Apple-Google learn Corporate Governance 1.0

August 3, 2009

LONDON, Aug 3 (Reuters) – The resignation of Google CEO Eric Schmidt from Apple’s board should come as no surprise to anyone with an inkling of what corporate governance means.

But then Silicon Valley’s idea of corporate boards has long consisted of cozy, interlocking directorships which would be considered collusion in most other industries.

Google’s CEO is not leaving Apple’s board voluntarily. He is only stepping down in response to the increased government scrutiny of obvious potential conflicts of interest between the two companies.

Yet regulators shouldn’t be content with Schmidt’s departure. The truth is that Apple and Google have been heading into the same markets for years. A veritable chain of overlapping business ties remain in place even if the most obvious formal link is now broken.

The chairman of Apple’s board, former Genentech CEO Art Levinson, remains on Google’s board. Another Google board member, Ann Mather, is the former chief financial officer of Steve Jobs’ former animation company, Pixar Studios.

Paul Otellini, the CEO of Intel Corp, Apple’s main chip supplier, also sits on Google’s board. Al Gore remains on Apple’s board, but in his new turn as venture capitalist he has many business ties to Google and its founders. Gore is a partner of Google board member John Doerr at legendary Silicon Valley VC firm Kleiner Perkins.

For months, the U.S. Federal Trade Commission has been examining Schmidt’s participation on the boards of the tech world’s two most dynamic companies. Last week, the Federal Communications Commission said it was looking into Apple’s decision to reject a Google phone application to run on the iPhone.

Google’s CEO says he has consistently recused himself from Apple board discussion of the iPhone. There’s no reason not to take him at his word. But that’s largely a distraction from the bigger issues at stake here,

Schmidt need not have participated actively in iPhone discussions. By taking part in discussions of the rest of Apple’s strategy, Schmidt was in a position to steer Google’s own strategies around the Apple juggernaut. Rivals need not cooperate directly to divvy up markets.

Steve Jobs and Eric Schmidt at Apple iPhone launch Jan. 9, 2007Anyone following the industry knows that Apple and Google have been moving in similar directions since well before Schmidt joined Apple’s board three years ago. As computers become more like phones and the Internet becomes more mobile, the competition has become only more obvious.

By August 2006, both companies were hard at work on their plans to enter the mobile phone market. In September 2005, Apple made its first failed foray into the market with a joint development effort with Motorola that led to the introduction of the Motorola ROKR iTunes phone.

A month before — and a year before Schmidt joined Apple’s board — Google had acquired mobile device start-up Android, forming the genesis of its own push into mobile phone markets.

Six months after Schmidt became a director, Apple unveiled its ground-breaking iPhone, in January 2007. Fevered speculation mounted throughout 2007 that Google was working on its own so-called GPhone.

In November of that year, Google introduced its Android software for mobile phone development. In September of 2008, the first Android-powered phone built by Taiwan phone maker HTC for T-Mobile was introduced.

So far, Apple has been content to attack the high-end of the smartphone market. Google is aiming at the mid-priced phone market and new mini-notebook computers with Android. But the conceit that the two companies aren’t competitors is wearing thin.

Reforming corporate boards has never been easy in Silicon Valley. Recall the boardroom battles that cost former Hewlett-Packard CEO Carly Fiorina her job. They pitted H-P’s old guard against corporate governance advocates who were Fiorina’s allies. The decline of Yahoo is another obvious example of failed board governance.

Independent corporate governance is an afterthought in the go-go corporate culture of Silicon Valley, where entrepreneurs backed by venture capitalists launch start-ups. Even years after an IPO, the founders and their VC backers typically keep disproportionate control over “their company.”

Investors bear no small part of the blame. Most care only in retrospect, once rocket-fueled growth subsides and the shares of former high-tech stars fall back to Earth.

For now, both Apple and Google shares are moving higher, as the tradition of weak corporate governance looks set to survive a while longer.

(Photo: Reuters/Kimberly White)

One comment

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This reader generally finds Eric Auchard easier to follow than in the present article, which ought to be interesting, but in my opinion leaves much room for confusion.

Is the point here that Apple and Google are not competing sufficiently against one another, or that they\’re competing too much and if so, how could this possibly be the case? Frankly, I\’d like to see them compete more rather than less, but it\’s really hard to tell from what has been written here whether they do and what makes them any worse than [insert long list of major U.S., corporations here].

In passing, would it not be appropriate also to actively question the debilitating role in post-IPO terms that VC can and too often does exert upon emerging industries, by dictating terms of policy and players involved? There\’s more than a smattering of governance ethics needing dealt out and enforced in the entire business sphere of so-called Venture Capital, and has been for over a decade. Which brings us to the present.

Corporate governance – or lack thereof – would be a fundamental topic of immense importance if properly argued across the board in American [for lack of a better word] industry.

I for one would like to see corporate cartel considerations scrutinized more closely in general, rendered transparent, (within reason) enforceable and, particularly in this case, put in better perspective before concluding the debate.

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