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The spartan office on the second floor is almost obsessively tidy, with its polished executive desk free of extraneous pens or Post-its and paperwork arranged at right angles. In his crisp, starched shirt and decidedly un-Silicon Valley tie, Larry Sonsini’s signature neatness is on full display — even in the way he describes the short history of the firm he famously chairs, Wilson Sonsini Goodrich & Rosati. “I’ve seen us have to grow from a startup with no respect to one of the great law firms in the country,” says Sonsini, hired fresh from law school by firm founder John Wilson. Few would disagree with Sonsini’s assessment of the 22-year-old firm. Barely out of its adolescence, Wilson Sonsini brings more companies through the initial public offering process than any other firm in the nation, according to Securities and Exchange Commission data. The firm is extraordinarily profitable: If projections hold true, revenues will jump 52 percent in fiscal year 2000 to $450 million, with profits of $134 million. According to data from a compensation memo revealed by a senior partner, Sonsini could scoop up as much as $5.4 million; rainmaker Jeffrey Saper’s take may hit $3.5 million; and name partner Mario Rosati could bring home $2.6 million. Yet Wilson Sonsini faces an imposing challenge. It’s not an invasion of big firms from the East Coast, and it’s not the cooling of the nation’s high-tech economy. It’s the threat posed by its own extraordinary growth and success. Unfettered expansion and a flood of cash and work have left Wilson with cracks in its culture that some partners fear could jeopardize the firm’s competitive advantage in Silicon Valley. The strains have become increasingly evident in the last few years. In 15 months, 19 partners have left the firm, many of them high-profile members of Wilson’s management team. The hiring spree that has made the firm five times larger than a decade ago has caused a corresponding decline in training for inexperienced associates. This inexperience, clients and peers say, has harmed the quality of the firm’s work. But the stickiest issue — the one that partners acknowledge has caused the biggest fights in the last few years — is money. The firm’s entrepreneurial culture has always rewarded the partners with the biggest books of business. It has also created rivalries in which partners competed fiercely against one another for associates, paralegals and other resources. The firm has taken on the issue by changing its compensation structure, but for some the move has come too late. “If you were just trying to get started, you looked ahead and saw that there were tiers of people ahead of you,” says a former corporate partner who now works in-house. “And the only way to [succeed] was to get out.” Meanwhile, the technology boom created huge paydays for Wilson lawyers who’d invested in firm clients. But the firm’s loose rules for investing fueled the tension and left public company clients out in the cold. “A public company client couldn’t get the attention,” said Timothy Sparks, a former partner who headed the employee benefits group. “It was frustrating.” The firm has made changes here, too, restricting investments by individual attorneys and instead emphasizing broad investment pools. Wilson’s challenge, partners acknowledge, is to assume the mantle of “great law firm,” as Sonsini puts it, without losing the hunger of a startup. Or, in the more delicate phrasing of John Roos, managing director of professional services, “The firm has gone through a period of tremendous growth and it’s been tremendously successful, and one of our challenges is to grow on our strengths.” Partners have one other sensitive issue to consider: After the man on the second floor leaves his tidy office for the last time, who will succeed him? Kept trim by his daily run on the treadmill, Sonsini, 59, shows no signs of stepping down soon. But inevitably, a change at the top will occur. The challenge, partners privately admit, is overcoming the perception that Wilson can’t function without Sonsini. “He’s worried about succession and people stepping up to the plate,” said Steven Bochner, a senior corporate partner. “We put too much pressure on him to make decisions. There’s not going to be anyone who can succeed him.” EXPLOSIVE GROWTH Golf clubs in tow, partners, associates and their families trek to California’s Pebble Beach every September for Wilson Sonsini’s annual firmwide retreat. The event is a two-decade tradition at Wilson, a way to let partners and associates get to know each other in an informal setting. Above the surf and sea lions, Wilson also engages in a little conspicuous consumption to remind its lawyers that they are among the lucky few who’ve landed at the nation’s leading securities firm. But this year’s retreat was a little different from years past. By Labor Day weekend, Wilson had 800 lawyers on the payroll — and with that many people, Pebble Beach required the preparation of a small military operation. The firm has had to hire an event planner and spread the retreat out over two weekends. Half the firm went the first weekend, the other half went the second. And the consumption — while still conspicuous — was curbed a little. Scotch orders came from a preapproved list, and — to the chagrin of some old-timers — golfers had to buy their own golf balls after the first three. With so many people on the course, Pebble Beach staffers stood firm on allowing only one round of golf per person a day. Growth, it seems, has even made parties harder to pull off. Since 1995, the firm’s ranks have grown by 167 percent, with 500 additional lawyers on staff — including 350 associates in the last three years. In 1990, by comparison, Wilson had 150 attorneys. Not that the firm had a choice but to expand. Wilson, with deep ties to venture capitalists and technology companies, long seemed the logical choice to become the premier Silicon Valley legal player as the dot-com economy took off. This was, after all, the firm that took public Apple Computer Inc. in 1979. It represented some of the first venture capitalists to step foot in Silicon Valley and had a hand in putting together the venerable Mayfield Fund. The firm represented some of the early semiconductor makers and has counted Hewlett-Packard Co. as a client for the past 20 years. To maintain its stature as the Valley’s go-to firm, Wilson responded by throwing as many lawyers as possible at the Internet explosion of the last few years. The additional attorneys have not only propelled the firm into the top slot among IPO advisers, but Wilson has also quickly become one of the most active mergers and acquisitions firms. Last year, Wilson ranked fourth among M&A firms — right behind storied Wachtell, Lipton, Rosen & Katz. Wilson’s rapid rise and tight hold over the technology industry is often compared with Wachtell’s. Founded in 1965, the 147-lawyer, New York firm booked profits per partner of $3.38 million in 1999, ranking it first on The American Lawyer‘s annual survey of the nation’s highest-grossing law firms. Wachtell co-founder Martin Lipton said he is delighted with the comparison. “They are absolutely the pioneers in some of the most important areas of the new economy,” Lipton said, singling out Sonsini as “one of the great legal entrepreneurs.” “I’d put them ahead of us maybe. It’s a much bigger firm, and sometimes size is everything,” Lipton said. But Wilson’s size was not the by-product of careful planning or business strategy. Despite its history as a Silicon Valley insider, Wilson was ill-prepared to handle the onslaught of new companies created by the advent of the World Wide Web. Work flooded the firm, and Wilson simply needed bodies — fast. “We were out of capacity,” said Sonsini. “We were reacting, no doubt about it.” Or as partner Roos puts it, “We didn’t grow to this size because we had a plan to grow to this size.” PARTNERS DEPART Even as it soars to new heights of profitability, Wilson has seen more partner turnover than at any time during its 22-year history. The 19 partners who have left the firm since September 1999 include some of the best-known lawyers at Wilson. Alan Austin, a top rainmaker who served as managing partner, left Wilson in July for Accel Partners, a venture capital firm. Barry Taylor, another corporate rainmaker, exited for E.M. Warburg, Pincus & Co., another VC firm. Gary Reback, whose anti-Microsoft writings bolstered the government’s case against the software giant, founded his own company. A handful of the firm’s up-and-coming partners also quit — people like James Strawbridge, who handled much of the work involving Pixar and Netscape Communications Corp., and David Segre, who represented Commerce One Inc. and Infoseek Corp. Ex-partners cite a number of reasons for their departures. They say they were overworked and frustrated by fights over getting enough associates to work on their deals. But a common refrain was dissatisfaction with the way the firm handled profits and investments. “In the last four or five years, the firm has increased the size of the investment pool, and the returns have been good — it’s been real money,” said Taylor, who served on the firm’s compensation committee. “But for the younger partners it was a drain.” Partners who had been around longer and put capital into the fund before the market soared were cashing in. For younger partners it’s been more of a waiting game. The firm responded by revamping its compensation system and its rules for investing in clients. Wilson now uses a point-based compensation system, which is designed to allow younger partners a faster climb up the pay scale. Wilson’s profits are now divided into 6,733 points, according to an internal compensation memo. When the plan was drafted last year, the points were estimated to be worth $14,240 each, but partners now expect that by the end of fiscal 2000 each point will be worth about $20,000. Points range from 22 for first-year partners to Sonsini’s 270. The move to points is a major departure for Wilson, which has historically rewarded rainmaking ability above all else. To win more points, partners will have to show their practices are more profitable than the previous year — in other words, they must bill more hours. Under the old system, they only had to show that they brought in more clients. “The firm is undergoing a transformation in this sense. Originally it was, ‘Let’s hustle every piece of business.’ As a consequence, the rewards went to people who were doing that,” said Michael Ladra, an IP litigation partner who has been with the firm some 20 years. Emphasizing profitability may also make it easier for specialty practices to develop, Ladra says. Wilson is attempting to boost its M&A, employment and corporate finance practices — none of which is expected to bring in a horde of new clients, but all of which are key to serving technology clients as they mature. Still, Wilson’s rainmakers are the ones making a killing. This year’s points were awarded based on the prior year’s profit schedule. And it will take a while before those without a giant book of business claw to the top of Wilson’s pay scale. INVESTMENT TENSION Profits are just part of the story. The firm also decided it was time for new rules on client investments. Throughout most of its history, partners could invest up to 10 percent of the firm’s investment. They could also bring other partners and associates into the deal to contribute more capital. Some partners complained that corporate lawyers had an unfair advantage over litigators and other partners who didn’t work as much with start-ups. “It was fairly corrosive to the firm,” says an attorney who left Wilson in the past year. “It made people run after equity.” Further fueling tensions, corporate partners used stock as an incentive to get associates to work on their deals. In the words of one former partner, “It created a stampede.” Partners who didn’t have stock to dangle had a hard time recruiting and holding on to their people. During this time, “my goal was to eliminate the possibility that young lawyers would make career choices based on misperceptions about stock opportunities,” said partner Robert Feldman, Wilson’s head of litigation. But, “we did lose litigators.” According to numbers provided by the firm, the number of corporate lawyers at Wilson grew from 179 in 1995 to 507 as of Oct. 30. The firm’s litigation practice group, by comparison, grew from 90 to 191 during the same period. From the firm’s point of view, emphasizing startup work is fine when the stock market goes gaga for nearly every IPO. But Wilson’s management said it recognizes that the firm needs to build up practice areas like M&A and employee benefits to help public clients. Having so many associates focused on pre-public companies could mean that bigger clients are neglected and feel the need to jump to another firm. “We want to be the dominant player serving technology enterprises from startup to as big as they want to be, and whatever services that they require as core to their strategy, we want to provide,” Sonsini said. More upsetting to many partners was the windfall some associates were making off client investments. In one case, for example, an associate was able to buy pre-IPO stock in Commerce One Inc. for as little as $4 per share and watch it climb to $61 a share on the first day of trading. Some associates even formed syndicates to cut in their colleagues on the action. The result: Some associates were taking home more than partners. As partner Donald Bradley put it at a recent seminar for corporate lawyers, the disparity “had become a morale issue.” None of this was making life at Wilson particularly warm. The divisions aggravated a problem inherent in Wilson’s physical layout, which puts distance between partners. Wilson’s Page Mill Road “campus” in Palo Alto, Calif., centers around the firm’s glass-walled headquarters — jokingly referred to as “The Death Star” by lawyers inside and outside the firm. This is the home of Larry Sonsini and some of the firm’s most powerful corporate lawyers. Most litigators, however, live in a smaller building across a pair of parking lots. And many of the IP lawyers are even farther away in offices down California Avenue. “It gets more complicated as we grow larger,” said Donna Petkanics, the firm’s managing director of operations. The new investment rules weren’t so easily adopted by the partnership. Some partners had liked the existing structure — either because it helped them recruit or made them money. “Corporate lawyers were saying it’s hard to develop these [client] relationships,” said IP litigator Ladra. “The fear was that taking away the motivation was going to hurt the firm in the long run.” Not everyone bought that argument. Given the firm’s dominance in the technology sector, Wilson lawyers don’t have to beat the bushes to scare up business as they once did. “We crossed that bridge a long time ago,” Ladra said. Under the new structure, individual lawyers may continue to invest directly in clients they bring to the firm, but have to share their allotted 10 percent with any partner they include. Associates were cut out altogether. The firm also created two parallel funds. One is called WS Investments Mandatory, which is funded from firm profits and doled out to partners based on their points. WS Investments for the year 2000 was to be about $15 million to $20 million. The other fund, called WS Investments Voluntary, is for partners who want to invest more capital. About 75 percent of the 128 partners invested in the voluntary fund, which totaled about $12 million. The firm continues to carve out a bonus pool from its existing investment fund to reward associates. It is also exploring creation of a new investment pool that will be open to associates. No surprise, the decision to change policies for individual investing wasn’t popular with many associates. “In this valley, when your contemporaries are making millions, it doesn’t feel like a bonus,” said a Wilson associate who spoke on condition of anonymity. But for Ladra and other partners, the process of redoing WS Investments was a major turning point for the firm. “The fact that we came up with a solution that works, that everyone could accept, told me this is an organization with long-term viability.” As with the new compensation system, the goal is to strike a balance between entrepreneurship and structure. “What is difficult is to allow the individual freedom and yet make sure you’re building an institution that will last,” Sonsini said. QUALITY QUESTIONS The arrival of hundreds of associates has simply overwhelmed partners. In less tumultuous times, they would have been able to coach younger lawyers and closely supervise their work. In recent years, that has proved impossible, and partners — including Sonsini — acknowledge that quality has suffered as a result. “I think during this period of time — when there was so much business and we were out of capacity — the quality did get hurt a little bit,” Sonsini said. Investment bankers, who spoke on condition of anonymity, complain that some IPO documents — the bread and butter of Wilson’s business — sometimes missed key details and were so sloppy they had to be rewritten. From a client’s perspective, however, having the name Wilson Sonsini on their side was worth a few mistakes. “Wilson Sonsini is very successful and sloppy,” said a partner at a competing New York firm, “but it has a wonderful reputation, and there is no better-connected firm in the Valley.” If Wilson’s clients are willing to forgive the occasional slip, colleagues in the legal profession cackle a bit at the mistakes. That applies even when it’s unclear whether Wilson really stumbled. In December 1998, Wilson represented Mountain View’s Quickturn Design Systems Inc. in its attempt to fend off a hostile takeover by Oregon-based Mentor Graphics Corp. The case played out in Delaware, where Quickturn was incorporated. Wilson advised Quickturn executives not to waive attorney-client privilege about boardroom discussions of anti-takeover measures — even though talking may have helped their case when their decisions were questioned by a Delaware judge. The judge, Delaware Court of Chancery Vice Chancellor Jack Jacobs, was suspicious of Wilson’s counsel because the board members seemed confused about the takeover measure — a “delayed redemption provision” — that they had adopted. To Jacobs’ annoyance, Wilson’s briefs contradicted what board members said when they testified. “The directors’ testimony supports one rationale for adopting the delayed redemption provision, while their attorneys’ characterization of that testimony in their briefs points to another,” Jacobs wrote in his December ruling in Mentor v. Quickturn,16584. “The resulting impression is kaleidoscopic — of constantly shifting interpretations that obfuscate rather than clarify the analysis.” The case was closely watched by takeover specialists and corporate lawyers because of issues surrounding the use of the delayed redemption provision. The general consensus among many who followed the trial was that Wilson had dropped the ball. “Somewhere between the directors and the lawyers, the educational process didn’t get as far as one would have liked,” said Lawrence Hamermesh, associate professor of corporate law at Widener University School of Law in Wilmington, Del. Hamermesh is a corporate governance specialist who was called as an expert witness by Mentor. The judgment was a mixed bag for Wilson. Yet, despite the judge’s harsh assessment, the firm’s strategy paid off for Quickturn. By going to trial with Mentor over the anti-takeover measures, the company had time to find a higher bidder. Cadence Design Systems Inc. bought Quickturn in January 1999 for $271 million, or about $19 million more than Mentor was willing to pay. “We understood what we were doing,” said David Berger, the Wilson partner who advised Quickturn’s board to stay quiet. “I wasn’t doing it because there’s a concern Wilson Sonsini is not giving good advice. The only way that a board can deliberate in a reasonable fashion with its lawyers is if it knows the discussions are going to be privileged.” But it’s the judge’s words — not Wilson’s defense or Quickturn’s success — that still ring in competitors’ ears. “Either the lawyers didn’t understand [the provision] or they failed to articulate it. The court could not figure it out,” said a Delaware lawyer who has worked alongside Wilson on corporate matters. Whether they agree with the Quickturn criticism or not, Wilson partners say quality is an issue they must address. For five days in October, freshman associates and new laterals gathered at the Hotel Sofitel in Redwood City, Calif., for a training program on the basics of serving technology clients. A training session may not seem particularly groundbreaking, but it was the first time Wilson had ever taken a firmwide approach to teaching new hires. The firm has also tapped partner Roos to oversee training and development, and individual practice groups are having weekly training and informal get-togethers to improve performance. With the economy slowing, Wilson’s focus has turned away from hiring. That, in turn, should give partners more time to spend with less experienced lawyers. “I think we have attempted in the partnership to continue the emphasis on mentoring and quality control,” said Saper, the partner charged with managing the firm’s strategic planning. SUCCEEDING SONSINI Quality, however, is a walk in the park compared with the minefield that partners face with this question: What happens to Wilson when Sonsini is no longer at the helm? The firm’s chairman is aware that he needs to find a successor, and that he needs to spread out management responsibilities among more partners. “Our management structure really was archaic in my view,” Sonsini said. “It … had an executive committee that was really just kind of a sounding board for management.” And management consisted primarily of Sonsini and Austin, who was managing partner of the firm for 4-1/2 years until his July departure. The firm also endured the February resignation of the firm’s longtime CFO, Harvey Schloss, for an in-house position at a networking company. “The structure we were building before seemed to be more and more dependent on me,” Sonsini said. “It seemed to be that every decision had to funnel to me.” Not only had Sonsini become a bottleneck for administrative tasks, his partners weren’t getting management exposure either. The larger the firm grew, the more of a problem it became. “I began to feel that with the explosion of the Internet and the explosion of the tech industry, and the rapid growth of the firm, that the firm maybe was starting to run me rather than me running the firm,” Sonsini said. To ease the administrative burden, the firm in May created a new management team comprising three senior partners as well as Sonsini. The trio — Roos, Petkanics and Saper — was on display at Wilson’s latest Pebble Beach retreat. Most years, Sonsini has been at the center of festivities at the Saturday morning breakfast briefing that kicks off the event. He delivers a state-of-the-firm address and walks his lawyers through plans for the coming year. In 2000, however, Sonsini made a few, brief introductory remarks and ceded the floor to the firm’s newly crowned management team. Stepping back at Pebble Beach was a symbolic move meant to give the new leaders at the firm a taste of the spotlight. Sonsini, in essence, gave them a public blessing before the entire firm. Saper, 52, has been tapped to handle long-term strategy. He was already a Sonsini confidant when it came to strategic decision-making. He advised Sonsini when the firm recruited a pair of M&A specialists — partners Michael Kennedy and Steven Camahort — from Brobeck, Phleger & Harrison. Roos, 45, has been with the firm 15 years and was recognized by Sonsini as being particularly sensitive to the firm’s culture — a key trait for someone who is charged with strengthening lines of communication among the firm’s practice groups. In Petkanics’ case, a big deal helped her gain access to the inner sanctum. She led a team of more than 100 lawyers who carved Agilent Technologies Inc. from top Wilson client Hewlett-Packard Co. and took it public in 1999. The juggling act sold Sonsini on the idea of having the 42-year-old take over Wilson’s day-to-day operations. “One person cannot run all of these operations, and if you don’t have people in roles of responsibility making decisions a lot of things aren’t going to get done,” Sonsini said. Make no mistake about it, however. Sonsini is still in charge. Partners say he is the one who has the final say when it comes to compensation and steps in to mediate disputes. Sonsini is also the ultimate Wilson rainmaker. He controls a book of business that — by conservative estimates — exceeds $50 million and includes clients such as Hewlett-Packard Co. and Pixar Inc. Current and former Wilson partners say Sonsini’s personal involvement has been the single most important factor in making the firm what it is today. But that can also be a burden for people who work under him. “He wasn’t Machiavellian; he just thought he could do it better. His genetic coding is such that he feels uncomfortable unless he’s in control of things,” said a former senior partner who worked closely with Sonsini. It’s not an unfamiliar refrain to Sonsini, who says, “I’m probably sometimes too eager to get it done. I’m probably one of those people that say, ‘Give me the ball, and I’ll take it.’ I think I need to delegate more.” For a firm as large as Wilson, the concentration of so much business and power in one person’s hands could be dangerous — a point even Sonsini concedes. “One of the purposes of the management change is to take a lot of the danger out of the system,” he said. But the danger that Sonsini refers to doesn’t disappear overnight. If, for some reason, Sonsini left the firm tomorrow, the transition to new leadership would be a period of intense uncertainty. “Obviously, Larry’s departure would be very significant, not just because he’s a great lawyer, but because he has been our unquestioned leader for a long time,” said Steven Schatz, a litigation partner. “However, this firm has now become an institution. And we have one of the broadest and deepest client bases of any firm in the country.” BY-PRODUCT OF SUCCESS Wilson’s challenges are, of course, a by-product of the firm’s enormous success. It is no longer the small startup of Sonsini’s early years, hustling for every scrap of business and measure of respect from the legal community. Sonsini contends that the firm’s recent self-examination is the same kind of evolution under way in the Valley as a whole. As the technology industry matures, so, too, must Wilson. “We represent the tech industry, and the tech industry has turned itself around 180 degrees,” Sonsini said. “Everybody’s become a technology company, and it became clear to me that we had to look into every segment of our business strategy.” Sonsini, as his pristine office attests, hates a mess. He’s helped fuel his firm’s upward climb, and he’s unlikely to tolerate any clutter that could endanger his legacy. “I think we went through a tough period of time, but we did great,” Sonsini said. “With hindsight, we probably did better than most firms, because what we didn’t do was stand still.” Related Charts: Wilson Sonsini Goodrich & Rosati Offices Key Wilson Clients Steady Climb: Wilson’s growth has skyrocketed in the last five years The Managers: A trio of partners has been tapped to help Wilson Sonsini grapple with its growth Rainmakers: Partners who keep the cash flowing at Wilson

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