices for our own organization.” Still, Croll and his team face real challenges. The economy may be improving, but Sun continues to lay off employees. Sarbanes-Oxley has yet to be fully interpreted and implemented. And though his staff is giving him rave reviews right now, the question remains whether Croll will be able to keep morale up in the midst of a growing workload and dwindling resources. VALLEY CLOUT Sun’s legal department is the third-largest corporate in-house legal team in Silicon Valley behind Hewlett-Packard Co. and Intel Corp. At 150 lawyers, it rivals firms like Howard, Rice, Nemerovski, Canady, Falk & Rabkin and Munger, Tolles & Olson in size, and its legal budget feeds outside counsel at firms from Fenwick & West to Wilson Sonsini Goodrich & Rosati. The department is so big, in fact, that Sun is able to sustain a summer associate program. The company is one of the few with pockets deep enough to challenge industry titans like Microsoft Corp. in court. Since 1997, Sun has been waging an all-out battle with Microsoft over the Java programming language and competitive practices. Despite Sun’s clout, Croll seems most comfortable behind the scenes. He bristled during a recent interview when asked a few basic personal questions, like where he attended law school. “You’ve got my bio, so what I really want to talk about is our department,” Croll said. He went to University of Michigan Law School. Sublimating the desire for self-aggrandizement may seem almost un-lawyerly. But Croll seems comfortable in the role of company man. He’s a 13-year veteran of Sun’s legal department and is so low-key that when he took the GC job some of his colleagues on staff barely knew him. “There was a perception for a time that he wasn’t warm and fuzzy,” said Darryl Payton, director and deputy GC for training and development. Payton is quick to add that the perception is changing: “John is warm and engaging. You can talk to him about anything.” Of course, Sun itself isn’t known for being soft-hearted. During the dot-com boom, when other Silicon Valley players were installing foosball tables and handing out free Cokes, Sun was expanding at an exponential rate and fiercely competing for dominance of the workstation market. Despite its size, Sun is a relatively young company — it celebrated its 20th anniversary last year. But since its inception in 1982, it has been a magnet for venture capital. Within four years of its founding, Sun already had 4,000 employees and operations in Asia, Australia and Europe. The legal department still reflects the frenzied growth. It has offices in 22 countries, and until recently, business units — not the general counsel — decided when lawyers should be added. SUSPICIOUS OF LAWYERS Though they hired attorneys, the executives didn’t necessarily like them, said Croll’s predecessor as GC, Michael Morris. “They tended to be very suspicious of what lawyers do, considering them a necessary evil,” Morris said. “It’s a stereotype common in Silicon Valley and maintained by the people who managed this company.” Morris came to Sun in 1987 and presided over the legal department for 14 years. Under his watch, Sun’s lawyer team grew from seven to a pre-recession peak of 190, and he has been the chief architect of Sun’s battle with Microsoft. Sun sued the Redmond, Wash., giant for violating its license for the Java programming language. Sun eventually won a $20 million settlement and an injunction preventing Microsoft from distributing its own version of Java. In April 1998, Morris launched “Project Sherman,” hiring antitrust scholars and lawyers to try to persuade the U.S. Department of Justice to sue Microsoft for alleged antitrust violations. Morris gave up the reins of the legal department in March 2002 to devote most of his time to fighting Microsoft on Sun’s behalf. He’s also handling Sun’s defense in a patent infringement suit filed by Kodak. “You get to the point when you have done a job that long, you kind of sense you have done what you could do and you don’t have a heck of a lot more to contribute,” Morris said. At the same time, the company was also looking for ways to work more efficiently. As Sun grew, lawyers were teamed with the heads of its business units and served as counsel for the company’s individual divisions. If a unit expanded, so did the number of lawyers on its team. The model worked fine until the technology economy took a nosedive in 2000. The company stopped hiring more lawyers. “Those heads you thought you were getting or asking for disappeared,” said David Farrell, a lawyer who started work at the same time as Morris. “We still had a lot of activity, but we had a harsh realization that the cavalry wasn’t coming over the hill.” CROLL STEPS IN As Croll stepped into his new job, his first task was to get organized. The legal team needed a new structure if it was going to have fewer people doing more work. The first steps have involved consolidating his management team. He recruited Sun alumnus Michael Dillon, who had left the company in 1999 to become GC of ONI Systems Corp. Croll called him “clear out of the blue” and over breakfast at Hobee’s in Cupertino, described to him a restructured group that Dillon would lead. Dillon would take the helm of a new products law group and would take lawyers from six other divisions to handle how the company licenses technology from inventors. When Dillon left the company in 1999, he said he felt life at Sun had become stressful and frustrating because no one had stepped back and surveyed what the company’s lawyers did everyday. Sun was, in essence, “a 15-year-old startup,” he said. When Croll asked him to return, Dillon said he hesitated. But Sun, Dillon said, “has matured greatly. When I was here before, you did things just to get things done, and there was no attention paid to making sure you did things in an efficient way.” Efficiency was one of the reasons Croll brought Leif Frykman to Santa Clara. Frykman had headed Sun’s legal operations in Europe and was known for his organizational abilities and an enthusiasm for learning new technology. Croll asked him to take over day-to-day operations of the department and to upgrade the legal team’s outmoded technology. “John was very generous when he set up the job,” Frykman said. “He said ‘I’m only going to measure you in three things: quality, responsiveness and cost-efficiency. That’s your job description.’ I’ve been running with that.” As he was recruiting his lieutenants, Croll also had the politically sensitive task of demoting managers. Brian Martin, a lawyer who took Croll’s old job of overseeing sales, distribution and delivery issues, acknowledged that Croll was in a delicate spot. “A lot of people believed that being a manager was on the critical path to being promoted,” Martin said. By removing management spots, employees were left with the impression that there were no opportunities for career advancement. “When you limited the number of managers, you have to complement that with recognition that individual contributors can be promoted,” Martin said. For the managers who did retain titles, it’s meant more time dealing with keeping their workers happy. They have had to find new ways to reward employees — including giving them more flexibility to move to other job assignments. “It’s unlike a lot of firms where you’re locked into a specific area,” said 14-year Sun veteran Payton. “That flexibility to move around is as rewarding as a promotion.” Martin said he’s been surprised by the amount of time he spends on management issues for his some 75 lawyers. “My responsibility is to keep them happy,” Martin said. “The expectations have gone up in terms of managerial effectiveness.” Croll has also had to instill more of a team spirit in his managers. They have been grouped together to run the department instead of being given their own personal fiefdoms. Fennell said that coming together as a group hasn’t been easy. “There were several times where we could have said, ‘John, we’re not going to come to an agreement here’ and his point was, ‘Well, if you think you can’t do it, I’ll fix it,’” Fennell said. “And we slug back in” to come up with a consensus. Reorganization has meant a seismic shift in the way attorneys interact with the company. Instead of being assigned to individual product groups, Sun’s lawyers are now organized by their practice specialty. Croll said company policy prevents him from divulging a breakdown of attorneys by specialty. But individual lawyers at the company estimated the department has about 25 patent lawyers, five general corporate attorneys and about 120 lawyers who handle contracts and technology transfers, either licensing technology from another company or licensing Sun’s proprietary technology for outside use. “The folks that are deployed out in the field have the authority to render decisions to get deals done and move as fast as the companies need them to move,” Martin said. MAJOR EMPLOYER Though Sun has one of the Valley’s biggest in-house departments, it’s still a major employer of outside counsel. The company farms out much of its litigation work, employing just one litigator in-house. That means work for outside firms like Day Casebeer Madrid & Batchelder, which has had a substantial piece of the Microsoft battle. The company’s primary outside corporate counsel is Wilson Sonsini Goodrich & Rosati, which handles all of Sun’s mergers and acquisitions and securities filings. Katharine Martin, the Wilson Sonsini partner whose chief responsibility is catering to Sun, said the company is a demanding client. “It’s an account that requires more senior-level attorneys,” Martin said. “It means we need to be smarter in terms of how we staff matters.” Croll declined to reveal his budget or what the company spends on outside counsel. He said the benchmark goal has been to keep legal spending to one-third to two-thirds of 1 percent of revenue. For the first quarter this year, that would put legal spending at $93 million to $186 million. Clearly, the company keeps an eye on costs. And Fennell said Sun is particular about how its in-house counsel interact with outside lawyers. She encourages her team of five lawyers to look at outside counsel as business partners — but with a key caveat. “I tell my people that there are some things they’re good at, but don’t ever let them think for you,” Fennell said. “I tell them, ‘You’re making the decisions for the group.’” Croll said the company is trying to “develop good legal leadership throughout the entire organization as well as future general counsels, and to help these people develop and progress along their own career paths.” Though he’s pleased with the progress to date, Croll said he’s still tinkering. It’s one thing to make changes — and quite another to keep them working over a long period of time. “It’s a never-ending process of wanting to improve the services that we’re providing for the company,” Croll said. “This past year, we were able to put into place the command structure and controls and the organizational structure and blueprint we’re now going to work against.”

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