FORTUNE -- Some call it an ecosystem; others call it incestuous. In Silicon Valley every prominent player is just an adviser, an investor, a co-founder, an acquirer, or a director away from another. It's an industry worth trillions that operates like a small town.
But to the professional meddler -- that is, activist investor -- a tight-knit community suggests something else: conflicts of interest.
That's the criticism that corporate raider Carl Icahn lobbed last month after he grabbed a 2.2% stake in eBay (EBAY). When his initial suggestion for the company to spin off its lucrative payments subsidiary, PayPal, was rebuffed by its board, he took the conflict-of-interest approach, targeting the prominent Silicon Valley investor Marc Andreessen, who serves as an eBay director. "I've never seen worse corporate governance than eBay," Icahn groused to CNBC's Andrew Ross Sorkin.
At issue is eBay's 2009 sale of a majority stake in Skype to a group of investors that included Andreessen's firm, Andreessen Horowitz, for $1.9 billion. Less than two years later, those investors sold Skype to Microsoft (MSFT) for $8.5 billion, earning a healthy return. Icahn also called out Scott Cook for sitting on the boards of eBay and Intuit (INTU), which "share the same long-term common strategic goal to build strong payment-processing businesses." (For more on Icahn, read Dan Primack's column.)
However the eBay feud ends, Icahn's accusations shine a spotlight on Silicon Valley's web of powerful connections. Andreessen, for example, also sits on the boards of Hewlett-Packard (HPQ), Facebook (FB), and seven other companies. Heavyweight investor Peter Thiel sits on the boards of Facebook, the data analysis firm Palantir, and a half-dozen others. And Forest Baskett of New Enterprise Associates sits on an eye-popping 17 boards.
About one-fifth of all corporate directors in the Fortune 500 sit on more than one board, according to 2010 research by G. William Domhoff. But it's standard practice for venture capitalists to join the board of a company when they lead an investment round, and typical for them to do a handful of deals each year. Do the math, and the possibility of double-digit board appointments is not surprising.
The effect of this practice -- call it board-whoring -- isn't usually a problem with small, early-stage startups trying to gain their footing. But it can become an issue when those tiny startups turn into large public entities with billions of dollars of shareholder money at stake. In the technology industry, a convergence of strategies can occur almost overnight. Which is why the social network Facebook, the search giant Google (GOOG), and the computer maker Apple (AAPL) all find themselves vying for the same person's mobile messages today.
"Human beings tend to be unable to estimate how biased they are," says Jean-François Manzoni, a professor of management practice at Insead, the French graduate business school. "Research on ethics and decision-making shows fairly clearly that even minute incentives that one has in the outcome of a decision can have significant impact on people's decision-making."
Volume compounds the problem. According to PitchBook Data, the 25 investors with the most board seats share among them almost 400. With each company seat demanding between 20 and 40 days of work a year, according to Manzoni, it can be difficult to justify so many appointments.
No wonder activist investors are drawn to the technology industry.
This story is from the April 7, 2014 issue of Fortune.
"It's the fundamental direction and the fundamental opportunity we're going after."
FORTUNE -- eBay has started to go on the offensive.
The e-commerce giant began taking swings of its own following the recent activity of billionaire activist investor Carl Icahn, who owns 2% of eBay (EBAY) shares. In late January, Icahn called for a PayPal spin-off and nominated two of his employees to eBay's board of directors. Then in an open letter to shareholders MOREJP Mangalindan, Writer - Mar 10, 2014 5:00 AM ET
The iBillionaire fund mirrors the strategies of Wall Street's top investors and hedge funds.
FORTUNE -- There are a million ways to try to beat the market, and the one iBillionaire has chosen is as good as any, I suppose.
What started as an iOS app (iBillionaire) and website (iBillionaire.me) morphed at the end of October into an exchange-traded fund (ETF) that offers investors a portfolio of 30 stocks selected to mirror the investment MOREPhilip Elmer-DeWitt - Feb 19, 2014 4:34 PM ET
He writes in an open letter to Apple shareholders that he sees "no reason to persist."
FORTUNE -- On Monday, four and a half months after Carl Icahn tweeted that he had "pushed hard" for Apple (AAPL) CEO Tim Cook to use his company's entire cash holdings to buy its own "extremely underpriced" shares, Wall Street's most feared and admired corporate-raider-turned-activist-investor backed down.
Icahn's announcement, made in an open letter to Apple MOREPhilip Elmer-DeWitt - Feb 10, 2014 10:06 AM ET
Words to remember in advance of the Feb. 28 vote on Carl Icahn's shareholder proposal.
FORTUNE -- It's not exactly on point, but reading Ben Popper's piece on Carl Icahn in the Verge this weekend brought to mind a Steve Jobs Q&A from May 1997 -- a few months after his return to Apple (AAPL) -- when someone asked: "Steve, what do we do about the press?"
Jobs spoke for nearly two minutes before he MOREPhilip Elmer-DeWitt - Feb 9, 2014 3:55 PM ET
While the Street was dumping Apple, Cook -- and Carl Icahn -- were snapping up shares.
FORTUNE -- Tim Cook's interview in Friday's Wall Street Journal puts the attached Apple (AAPL) stock chart in a new light.
What looked to human day traders and computer algorithms on Jan. 27 like a signal to sell, Cook saw as a buying opportunity.
He was surprised, he told the Journal, that Apple's share price fell 8% after the MOREPhilip Elmer-DeWitt - Feb 7, 2014 7:56 AM ET
He buys, he tweets, he cajoles, and the hearts of Apple traders skip a beat.
FORTUNE -- Three tweets so far today from Carl Icahn about Apple (AAPL):
10:50 am: Since tweeting about our large position in $AAPL on Aug 13, when the stock was 468 per share, we've kept buying shares of this 'no brainer.'
10:50 am: Having purchased $500 million more $AAPL shares in the last two weeks, our investment has crossed the MORE
In Friday's proxy statement, Apple ignored Icahn and spoke directly to its serious investors.
FORTUNE -- We don't know what Apple's (AAPL) CEO said to Wall Street's favorite activist investor at their "meet and tweet" dinner last September -- the one where Carl Icahn says he "pushed hard for a 150 billion buyback."
But on Friday we got the company's official response -- one that was approved, if not drafted, by Tim MOREPhilip Elmer-DeWitt - Dec 28, 2013 11:16 AM ET
Talk is cheap.
FORTUNE -- All the noise over what Apple ought to do with its cash almost makes one wistful for the days when everyone obsessed only over Apple's products.
Time coverboy Carl Icahn is on Apple's (AAPL) case to give back more of its cash to shareholders -- like himself. It's a perfectly reasonable position to take. Apple's hoard had grown to the nine figures with no reasonable prospects for MOREAdam Lashinsky, Sr. Editor at Large - Dec 5, 2013 9:22 AM ET
He cut his buyback demand from $150 billion to $50 billion and gave Apple a year to do it.
FORTUNE -- From the headlines, you would think that Carl Icahn, America's most famous corporate raider, had donned a headdress and gone into his war dance:
Icahn beats Apple buyback drum (again) with new proposal (CNET)
Carl Icahn Rallies Apple Shareholders To Demand Stock Buyback (Cult of Mac)
Carl Icahn ups ante in crusade for Apple buyback (Associated Press)
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