Imagine that Company A wanted to have a business relationship with Company B, and that it took the step of having the chief executive of Company B come onto its board. Imagine further that the CEO of Company A sits on the board of a third company, and now all three companies have interlocking boards. This certainly would spark outrage from good governance professionals, wouldn't it? Just think about the potential for conflicts of interest. Aren't all directors supposed to be truly independent? The new standard that seems to be evolving is that directors sitting on a board together should have no other entanglements, real or perceived. After all, they're supposed to be loyal only to shareholders of the company on whose board they sit.
This interlocking scenario obviously is what happened when Apple Computer (nasdaq: AAPL - news - people ) invited Eric Schmidt, the CEO of Google (nasdaq: GOOG - news - people ), to join its board. In fact, half of Apple's eight-person board has close ties to Google. And Apple CEO Steve Jobs is on the Disney (nyse: DIS - news - people ) board now that the Pixar deal has closed. So it's an axis of Apple-Google-Disney--all aimed at the evil giant of the north, i.e. Microsoft (nasdaq: MSFT - news - people ). We might be able to Google for the Disney movie of our choice and download it to our iPods.
Curious about what this means from a governance perspective, I asked Pat McGurn, one of the leading lights at Institutional Shareholder Services, for his views.
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