FTC to Apple, Google Boards: We're Watching

If Apple (Nasdaq: AAPL) and Google (Nasdaq: GOOG) executives thought that Google CEO Eric Schmidt's Monday resignation from Apple's board of directors would end any governmental interest in their business practices, they may have to reboot their plans. The Federal Trade Commission has announced that it had already been looking into the board membership situation among the Silicon Valley tech giants and doesn't plan on ending its probe anytime soon.

"We have been investigating the Google/Apple interlocking directorates issue for some time and commend them for recognizing that sharing directors raises competitive issues, as Google and Apple increasingly compete with each other," FTC Bureau of Competition Director Richard Feinstein said. "We will continue to investigate remaining interlocking directorates between the companies."

One of those "remaining interlocking directorates" involves Genetech CEO Arthur Levinson, who is also a member of both Google's and Apple's boards. The advocacy group Consumer Watchdog has called upon Levinson to choose between the two companies "to avoid antitrust violations," group spokesperson John Simpson said.

The FTC statement and increased private advocacy heat may point to a sea change for the technology industry. The rapid pace of product development, along with the traditionally chummy relationships between technology executives, may combine to exert pressure on tech companies to re-examine their corporate structures.

New Pressure on Old Tech Friends

That microscope isn't just in the hands of federal regulators. Shareholders and competitors may demand more transparency, according to Suresh Kotha, a professor of management and organizations at the University of Washington's Foster School of Business.

"The board interlocking has been there for a long time," Kotha told the E-Commerce Times. "It's a very clubby situation. If you look at compensation you can see how clubby it is. This is a warning shot being fired. The FTC is changing its stance after the last few years, saying 'We're going to do more monitoring these days.' Hopefully it will self-correct, and companies won't share their technology road maps. The fear of collusion is there."

It's not clear whether the FTC chose to investigate the Apple/Google situation on its own or whether a shareholder or competitors prompted the probe. "Sometimes competitors file reports with the FTC. They've always gone after Microsoft (Nasdaq: MSFT), needling Microsoft about anti-competitive behavior. Even if shareholders don't do it, competitors probably do it just to irritate the competition and make it a game."

Is Genentech Next?

An E-Commerce Times request for response from Genentech regarding Consumer Watchdog's call for Levinson to step down from either Google's or Apple's board was not received by press time.

On point mentioned by Consumer Watchdog's Simpson was Genetech's investment in 23andMe, the genetic-testing-for-consumers company founded by Anne Wojcicki, wife of Google cofounder Sergey Brin.

"I think that Levinson is very much in the same situation, and the FTC has said the same thing," Simpson told the E-Commerce Times. "They're continuing their investigation, and it's probably broader than just Levinson. There are a number of analysts of corporations who think it's inappropriate for the CEO of one company to serve on any boards other than their own company. That's sort of an overall corporate governance structure situation."

Consumers may like it when competing technology companies collaborate so that their products can interact with each other. However, all tech companies must have the same access, according to Simpson. "All that needs to be developed in a free, open marketplace. It shouldn't be done behind closed doors with the possibility of collusion or non-competitive activity. I think the consumer is best served when you have true open competition," he said. "That's the healthy way to go."

Both Simpson and Kotha acknowledge the difficulties found in the special, club-style relationships between many executives in the technology industry; some worked for and with each other at previous companies, others might help with funding or strategy counsel.

"That to me means it's very important to have outside directors of your company," Simpson said. "Any sort of director's job in good corporate management is to provide independent oversight. We've seen in other industries like banking what happens when you don't have good outside oversight. It's the same problem in Silicon Valley."