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Perhaps the cure for the post-tech- bust blues can be found at the corner of 15th and I streets in Washington, D.C. Palo Alto, Calif.’s Cooley Godward just opened an office there. It’s a prime address — and one that screams “The Establishment.” Most of the city’s powerful law and lobbying firms call the neighborhood home. The White House is two blocks away. Even the local watering hole, the Old Ebbitt Grill, touts its ties to the elite, advertising that “Presidents Grant, Cleveland, Harding, and Theodore Roosevelt” drank there. So what is a darling of the dot-com boom like Cooley doing in a place like this? Recapturing some of its technology bubble glory, it hopes. Though the D.C. office is still very small (just seven lawyers), Cooley is aiming for a share of some of the meat-and-potatoes antitrust and government work that dominates Washington. As Stephen Neal, the firm’s chief executive, puts it: “The firm’s strategic plan used to be to go to markets and replicate what we do [in California].” That’s not the case anymore. Cooley — make that Neal — has a plan: to transform the firm from a solid Silicon Valley player into a national powerhouse by shedding some of its tech-centric image and aggressively pursuing corporate and litigation work for large public- company clients. In other words, the opposite of the emerging-company deals that revved the firm’s financial engine during the boom. That’s not to say Neal is looking to abandon the firm’s tech base. But the Old Economy is suddenly looking very good to Cooley. There are some major hitches, of course. Cooley has few lawyers outside California. It spent the last three years trying — and failing — to find a merger partner. Its corporate side is still dominated by technology-based transactional work. Though some of the scars from the dot-com bust have faded (profits per partner are up) , it can’t quite shake the label of “first firm to lay off associates after the stock market tanked.” But after three years of on-again, off-again merger talks with a number of firms, and with the Northern California market doing better than it has since 2000, Neal exudes optimism. “We’ve concluded the better course is to go it alone. I don’t want us to continue looking and talking to firms. It’s a distraction at some point. Our economics are strong. We are in a position to do a lot domestically,” he says. THE LONG ROAD BACK The firm’s Palo Alto headquarters has all of the California touches. The cafeteria serves organic hamburgers. Recycling bins are everywhere. And the lawyers talk about their culture in touchy-feely tones. Everyone is working for the greater good of the firm, they say. Cooley is a place without stars or partner fiefdoms.
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No stars, that is, except Neal, who is at once a litigation rainmaker, strategic planner, and public relations draw. When it comes to Neal, the same lawyers who talk about the firm’s star-free system engage in a little hero worship. “Steve Neal is revered here for the combination of his leadership and his talent as a trial lawyer,” says Richard Climan, who heads the firm’s mergers and acquisitions group. Neal is the engineer of Cooley’s new strategy — and its success or failure may depend largely upon him. It’s an odd position to be in for a partner who joined the firm in 1995 looking for little in the way of management responsibility. He had been at Kirkland & Ellis, where he built a reputation as a star litigator by defending Charles Keating in the savings-and-loan scandal. Neal had served on Kirkland’s management committee, but when he jumped to Cooley, he says, “I didn’t have any desire to be in firm management.” But in 2000, as the stock market shuddered and Cooley’s longtime managing partner Lee Benton stepped down, partners looked to Neal to lead. Neal, however, didn’t want to give up his high-profile practice. So Cooley amended its partnership agreement to create a new management structure: Neal would be the firm’s CEO, and Mark Pitchford, his deputy in the litigation group, would take over as chief operating officer. While Neal paints the firm’s big-picture strategy, Pitchford focuses on the day-to-day tasks of firm management, doing everything from picking the color of the carpet to drawing up laterals’ compensation packages. (Neal bills about 1,800-2,000 hours a year, and estimates he spends another 500 on management duties, but says, “I’m not very disciplined about recording nonclient time.”) Neal and Pitchford weren’t in their new positions long before the glory wore off. By summer 2001, the 650-lawyer firm had too many lawyers and not enough work. In July the firm’s 10-person management committee met at the firm’s Washington state office in Kirkland and discussed job cuts. A month later, Neal sent a confidential, hand-delivered letter to partners’ homes saying that 86 associates would be laid off. On the day of the layoffs, Pitchford met individually with associates who were let go, and Neal made the firmwide announcement and tried to do damage control in the press. The dirty work of recovery had just begun. In early 2002 Neal visited each Cooley office to discuss firm strategy with partners. High on Neal’s list: a merger. It wasn’t an easy sell. “I think in the early days, the partnership was not convinced,” says Neal. “I proselytized.” Soon he placed a proverbial “will merge” sign on the firm’s front door, broadcasting the idea to other firms through media interviews. Neal may have been certain about a merger. But rank-and-file partners were not. Former partners say Neal began advertising for a merger before he had won broad internal support. Partners had competing interests: Those with public-company practices were tempted by a New York hookup; others eyed Washington or foreign expansion. In the Cooley fashion, the partners never staged an open revolt. But Neal was never able to build consensus. The result: confusion about where the firm was headed. “I wanted our firm to pick a direction,” explains Jeffrey Randall, a partner at Skadden, Arps, Slate, Meagher & Flom who left Cooley last year. Neal says the firm’s official line on merging was: “We’re not going to let any individual partners veto a merger, and we’re not going to do anything unless there’s broad consensus.” Cooley is hard-wired for consensus-driven decision making. And the partner compensation system overweights for teamwork. The firm doesn’t give origination credits, and management doesn’t spread tallies of how much business partners have originated. Instead, the system glories in subjective factors. “At compensation meetings every year, one question is always: What opportunity did you give to others?” says partner Craig Dauchy, a 30-year veteran of the firm and head of its venture group. Under the Cooley system, partners receive fixed draws each month (there are 10 levels of draws). In addition, Cooley reserves 35 percent to 40 percent of its profits for partner bonuses. Yet, even without the full buy-in of partners, Cooley spent the next few years as the law-firm equivalent of Carrie Bradshaw on “Sex and the City,” dating just about everyone in sight. It met with two now-defunct New York firms: O’Sullivan, which merged into O’Melveny & Myers; and Pennie & Edmonds, which later dissolved. Neal says O’Sullivan, a private-equity boutique, didn’t do much for litigators, and Pennie & Edmonds had an accounting issue that couldn’t be overcome. The firm also flirted with Orrick, Herrington & Sutcliffe in 2003 — but cultures at the two firms clashed. And as recently as this spring, Cooley continued to talk to other firms, including New York’s Proskauer Rose. Cooley had its own baggage that cooled potential mates: its tech concentration; its comp system; and underperforming offices in Colorado and Reston, Va. There was no Mr. Big (firm). Meanwhile, Cooley kept shrinking. One round of layoffs wasn’t enough, and the firm delivered a set of 27 more pink slips to associates in fall 2002. It also began targeting partners. “We thought about doing visible partnership layoffs,” says Neal. But the management committee nixed the idea out of logistical and public relations concerns. “We worked quietly with individual partners, in some cases urging them to think about doing other things, in some cases sending subtler messages through compensation.” In addition, the firm closed its Kirkland office in 2003; slimmed down in Colorado and Reston; and reined in expenses. The firm managed to keep its profits per partner steady, although gross revenue contracted. Today, the firm is roughly the same size it was in 1999, with just 12 more equity partners. While some partners may have been quietly asked to leave the firm, others left of their own accord. Proponents of a merger felt that if Cooley wouldn’t commit to a combination, they’d simply find a big firm themselves. “I reached the conclusion that Cooley was not getting farther than the Silicon Valley zip code,” says a former Cooley partner who left for a larger firm. Another troubling issue for management: Litigators were grumbling that their robust practices were subsidizing idle corporate lawyers. Indeed, despite his litigation stripes, Neal couldn’t stop defections from Cooley’s intellectual property litigation group, one of the most profitable areas of the firm during the down years. In 2004 IP litigation head Randall left with two other partners to launch Skadden’s West Coast IP litigation practice. He took with him a chunk of work for clients eBay Inc. and Applied Materials Inc. Others departed to Bay Area outposts of Howrey; Mayer, Brown, Rowe & Maw; and McDermott Will & Emery. Cooley suffered another major defection in June, when San Diego partner Stephen Swinton, who had been appointed to succeed Randall as IP litigation chair, exited for Latham & Watkins. Swinton is a seasoned IP trial lawyer. Neal dismisses most of the departures, calling Randall and others “people whose careers are still developing.” (Randall replies that he has tried more than a dozen jury trials, and that he headed the IP department for two years.) Neal concedes that Swinton’s departure hit the firm hard, and that it is recruiting laterals to fill the void. A DIVERSE PORTFOLIO Cooley lawyers love to talk about the firm’s list of marquee technology clients. This year they’ve performed major M&A deals for eBay, Adobe Systems Inc., and Siebold Systems. They also tout the firm’s work for biotech giants Amgen Inc. and Genentech Inc., which Cooley took public in the 1980s — never mind that neither are firm clients today. They also toss around Cooley’s blue-chip venture-firm clientele, such as Menlo Ventures and Sutter Hill Ventures. Ask Neal about the firm’s client base, and he will tick off another set of names, more New York Stock Exchange than Nasdaq: Tyco International, PacifiCare Health Systems Inc., and PG&E Corp. Who’s got the emphasis right? For now, both. While Cooley continues to show up on league tables for its initial public offerings and venture-backed work, Neal has quietly been working to diversify the firm’s client base, particularly by keeping busy with nontech clients such as USG Corp. and PG&E on the litigation side. He has grown litigation from an also-ran of the firm’s corporate group to a powerful force, adding general commercial litigation lawyers and beefing up the firm’s securities litigation group — not to mention his own client base. Since joining Cooley 10 years ago, Neal has recruited litigators laterally, including William Grauer, a securities litigator in San Diego, and John Dwyer, a commercial litigator who held a top post in the Clinton Justice Department. A heavy dose of litigation clients and two litigators at the firm’s helm “does present a different slant on the world from where the firm was historically,” says Latham’s Alan Mendelson, a former Cooley rainmaker who left the firm in 2000. Under Neal’s stewardship, litigation has grown from roughly 35 percent of the firm’s annual revenue to about 45 percent. Neal insists that Cooley won’t yield any ground on technology work. And the firm, he says, will continue to represent small, emerging company clients — which tend to pay less and have lower realization rates. It can hardly afford to let go. Out-of-town giants like Skadden have made significant inroads in Silicon Valley, competing for high-end work at major tech companies. Cooley can no longer focus merely on raising up emerging company clients, assuming they will stick with the firm when they are fully grown. Neal says the firm has made “a big systematic effort to build more public company capabilities.” So far, Neal’s best evidence of Cooley’s success is his own achievements in hustling new work. He is the firm’s litigation heavyweight, billing at $750 an hour. And he shares. The formula for new, big-ticket litigation matters goes something like this: Neal gets the first call, and takes in the case. Over time, the client grows comfortable with Neal’s colleagues and begins sending work to them, too. Take Gilead Sciences Inc., a Foster City, Calif.-based life sciences company. When Gilead was hit with a shareholder class action and derivative lawsuit in 2003, general counsel and Cooley alum Gregg Alton hosted a beauty contest of five or six firms. He says that he chose Cooley “not out of any sort of allegiance. . . . We were really sold on Steve Neal.” Alton insisted that Neal make all courtroom appearances. But after working with other partners, Alton allowed them to argue in court, too. When utility PG&E sought bankruptcy protection during the California energy crisis and faced the possibility of a trial during its restructuring, general counsel Bruce Worthington turned to Neal. It was a move so important to the company’s future that it required a sign-off from PG&E’s chief executive. Since the restructuring — which resulted in a trial, and ultimately a settlement — Worthington has called on San Francisco partner Marty Schenker for a large case with the state utilities regulator over billing practices. “The introspective question Cooley needs to ask itself is: How deep is its bench?” says a former Cooley partner. Neal acknowledges, if uneasily, that he is the magnet that attracts litigation clients to the firm. He adds, however: “That is a perception problem that we have to continue to deal with at the firm. But there’s actually a very substantial list of people who have had high-stakes trial experience.” WISH LIST Neal’s wish list for Cooley is a long one. The firm needs a presence in New York if it wants to be a public-company player, it has to shed its image as a tech-only player, and it must tap into the China market. More immediately, Cooley needs to fill the empty offices in Washington. Right now, the team has succeeded in luring two tech partners and one regulatory partner from DLA Piper Rudnick Gray Cary. Neal hopes to add antitrust partners or commercial litigators as well. A practice involving the Securities and Exchange Commission would be nice, too. And Barbara Kosacz, head of Cooley’s life sciences practice, says clients are eager for help in Food and Drug Administration regulatory matters. (Cooley now refers that work to other firms.) Picking off a prime Washington practice is no easy feat. (Just ask another Valley player, Fenwick & West, which tried and failed during the dot-com boom.) Regulatory lawyers reside in highly profitable D.C. or New York firms or the occasional tight-knit boutique. Antitrust lawyers pose other challenges. “The big practitioners in Washington are involved in big-time mergers and the ensuing litigation,” explains a D.C.-area recruiter. “You’ve got to have a good stable of clients who are engaging in big-time mergers. The Cooley Godward client base isn’t heavily involved in that.” Neal’s magnetism is undeniable. Whether it reaches into the Old Ebbitt Grill remains to be seen.


Carlyn Kolker is a senior reporter for The American Lawyer , where this article first appeared.

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