Can Merck CIO Avoid Conflicts Of Interest As Member Of Netezza Board?

Posted by Bob Evans on Jul 1, 2009 12:47 PM

Should CIOs join the boards of directors of IT vendors? By joining the board of Netezza, Merck CIO J. Chris Scalet will gain unmatched insight and input into the strategic plans of a key IT partner, and Netezza gets front-line customer expertise and cachet. But many vendor-customer relationships go through rough stretches or even dissolve altogether -- will Scalet be able to equitably fulfill both sets of responsibilities?

By all accounts, Scalet is a great CIO at a global leader in the dynamic pharmaceuticals industry, and his track record is exceptional. So this isn't really about him as an individual – rather, it's about the complex nature of relationships between buyers and sellers and the understandably quite different objectives upon which each must focus, particularly in the IT business where product cycles are so short and truly disruptive innovation happens frequently.

And it's also certainly not about Netezza, a high-growth and innovative company that seems well-positioned in the very strategic sector for high-end business analytics. Merck's complex R&D requirements, long product-development cycles, rigorous compliance requirements, and global marketplace make it an ideal showcase customer for Netezza and its sophisticated capabilities.

Rather, the issue is simply one of the very real potential for future conflicts of interest: in this most fluid of businesses, can Merck be assured that Netezza will always be the right solution for Merck's needs? If so, then Netezza has soared into some very rarified atmosphere that few IT vendors have been able to reach – even the long-time veterans, let alone relatively young companies like Netezza.

But what about the other possibility – that Netezza will not always be the right solution for Merck's needs? Then Merck CIO Scalet will surely select the superior alternative supplier and product – but in doing so, would he be upholding his full set of responsibilities as a Netezza board member?

Take a look at this quotation from Scalet in the Netezza press release announcing his appointment to the Netezza board:

"Netezza's data warehouse appliance delivers tremendous performance and value to customers across many sectors, including healthcare and life science industries," said Mr. Scalet. "I am excited to join the Netezza Board and look forward to helping the company continue to build and grow its business globally."

From Netezza's perspective, seems perfect: Scalet is looking to help Netezza drive value for customers across various industries, "including healthcare and life science industries," which happens to be the sector in which Merck operates. Further, it says that Scalet is eager to help Netezza "grow its business globally."

To me, that sounds like Scalet says he's eager to help Netezza increase its presence in and penetration among pharmaceutical companies (other types of companies as well, but surely pharmaceutical companies). Bear in mind that Netezza's products are very sophisticated data-warehouse appliances that help drive high-end business analytics, upon which companies base some of their most strategic decisions.

Will Merck CIO Scalet be put in a position where, as a Netezza board member who's promised to help Netezza succeed among other pharmaceutical companies, he's expected to share with Merck competitors some level of insight into how Merck has made most-effective use of Netezza's capabilities?

Now, you might say that's awfully far-fetched and isn't likely to happen. Or won't happen. Or couldn't happen because confidentiality walls will be erected to prevent such situations from arising. To which I would say, then what is the advantage to Netezza for having someone of Scalet's excellent credentials, experiences, and expertise on its board? (For a look at the entire Netezza board, click here.)

At best, Scalet will encounter some discussions from which he'll have to recuse himself on the grounds of the impropriety of him hearing about the strategic plans of his competitors, or the equivalent impropriety of him being asked to reveal any of Merck's strategic plans. At worst, he'll encounter situations where it becomes increasingly difficult for him to uphold all of his professional and personal commitments to Merck as its executive vice president and CIO, and to Netezza as a board member with strategic expertise in the pharmaceutical industry.