Living with Litigation: The way CEOs handle brushes with litigation will probably determine how successfully they manage their companies - Cover Story

Chief Executive, The, Dec, 2001 by Jeffrey Rothfeder

Ideally, experts say, the sessions should treat the lawsuit as any other important project at the company. That means tracking benchmarks, measuring how well they are being met, and assessing future plans and budgets. By keeping track of the lawsuit and its key issues, CEOs can then pass the day-to-day handling of the litigation's minutiae to another manager. However, that manager would be expected to draw the chief executive in when his input is required.

Even the choice of manager to handle the litigation details is critical, the experts stress. It's important for a CEO to choose someone who does not have a personal stake in the case. The lead engineer who designed a technology that's caught up in an intellectual property dispute would be the wrong person to act as the company's litigation liaison. Another poor choice would be the chief financial officer whose forecasts and performance numbers are under attack from shareholders.

Picking the appropriate go-between is just the first step, the lawyers say. It accomplishes little if the CEO doesn't emphasize how important this job is to the company's future, how high his expectations are that the task will be taken seriously, and that it's not a dead-end lob.

"People at companies are mindful of what will advance their careers and their compensation, and often litigation is viewed as a sinkhole," says Michael Plimack, a lawyer with HellerEhrman in San Francisco, which counts Microsoft among its clients. "But to successfully handle a lawsuit, we need to be able to get the right information quickly that may be buried somewhere in the millions of pieces of data that a company has. Only a person who is told by the CEO that working with us diligently will enhance his or her status at the company will be disciplined enough about following through."

With all the weighty choices and management responsibilities that litigation presents to a CEO, the most vital is deciding whether to attempt to settle the case or fight it even at great expense and staff hours. For many chief executives, this is an easy decision: If the suit has any merit at all, work out a pre-trial deal.

"Any chief executive who says differently isn't a real CEO because they're putting the company and the shareholder at risk," says George Perlegos, chairman and founder of Atmel Corp., a San Jose, CA-based $2 billion maker of semiconductors for consumer and cellular electronics. In less than 20 years in business, Atmel has been involved in 10 intellectual property lawsuits. Early in its history, there were five suits pending at one time. Perlegos says: "You have to have sense enough to determine the value of the lawsuit and then try to negotiate it away through a licensing arrangement or purchasing of the patent or license or some other financial option. Otherwise, fighting these cases will put you out of business."

T.J. Rodgers, not surprisingly, holds a very different view. Rodgers, who proudly boasts that he has never paid a penny to settle a lawsuit during his tenure at Cypress, says his strategy is to send the message that "if you screw with us, we're not going to give you money, we're going to cost you money."