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NYT on options scandal and Wilson Sonsini's role

The NYT has a nice mashup of the companies in Silicon Valley affected by the options backdating scandal (click on image).

It also points a finger at Silicon Valley's most powerful law firm, Wilson Sonsini:

While the scandal is chiefly affecting technology's midsize companies, it is also raising a cloud over some of the most powerful institutions in the Valley, including the law firm of Wilson Sonsini Goodrich & Rosati and its highest-profile partner, Larry W. Sonsini.

Wilson Sonsini, based in Palo Alto, represents, or at least represented, at least half the Silicon Valley technology companies implicated in the backdated-options scandal, according to The Recorder, a law publication in San Francisco.

And the connection between Brocade and Wilson Sonsini is even deeper; Mr. Sonsini is a former member of the Brocade board, which granted Gregory L. Reyes, the company's chief executive until early last year, the sole authority to award stock options. The practice was legal, but suggests a lack of checks and balances at a company where an insider headed what court filings have termed a compensation "committee of one."

It should be pointed out, though, that technology companies tend to issue more stock options, and Wilson Sonsini happens to be biggest firm serving Silicon Valley tech firms -- so you'd expect it to have its fair share of clients caught up in this mess. Also, remember that backdating isn't illegal. As long as it is disclosed, it is fine. Which raises the question: Is this the duty of the accounting firms, or the law firms, or both?


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Comments

The short answer is that it's the duty of the client. And what likely happened is lawyers and / or accountants warned clients, who told clients what they ought to do, who told lawyers / accountants what they wanted to do (and wouldn't it be nice if my advisers agreed with me), who either told clients what they ought to do, or who folded under the implied threat to take business elsewhere unless the adviser was more supportive.

I'm not saying this happened in this case, but what these kinds of issues invariably conceal is the elaborate dance that originally happens between company officers who don't want to be the one to take the adviser's advice back to the boss, and the adviser who wants to keep the client.

When they are first discussed between adviser and client, these issues are rarely complicated. They get complicated quickly when people have to live with their past decisions under the glare of the media's attention.

Rob Hyndman on July 24, 2006 4:14 AM
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