In the 1980s, AIDS activists were pushing the pharmaceutical industry to develop treatments for AIDS. Their efforts were chaotic. And angry. The book Uncharted by Margaret Heffernan describes them as “focused on massive public provocations”. They blocked post offices, occupied the New York Stock Exchange, and even stormed the United States Food and Drug Administration. They successfully grabbed headlines and made many sit up. But they failed to convince the industry to take action.
Enter Iris Long. She had trained and worked as a chemist at several research and medical centers, but had stopped work to become a caregiver for her ill mother. She started volunteering on AIDS causes. After several meetings with the activists, she saw that provocations did not help the cause. So one day, she told them that they “don’t know s***”.
As an accomplished chemist, she was an insider to the pharmaceutical industry. She knew the activists were unlikely to succeed unless they were involved in the industry’s major drug development decisions. As outsiders to the industry, the activists would only succeed if they knew what the insiders knew. If they were not “as expert as the experts, they could always be patronised and marginalised, and they would all die”. She understood that “[f]or the battle to be won... people with AIDS had to learn what drugs were being developed, how clinical trials operated and how to get drugs into bodies fast”.
Iris told the activists she would teach them. And they listened. And they learned. As a result, by the time the new drug AZT was available in 1987, the activists knew how to make an informed evaluation. They then intervened to compel the regulators to lower the dose that was typically administered to patients. The lower dose was as effective, had fewer side effects, and cost less (AZT was reported at that time to be the costliest prescription drug in history). It marked the “first time... the medical establishment had taken the activists seriously”.
The activists finally convinced the insiders because they had become outsiders who knew the industry inside out. They succeeded because they were now insider-outsiders.
The value of insider-outsiders is not an unfamiliar one. Take the business classic The Innovator’s Dilemma, for example. The narrative is often remembered as one where new business entrants (i.e., outsiders) to the small peripheral segments of the market can eventually out-compete the established incumbents (i.e., insiders) and take over the whole market. The fear of that disruption is why large incumbent companies now aggressively work with startups. In some cases, they even acquire them. They want to blend the outside to their inside, instead of being disrupted by them.
Similarly, in company boards worldwide, outsiders are actively sought to bring valuable external expertise into the companies. Such independent and foreign directors are growing. This is happening even in cultures that have tended to look inside than outside — the Nikkei Asian Review reported that 2019 was the first time “independent directors account for more than 30 per cent of board members at Japan’s publicly traded companies”.
But knowing and practicing is insufficient. It must also be practiced well. This is where the practice of insider-outsiders is wanting. Despite all the effort and enthusiasm poured into nurturing, partnering, and acquiring startups, the results remain mixed. The number of startups promising technological innovations has accelerated, but productivity has paradoxically slowed. Economist Robert Gordon has even concluded, “the pace of innovation since 1970 has not been as broad or as deep”. Investor Peter Thiel put it more pithily with his now oft-quoted phrase, “We wanted flying cars; instead, we got 140 characters.”
Similarly, having more outsiders on corporate boards does not seem to have prevented significant crises and scandals – such as the Great Financial Crisis or the recent Wirecard debacle. When seen together with other shenanigans such as emissions fraud, data breaches, and corruption convictions, there is mounting evidence that governance standards are slipping.
Leaders often argue that all this reflects the increased complexity of today’s economy and society. But that is just too convenient an excuse that absolves those in charge of their responsibilities. Instead, the poor performance of such practices likely is because insiders resist the outsiders. Like antibodies swarming around a foreign body, outsiders – whether they are emerging startups, external board members, or just new ideas – are often rejected and ejected by the insiders. The value one could gain from insider-outsiders dissipates quickly as a result.
How then can we reap the full benefits of an insider-outsider?
We must ensure that the outsider has friends on the inside. A character in the Pixar movie Ratatouille puts it best: “The world is often unkind to new talent, new creations. The new needs friends.”
These friends must, however, be more than friends. They must be allies who are prepared to defend and fight the cause together. In the case of corporate boards, researchers at the University of Minnesota, Peking University, and the China International Capital Corporation Limited found that outsider board members who had studied and worked outside of China “were more effective in promoting CSR” when they had allies on the boards who also had external experience. These allies helped “push the opposition into conceding”.
That was what Iris did for the AIDS activists. As a former insider, she was prepared to teach and guide them, and to fight the cause with them. She was a friend who was also an ally. To the credit of the AIDS activists, they were prepared to be taught and to change course.
It is easy to miss that while Iris was an industry insider, she was an outsider to the AIDS activists. There is thus one more lesson in all this. To reap the full benefits of an insider-outsider, we must first embrace an outsider to be our insider first.