Thank you for sharing!

Your article was successfully shared with the contacts you provided.
On the morning of March 19, Walter Hewlett and his lawyer, Stephen Neal, took their seats in the middle of the Flint Center auditorium in Cupertino, Calif., along with a couple dozen of Hewlett’s family members and advisers. They had gathered at this community college building for one of the most closely watched corporate events in years: a shareholders meeting to decide if Hewlett-Packard Co. should acquire Compaq Computer Corp. for $22 billion. During the previous four months, Hewlett, the son of company co-founder William Hewlett and an HP director for 15 years, had waged an unprecedented proxy fight to kill the deal. At 8:40 a.m., after the start of the meeting had been delayed for 20 minutes, HP chairman and chief executive officer Carleton “Carly” Fiorina stood on stage and declared the polls open for shareholder voting. Next to her on stage were general counsel Ann Baskins and another in-house lawyer, who were both seated at a table, wearing headsets. At the other end of the headsets was HP’s lead outside lawyer, Larry Sonsini, who was watching from the wings and relaying messages to the lawyers on stage. Shortly after 10 a.m., as Fiorina was taking questions from the audience, Neal got some bad news. He had moved to the side of the auditorium and was standing next to Walter Hewlett’s lead proxy solicitor, Daniel Burch, the president of MacKenzie Partners Inc. Burch’s BlackBerry wireless device flashed the message that Deutsche Asset Management, an investment arm of Deutsche Bank AG, had switched its vote. The institution had initially voted its 25 million shares against the merger, but had just decided to change the vote on 17 million of its shares (nearly 1 percent of HP’s stock) to yes. A minute or two later, general counsel Baskins, still wearing a headset, drew Fiorina’s attention to a note. The CEO looked at the paper, paused, and at 10:05 declared that the polls would close shortly. The voting officially stopped at 10:14. Within a few hours the company declared victory for the biggest high-tech merger in history — even though the official vote count wouldn’t be finished for weeks. Hewlett, who insisted that the vote was too close to call, didn’t sit idly by and wait for the tally. Nine days later, he sued to have the balloting declared invalid, claiming that HP management had improperly pressured Deutsche Bank to switch its vote. It’s not surprising that it’s come to this. Neal — who has been Hewlett’s closest and most influential adviser during this fight — is a litigator who doesn’t like to back down. When he defended his most notorious client, Charles Keating Jr., Neal stuck with the reviled former savings and loan operator for nearly eight years, even when some of his then-partners at Chicago’s Kirkland & Ellis urged him to walk away. In the end, he got Keating’s state and federal convictions reversed. In early April, HP suffered a big setback when the Delaware Court of Chancery rejected its motion to dismiss Hewlett’s suit, which ultimately went to trial April 23. Regardless of the outcome, the trial is bad news for HP’s management and Sonsini. [ Editor's note: On April 30, after this story was finalized, the Delaware court rejected Hewlett's challenge to the merger and ruled in favor of HP. See related article at right.] Fiorina’s team can’t have relished the prospect of seeing HP executives forced to lay bare their decision-making under oath. Even before the trial started, HP executives were mortified when a private voice mail by Fiorina was leaked to The San Jose Mercury News. In the message, two days before the vote, Fiorina told her chief financial officer, Robert Wayman, that the company might have to “do something extraordinary” to get Deutsche Bank on their side. For Neal, a relative newcomer to Silicon Valley who joined Cooley Godward from Kirkland in 1995, the HP fight has offered a chance to be at the center of one of the most exciting corporate sagas the Valley has ever seen. Neal — who is Cooley’s chief executive officer — also has used the occasion to wage an assault against the region’s long-reigning legal titan, Larry Sonsini. In the culture of the tight-knit Valley, jealous competitors may grouse about Sonsini and his firm behind his back, but they don’t cross him in public. Neal, by contrast, has seemingly gone out of his way to attack Sonsini’s judgment and integrity. The Cooley leader has attempted to yank Sonsini off his pedestal and treat him like just another adversary. Two weeks before the shareholders meeting, Steve Neal walked into a conference room next to his office in Palo Alto, Calif., which is just down the road from Hewlett-Packard’s headquarters. Six-feet-four, he carries himself lightly and easily. That day, March 5, was predicted to be pivotal in the proxy fight: Institutional Shareholder Services (ISS), an influential advisory group, had announced that it would reveal its recommendation on the merger, a decision that was expected to sway crucial votes. At this point, the race seemed tight. The families of both founders — William Hewlett and David Packard — and their foundations had come out against the deal. They worried that Compaq’s low-margin personal computer business wasn’t a good match for HP’s profitable printer business. And their opposition was more than symbolic; they controlled 18 percent of the stock. But the company had lined up some big institutional investors on its side. The 53-year-old lawyer seemed so upbeat that he must have received good news; had ISS rejected the merger? “ISS recommended in favor of the merger,” said Neal casually, without a trace of disappointment. “That’s what we expected.” He popped open a can of Diet Coke. Neal had accompanied Hewlett for the second of two meetings he held with ISS, and helped with the presentation during the three-hour session. Although Neal and his client lost that round, the lawyer almost succeeded in making it seem like a nonevent. After dispensing with the ISS news, Neal turned his attention to a copy of a letter that he had written to Sonsini two days earlier, in which he had labeled Sonsini’s conduct “deplorable” and “outrageous.” Asked about this harsh language, Neal — his bass voice, usually pitched as low as humanly possible, rising slightly — replied, “Did you see what they said about Walter? They accused him of fabricating information. They essentially accused Walter of lying.” What prompted this attack was a dispute over whether HP should have disclosed compensation agreements that its board had approved in September for Fiorina and Compaq CEO Michael Capellas. Since the end of last year, Neal and Hewlett had been pressing HP to reveal details of those pay packages. Sonsini countered that those details didn’t have to be publicly disclosed, because the board later rejected them. Hewlett said that he had asked Sonsini to give the company’s compensation committee, on which Hewlett sat, an opinion that disclosure wasn’t needed. According to Hewlett, Sonsini agreed to give the opinion, then didn’t. In February, Hewlett outraged his fellow directors by going public with details of the pay packages: Fiorina stood to get $57 million, including the estimated value of options; Capellas, $38 million, with options. The company accused Hewlett of breaching his fiduciary duty by disclosing confidential information. On March 3, Neal lobbed that hand grenade of a letter at Sonsini. He maintained that the lawyer and the company had issued false and misleading information to the public on the compensation agreements — in essence claiming that they had violated securities laws. Neal also chided Sonsini for backtracking on his alleged agreement to give an opinion and lambasted the lawyer for trying to “smear” Hewlett. Finally, Neal raised the stakes by filing the letter with the Securities and Exchange Commission, and preparing a press release about it. Asked about this, Neal reiterated his claim that Sonsini had distorted the facts about the compensation agreements: “He made public statements that weren’t accurate.” People who know Neal well invariably describe a man with an irreverent streak and a keen sense of humor. Relating the details of the shareholders meeting, Neal took the opportunity to poke fun at Sonsini’s “Britney Spears headset.” According to his older brother, Richard Neal, Steve was a happy-go-lucky youth. “He was not a highly motivated student. He did not work hard in high school or college,” says Richard Neal, a former California appellate judge who is now an arbitrator. That might not seem remarkable, except that Neal came from a distinguished academic family. His father was the dean of the University of Chicago Law School. Neal’s father, Phil Neal, speculates that his son got into Harvard University without stellar grades because he pulled off a great interview. During college, Neal spent a summer at Chicago’s Hopkins & Sutter (since merged with Foley & Lardner), where his duties included taking lunch orders from lawyers and arranging place settings at their desks. Neal mentions with pride that he spent another college summer working at a steel mill in East Chicago, Ind., where he took glowing flanges cut from the ends of H-beams and guided them into hot scrap pits. “It was real hard labor,” he says. The summer before he started at Stanford Law School (where his father had been on the faculty), his father helped arrange a job for him at Kirkland & Ellis. There, Neal assisted on an unfair competition case against client Frito-Lay Inc. by conducting door-to-door surveys about corn chips. During law school he married his wife, Anneke, whom he had known since childhood. The couple has two children. If Neal coasted through academic life, he kicked into high gear when he started practicing law. Neal joined Kirkland out of law school and thrived in that fiercely competitive atmosphere. He tried several major cases as an associate and at age 34 was the youngest partner the firm had ever appointed to its all-powerful management committee. “I had all sorts of lucky breaks early on,” Neal claims. Perhaps, but he also benefited from an exceptional ability to quickly assimilate and recall information. Discussing a favorite trial from more than 20 years ago in which he defended a mining company against claims brought by residents of a small town, Neal rattles off the names of each side’s expert hydrologists, as well as the capacity of the company’s underground pumps (6,000 gallons of water a minute). And Neal makes it look easy. “He conveys the most remarkable strength and calm,” says Kirkland partner Emily Nicklin. “He can get [clients] over heavy ground more lightly than anybody else.” Neal’s father attributes much of his son’s success to his self-assurance. “He’s very confident about himself,” says the elder Neal, a name partner at Chicago’s Neal, Gerber & Eisenberg. “He never had any great trepidation about doing things, which I kind of envy a lot.” In the early 1990s Neal entered the spotlight when he defended Keating against criminal charges stemming from the collapse of Lincoln Savings & Loan Association. Neal developed a close friendship with the client, whom he passionately defends as unjustly persecuted and maligned. Keating made so many calls to Neal’s home that he developed a friendship with Neal’s son, who often answered the phone. Neal explains why he bonded with this client: “I was really impressed with [Keating's] resiliency. He was not a complainer and didn’t whine.” Keating is intensely grateful to Neal, despite having spent four years behind bars during appeals. Keating says he felt he was in a “safe haven” in Neal’s hands. “When I speak about Steve I get a little choked up,” Keating says. “He is the greatest male human being I have ever known.” Neal so loved the action of high-stakes criminal cases that he seriously considered leaving Kirkland to become a full-time criminal defense lawyer. But in the end he concluded that a criminal practice might not provide enough intellectual stimulation. In 1995, when Keating’s appeals were under way, Neal joined Cooley. The move was shocking. Kirkland litigators pride themselves on being the best (in their own minds at least), and would never include Cooley in their league. Neal says he simply wanted to return to the San Francisco Bay Area, where he had spent many years when his father taught at Stanford. But some of Neal’s former Kirkland partners say that Neal had tired of internal fights at Kirkland, including squabbles over his Keating work. The bills, funded mostly by insurers, weren’t always paid on time or in full. “There was complaining,” says Kirkland partner Howard Krane. “It probably was irritating to Steve … . Steve didn’t like the crap behind his back about Keating.” According to Neal, however, that friction didn’t drive his decision to leave. Instead, he says, he was swayed by an enticing offer from James Gaither, an influential former Cooley partner (now senior counsel) who knew Neal through Stanford Law School fund-raising. “Jim’s whole pitch was, ‘[Silicon Valley] is an unbelievably exciting area. There’s a crying need for lawyers with complex litigation experience,’” Neal recalls. Gaither, who is managing director of the venture capital firm Sutter Hill Ventures, calls Cooley’s acquisition of Neal “one of the seminal events in the history of the firm.” Personable and politically astute, Neal became head of the firm’s litigation group in 1998. At the start of 2001 Neal was named the firm’s first CEO, reflecting a move toward a more corporate-style management structure. (Neal’s predecessor, the low-key Lee Benton, had the title of managing partner and was more involved in the firm’s daily operations.) Neal immediately had to tackle problems caused by the economic slowdown. Showing his decisiveness and willingness to face controversy, Neal announced widespread associate layoffs last August — making Cooley the first Silicon Valley firm to do so publicly. Since becoming CEO, Neal has somehow remained a busy litigator. While working on the HP fight, he also prepared for a patent trial slated for April (the case settled), readied for another trial in June, served as special counsel for asbestos issues in the bankruptcy of USG Corp., and oversaw a patent case for AT&T Corp. against Microsoft Corp. involving digitization compression technology. It helps that he’s delegated much of the 600-lawyer firm’s day-to-day operations to the firm’s chief operating officer, Mark Pitchford. Neal says that he spends roughly 25 percent of his own time on management. Still, that doesn’t leave room for much downtime. He admits that, during a one-week vacation in Hawaii in February with his family, he spent much of each day on the phone. Last summer, before Walter Hewlett ever met Steve Neal, Hewlett voiced concerns about the proposed Compaq deal to his fellow directors. At an Aug. 31 HP meeting at Wilson Sonsini Goodrich & Rosati, Larry Sonsini outlined the terms of the proposed merger agreement to HP directors. What happened next is a matter of dispute. According to Hewlett’s securities filings, Sonsini told the board that the deal required a unanimous vote, and Hewlett said that put him in a difficult position. Sonsini asked to speak with Hewlett privately. In the hallway the lawyer told Hewlett that the deal would go through whether he voted for it or not. Hewlett took that to mean that the agreement could be renegotiated, but that the company would likely have to pay a higher price for Compaq. Hewlett asked if he could abstain, and Sonsini answered no. Hewlett declined to be interviewed for this article, citing the then-pending litigation against the company. Sonsini says he told the board that the agreement required a unanimous vote, but that the deal could be done with a majority vote. Sonsini says he doesn’t recall telling Hewlett the deal would go through regardless of how he voted; nor does he recall Hewlett asking if he could abstain. Sonsini says he talked to Hewlett privately after the meeting, at which point he told Hewlett that he could vote for the deal as a director and against it as a shareholder. According to Sonsini, Hewlett said, “Thank you. That’s helpful.” On Sept. 3, Hewlett and the rest of the HP board voted to acquire Compaq. After the deal became public, an uneasy Hewlett talked to former Cooley partner Gaither. A director of the William and Flora Hewlett Foundation whose father sat on HP’s board, Gaither recommended that Hewlett get independent advice and suggested Neal. Hewlett and Neal met for the first time on Sept. 23. Also present was a young Cooley corporate partner, Keith Flaum. As Hewlett sat in a Cooley conference room for five hours on that Sunday afternoon, he told Neal that he felt he had been pressured into approving the deal. “It was a very emotional and difficult situation for Walter … ” recalls Flaum. “ It was amazing how immediately Walter became comfortable with Steve.” Hewlett’s situation was complicated by his three distinct interests in the company. Not only is he a director, but he is chairman of the Hewlett foundation, which owns 5.6 percent of HP’s stock. He is also co-trustee of the William R. Hewlett Revocable Trust, formed after the death of his father in early 2001 as a transition vehicle to hold an additional 3.7 percent of HP stock that the elder Hewlett had bequeathed to the foundation. Neal outlined Hewlett’s responsibilities and options, and briefly raised the possibility of a proxy fight. Even though he is chairman of the foundation, Hewlett has no say over its investment activities, which are determined by a committee. But he can control the trust with the approval of the other trustee, former HP chief financial officer Edwin van Bronkhorst. Neal explained that because the foundation was the beneficiary of the trust’s stock, Hewlett, as trustee, would have to await the foundation’s decision about the merits of the merger, and follow its lead. For the next six weeks Hewlett didn’t tell the company or his fellow directors that he was consulting with Neal. The Cooley lawyer says that he and Hewlett were in touch “almost constantly” as they monitored the foundation’s decision making and planned strategy. On Nov. 6 the foundation decided it would vote against the merger. That same day Hewlett phoned Fiorina from a Cooley conference room. In a brief conversation he told her that he would publicly oppose the deal, as would the foundation, the trust and his two sisters. Hewlett further angered company officials and lawyers at Wilson Sonsini by going public with this news a mere 30 minutes later. “If we had given Carly 35 minutes she would have beaten us to the announcement,” explains Neal with a smile. “We didn’t see a reason to cede control of the announcement.” Whether or not that gave Hewlett a real advantage, Neal had made it clear from the start that they were going to fight aggressively. As the battle evolved into a heated proxy fight (funded by the trust), Neal took charge as the leader of Hewlett’s team, which ranged from 20 to 30 Cooley lawyers. He oversaw proxy fight strategy, public relations materials and newspaper ads, as well as legal issues. And, most important, he became Hewlett’s trusted adviser. “Steve is Walter’s consigliere,” says Steven Cohen, a partner at Wachtell, Lipton, Rosen & Katz who represents Hewlett’s financial adviser, Friedman Fleischer & Lowe. Like Neal, Hewlett is also a graduate of Harvard and Stanford. (At Harvard he majored in physics, and at Stanford he earned graduate degrees in music, engineering and operations research.) A reserved and contemplative man, Hewlett has never before sought the spotlight. Neal’s steady optimism kept the team on track. Cooley corporate partner Flaum recalls that when ISS came out with the announcement that it favored the merger, Neal called to make sure that the corporate team didn’t get sidetracked by the bad news. (Cooley’s litigators and corporate lawyers work in different buildings in Palo Alto.) “He called to make sure the team stayed focused and upbeat. He keeps everybody thinking we’ll win.” Neal faults Sonsini for the advice he gave Hewlett on Aug. 31, before the board voted on the deal. In SEC filings, Neal implied that Sonsini had improperly pressured Hewlett to vote for the merger. Neal says that Sonsini should have advised Hewlett to get separate counsel, or at least vote against the merger if he strongly opposed it. Although Neal calls Sonsini “an enormous talent,” he says, “I don’t think he gave good advice to Walter on Aug. 31. I think it was bad, and tactically wrong.” Neal and Sonsini — the CEOs of the Valley’s two biggest law firms — never met face to face during this battle, even though their offices are directly across the street from each other. From his seventh-floor office in a dowdy beige office building, Neal can glance across Page Mill Road at Wilson Sonsini’s stylish, custom-built complex. On the other side of the road, in the hallway outside Sonsini’s office, sits a glass-enclosed cabinet overflowing with Sonsini’s collection of Lucite “tombstones,” commemorating deals for a huge chunk of the Valley’s companies. These totems of commerce would disturb the serenity of Sonsini’s office, where two graceful 18th-century Japanese landscape paintings provide a calming backdrop. The only computer in his office is an unobtrusive laptop. Sonsini’s relationship with Hewlett-Packard goes back at least 10 years. His firm has handled most of the company’s acquisitions during that time, and it oversaw the massive Aglilent Technologies Inc. spin-off. For the Compaq deal, Sonsini has been the company’s lead outside legal adviser for the proposed merger and the proxy fight, heading a team that has included more than 60 Wilson Sonsini lawyers. Two days after the March 19 shareholders vote, the 61-year-old Sonsini distanced himself from the hyperbole of the proxy fight, as if he were watching the dust settle as he spoke. “These proxy contests have a bit of the tabloidism, which you try to resist,” he said. “But sometimes it gets too personal, and sometimes the PR machines and proxy solicitation machines can gain a life of their own.” In its attacks against Hewlett, the company snidely referred to the founder’s son as an “academic and a musician,” implying that he certainly wasn’t a businessman. It labeled his proxy campaign distracting, disruptive and an “insult to the board.” It also derided Hewlett for his decision to vote for the deal as a director and against it as a shareholder — belittling it as a “flip-flop” in full-page newspaper ads. Was it fair for HP to attack Hewlett for this divided vote, when Hewlett simply had been following Sonsini’s advice? “In proxy contests, many times the innuendoes and messages are not fair,” responds Sonsini, who confirms that he gave Hewlett the advice. “They’re designed to strike a broader theme … . It’s unfortunate, yes. But you want to win. You push the edge of the envelope.” Addressing some of the other criticisms raised by Neal, Sonsini says he hadn’t advised Hewlett to seek separate counsel because he had assumed that Hewlett was being advised by the Hewlett Foundation’s lawyers. As for the compensation disclosure controversy, Sonsini calls it a “sideshow story.” Sonsini maintains that he never told Hewlett that he would provide an opinion stating that the company wasn’t obligated to disclose the rejected compensation packages. Sonsini suggests that Hewlett’s lawyers had pressed their client to ask for an opinion to try to gain a strategic advantage: “I think Mr. Hewlett’s request was all part of his proxy contest tactics.” Sonsini seems unconcerned about any efforts by Neal to discredit him. “I don’t think it’s something I’ve thought about or worried about or cared about,” he says, leaning back in his chair with his hands behind his head. Still, he indicates that he understood why Neal would try to attack someone of his stature. “You take the high-profile decision maker — here’s the lawyer who is the principal architect of the transaction, and has a high degree of respect in the industry. I sit on the New York Stock Exchange board, and I’ve been teaching securities law for 15 years at Berkeley. When you have that profile working against you, you try to dilute [that] profile.” He continues: “Was there some innuendo of personal attack? Yes. Was it bothersome? No. Did it go anywhere? No.” Asked whether he believes that Neal was trying to raise his profile in the Valley by challenging the region’s most powerful lawyer, Sonsini responds: “I don’t know if that plays very well here.” Slipping into another question-and-answer format, he adds: “Have I lost any respect for them? None. Do I think he did a good job? Yes. Do I feel I was right most of the time? Yes.” Back on March 19, when Fiorina quickly declared victory, Neal was typically unfazed. “We expected they would do that,” he remarked casually, after a press conference that Hewlett gave. A few moments earlier, when a steady and composed Hewlett faced a room jammed with cameras and reporters, Neal stood off to his right and beamed with pride. Following the shareholder meeting, Hewlett was pressed by at least one director about his intentions to sue. But Hewlett demurred. His subsequent suit, filed in Delaware Chancery Court on March 28, outlines a fairly dramatic tale of corporate intrigue. Hewlett notes that, two business days before the vote, HP closed a new multibillion-dollar credit facility co-arranged by Deutsche Bank. The complaint alleges that on the morning of March 19, at the demand of HP, the bank had a “hastily scheduled” phone conversation with HP management. The bank was led to believe that a failure to switch its votes would jeopardize future business with HP, the complaint claims. Fiorina delayed the meeting’s start to await word from Deutsche Bank, and then closed the polls “after apparently receiving word while on the podium that HP’s plan had succeeded,” according to the lawsuit. The complaint also alleges that Hewlett-Packard released false and misleading information about its integration planning for the merger, understating projected revenue loss and layoffs. The company has denied these allegations, calling the lawsuit spurious. Sonsini won’t say whether he relayed a message to the HP lawyers on stage about Deutsche Bank. (Another HP in-house lawyer offstage was also conveying messages through a headset.) “All of that is speculation, and I’m not going to comment any further,” Sonsini says. HP general counsel Baskins did not return a call inquiring about her role in relaying any such message. Deutsche Bank (a Wilson Sonsini client) has refused to say anything about its vote. Four days after Hewlett filed the complaint, Hewlett-Packard struck back and announced that it would not renominate the founder’s son to its board. The trial, which began April 23 before Delaware Chancellor William Chandler III, lasted only three days. Neal took the lead for Hewlett, assisted by Wilmington, Del.’s Ashby & Geddes, which argued successfully against the motion to dismiss. For Hewlett-Packard, Wilson Sonsini partner Steven Schatz was designated lead trial lawyer. The company is also relying on Wilmington’s Potter Anderson & Corroon. Even if the HP-Compaq merger goes through, Neal’s client has scored a victory for critical thinking on corporate boards. He has reminded the world that directors do not exist to rubber-stamp management’s desires. For Neal, who hadn’t made headlines lately except to announce associate layoffs, it’s been a chance to get back in the spotlight that he clearly enjoys. Even if Larry Sonsini emerges the winner of this contest, you can be sure that Neal won’t feel like a loser.

This content has been archived. It is available through our partners, LexisNexis® and Bloomberg Law.

To view this content, please continue to their sites.

Not a Lexis Advance® Subscriber?
Subscribe Now

Not a Bloomberg Law Subscriber?
Subscribe Now

Why am I seeing this?

LexisNexis® and Bloomberg Law are third party online distributors of the broad collection of current and archived versions of ALM's legal news publications. LexisNexis® and Bloomberg Law customers are able to access and use ALM's content, including content from the National Law Journal, The American Lawyer, Legaltech News, The New York Law Journal, and Corporate Counsel, as well as other sources of legal information.

For questions call 1-877-256-2472 or contact us at [email protected]

Reprints & Licensing
Mentioned in a Law.com story?

License our industry-leading legal content to extend your thought leadership and build your brand.


ALM Legal Publication Newsletters

Sign Up Today and Never Miss Another Story.

As part of your digital membership, you can sign up for an unlimited number of a wide range of complimentary newsletters. Visit your My Account page to make your selections. Get the timely legal news and critical analysis you cannot afford to miss. Tailored just for you. In your inbox. Every day.

Copyright © 2021 ALM Media Properties, LLC. All Rights Reserved.