Profile of a Silicon Valley Lawyer Rockstar
Fortune magazine's Roger Parloff profiles lawyer-rockstar Larry Sonsini in this article, Scandals rock Silicon Valley's top legal ace (11/17/06) and poses the question:
From Apple to Netscape to HP to YouTube, Larry Sonsini has been the most important lawyer in the most important industry for 30 years. But is he too close to the companies he represents?
As the article describes, Sonsini earned his reputation not so much by practicing law but by helping to build today's dominant high-tech industry. Describing his early partnership with John Wilson (the first name partner in Wilson, Sonsini, Goodrich and Rosati), Sonsini explained:
So we started to develop the recipe for how to build companies," Sonsini recalls. The recipe required entrepreneurialism, capital and infrastructure, and Wilson's law firm was part of the infrastructure. "I was becoming a piece of the recipe," Sonsini says.What I was learning very early on," he continues, "was that I could build an enterprise too. In fact, I had to." Wilson and Sonsini both wanted to continue to represent their clients as they grew, rather than handing them off to larger firms when they went public.To do that, they'd need additional expertise, and Sonsini was put in charge of figuring out which new specialists the firm neede and then recruiting them.
Making himself indispensable to start-ups partly explains Sonsini's success. But Sonsini's financial success, and that of his firm, is also attributable to their investment in the start-up companies that they advised. In the late 1970s, Wilson Sonsini created a fund to spread the risk of investment and minimize conflicts. But as the article explains, many contend that investing in clients either through direct investment or a fund still gives rise to potential conflicts:
In 1978 Wilson Sonsini set up WS Investments, a fund designed to manage both problems. Each partner's pay would automatically be docked to create the fund - the deductions were mandatory - and each would, in turn, have a stake in the proceeds. Small investments in private companies could then be made when arose - typically $25,000 to $50,000, according to Sonsini...This way, each partner's stake in the fate of any one client would be diluted and all partners got a piece of the action....
Nevertheless, many East Coast lawyers and other critics condemn it because of the lingering potential for conflicts."I don't buy the argument that the incentive with regard to any particular company is diluted, because so many issues - like backdating, expensing options, etc. - apply across the entire sector," says corporate-governance watchdog Nell Minow, co-founder of the Corporate Library research firm.
Should Sonsini have flatly banned such investing? "During the days of building the Valley," he says, "when we were all working together as entrepreneurs and trying to build industries, I don't
Today, with a number of his clients coming under fire, Sonsini is in the news again, subject to questioning about whether his advice to clients was clouded by his closely aligned interests. Our economy and our world are so different now than they were back in the late 1970s when Sonsini started out. Would we be in the same place if Sonsini took a conventional approach, if he billed clients that couldn't afford his fees of $600 an hour instead of taking a stake?
In many cases, as lawyers grow in stature and reputation, they become careless or overconfident or arrogant, which can lead to ethics run-ins and, sometimes, the destruction of their careers. With Sonsini, however, I didn't get the impression that he's changed at all from his days in the late '70s when he built his companies. Instead, times have changed, Sonsini's infant companies have gone public and the practices that were considered acceptable have changed, now that those companies are regulated by the SEC and owe a fiduciary duty to thousands of investors and shareholders. And as Sonsini himself concedes, he too is still learning:
I'm just beginning to be the best lawyer I can be, and why would I get off the train now? If you're going to be a top business lawyer in this country, you've got to take a lot of years. You don't develop the judgment except over a long period of time.
Posted by Carolyn Elefant on November 17, 2006 at 07:58 PM | Permalink
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