My grandmother used to say You can’t attend two circuses with one tuchus. Last time we looked, Google CEO Eric Schmidt possessed one rear end. But he was trying to occupy seats on the executive boards of both Google and Apple and hoping he wouldn’t run athwart of the Federal Trade Commission.

He ran athwart of the Federal Trade Commission.

The FTC’s Bureau of Competition is investigating whether Google and Apple are in violation of antitrust laws aimed at discouraging competitive companies from sharing common board members. The principle is known as interlocking directorates and though it’s not not necessary unlawful, when the companies are high profile the government’s antennae start to quiver. Are these corporations in the same business? Are they competitive? Would cooperation between them subdue competition, freeze out smaller competitors and tend to create a monopoly? How independent are board decisions at both corporations?

Though two companies may not overtly be subverting each other’s independence, they may nevertheless fail to pass what lawyers call the smell test. Wikipedia has this to say on the subject:

Watchdogs point out that interlocking directorates may cause conflicts of interest, poor governance and poor compensation decisions, a lack of fresh perspective, and the concentration of corporate power into a single extended social network. CEO interlocks are seen as a particular concern for potential conflicts of interest. Proving direct harm to stockholders is difficult, though, because there is no clear definition of how much overlap is acceptable, and in any case board members are selected by stockholders’ votes.

Not wishing to be suspected of any of the above, Schmidt gave up his seat on Apple. Perhaps the companies had as little in common when they started out as a fruit farm and a phone company. Or in the case of Google and Apple, they felt safe in teaming up against a third party, rival Microsoft. At any rate, in time Google’s and Apple’s products and services have expanded onto each other’s turf to the point where they waved bright red flags in front of Uncle Sam’s eyes. “Mr. Schmidt’s resignation from Apple’s board constitutes a stark admission — Apple and Google had previously played down the issue — that the companies are now directly competing in the crucial race to develop the next generation of software for mobile phones and personal computers.” writes Brad Stone in the New York Times.

How? For instance: “In recent weeks Apple rejected two of Google’s applications for the iPhone, including one for Google Voice, a service that allows people to make cheap international calls and send free text messages. The software could have hurt the business of Apple’s partner in the United States, AT&T, which subsidizes the cost of the iPhone and recoups that money through monthly charges,” Stone notes. You can read details here.

Tail tucked beneath his tuchus, Eric Schmidt has departed the Apple circus. For now, a front-row seat at Google’s will keep him quite well occupied.

Richard Curtis

Every Blogger owes a debt of gratitude to newspapers and magazines. This posting relies on original research and reporting performed by the New York Times.