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.

Anyone 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)

– Eric Auchard is a Reuters columnist. The views expressed are his own –

The Chinese government has backed away from mandating filtering software on all personal computers in China, in a move that averts a dangerous escalation in its censorship powers.

But however controversial and unworkable China’s plan to require Internet filters on PCs proved to be, Western firms have largely themselves to blame for creating and selling such filters in the first place.

The danger rears its head whenever technology created to solve some specific security problem is put to new and unintended use, not just in repressive regimes like China, Iran or Saudi Arabia, but professed freedom-loving countries in Europe or the USA.

“What is good and what is evil?” asks Mikko Hypponen, chief research officer at Finnish anti-virus software company F-Secure Corp. “It is really a very basic problem that security people face.”

A computer password cracker in the wrong hands is considered malicious, of course. But corporate network administrators rely on the same tools to recover lost documents when employees forget computer passwords. Voice recognition software used in corporate call centres to automate and improve customer service can be used by police to wiretap suspects on a grand scale.

On Tuesday, China’s official news agency reported that a government ministry had abruptly backed down from requiring that every PC sold in China include a censorship program called “Green Dam-Youth Escort”.

The software blocks web sites using a blacklist of keywords judged to be sexual or politically sensitive, or flesh-coloured images it assumes are naked bodies. But University of Michigan researchers found that the software developed by a Chinese firm had liberally borrowed the code of parental control software CyberSitter from the California-based firm Solid Oak.

Mobile network maker Nokia Siemens Networks was criticized last month after the Iran election protests for supplying “deep packet inspection” technology to mobile phone companies which Iran’s government allegedly used to track online dissidents. The same software for so-called “lawful intercepts” is widely used in phone networks around the world, be it Iran, China or the United States. The main differences are only how far network monitoring goes and to what uses such information is put.

These issues cannot be dismissed merely as unauthorized uses by bad cops in foreign lands. All the world’s biggest technology suppliers play some role in creating security tools that have Janus-like qualities, depending on the intentions of their users.

The dark side of the Internet is not some isolated corner. It is built with the same tools “good guys” use with the best of intentions, without considering their Orwellian surveillance potential. It is just the dual use of networked, interconnected technologies.

Companies such as IBM, Cisco, Intel and Dell are some of the dozens of vendors that market remote data recovery tools to police agencies that can be used to remotely monitor suspects. Once available commercially, it’s only a matter of time before such software is sold or copied for use by authorities in repressive regimes.

Canada’s Absolute Software sells such software for network administrators to track the location and use of all corporate laptops or Blackberries used in their organizations. If a computer is lost or stolen, it can be told to phone the factory every 15 minutes. Absolute then turns over the Internet address of the machine to police to recover the device. In countries with fewer safeguards, such tools can be used to snoop on or prosecute political dissidents.

Hypponen says computers have raised a host of issues that hardly existed in the Cold War era. “Monitoring traditional mail can be done, but takes a lot of manpower,” he says. “E-mail monitoring can be done which takes very little manpower.”

The very openness of the Internet has created a vast market for security tools used for Web filtering, network monitoring and text or video surveillance.

The power of technology to do good needs to be weighed against its powers to do evil. The many positive tasks computers perform for us need to be set against their growing powers as surveillance tools and mechanisms of repression. Just because a technology can be built, doesn’t mean it should be. As consumers, we need to be careful what we wish for in the way of modern conveniences.

– At the time of publication Eric Auchard did not own any direct investments in securities mentioned in this article. He may be an owner indirectly as an investor in a fund. –

(Editing by Martin Langfield)