BW: Google's CEO on Apple's Board Could Raise Ethical Issues

by , 1:00 PM EDT, May 7th, 2008

Eric Schmidt, Google's CEO, sits on Apple's board of directors. With the potential competition between Android and iPhone, that spot could go from awkward to untenable, according to Arik Hesseldahl at Business Week on Wednesday. Mr. Schmidt's recusal from Apple board meetings that involve the iPhone keeps him out of the loop on a major part of Apple's business and raises questions about his duties as a board member.

"...the potential for rivalry takes on added urgency as Apple prepares to launch the next version of its iPhone while Google partners ready cell phones that run Google's operating system," Mr. Hesseldahl wrote.

The problem is that in an effort to avoid a conflict of interest, Mr. Schmidt recuses himself from Apple board meetings. "But exactly how effective a director of Apple can he be if he's not allowed to know proprietary information that pertains to the product that brings in as much as one-third of Apple revenue?" Mr. Hesseldahl asked.

The recusals creates an ethical dilemma. "You could imagine, as a practical matter, being able to wall him off from iPhone-related discussions," says Ron Gilson, a professor of business and law who teaches at Stanford and Columbia universities. "But then it becomes a judgement call about a director who's excluded from so much of what the board is doing and talking about."

Others has expressed concern as well, considering that corporate board directors have specific duties under the law. "It's like going to the doctor and asking him to check everything but your heart," said [Ms.] Nell Minow with The Corporate Library, an independent research firm that grades corporate boards. "In technology every part of the company has a bearing on every other part of the company."

In time, if Android fails, Apple can probably sidestep the issue. However, if Android takes off, Apple may have to rethink Mr. Schmidt's position, Mr. Hesseldahl concluded.