The Corporate Immune System

In the human body, the immune system is built into the cells within the bloodstream. Its role is to maintain equilibrium with the intruders from the outside world that continuously enter the body. The active cells of the immune system can detect these outside organisms and, if necessary, secrete chemicals to defend the body against them. The more capable the immune system, the more resistant the host body is to harmful effects from bacteria, viruses, fungi, or parasites. These intruders from the outside are not prevented from entering, nor are they systematically destroyed on every incursion. The immune system keeps them in check while they exist within the body.

If you take an airplane for example from Frankfurt to Bangkok, you move your body between two environments of completely different bacteria, fungi, and viruses. When you get off the plane in Bangkok, your immune system begin to “recruit” new cells from the regular flow of lymphocytes that your body produces in the spinal column and releases into the bloodstream. Some of these potential antibody cells will be called into action, depending on the new molecular environment in which you wade.

Each day, your immune system recruits enough new cells to constitute up to 20 percent of its own population. You body, during that recruitment process, rebuilds equilibrium with the unfamiliar intruders of Bangkok’s atmosphere. This makes the human immune system into an extremely open system – and thus a good learning system.

Unfortunately, there are limits to the numbers of intrusions that the human body can handle. That tolerance of any body has an upper value. Thus imagine that you are put into an environment in which more than 25 percent of the invaders consist of a new type. Or suppose you are invaded by a particularly virulent organism. In that case, the intruder from the outside is numerous or powerful enough to exceed your immune system’s capacity to learn.

Now you have an infection. Instead of learning and incorporating the new molecules, the immune system must repel. It increases the body temperature to make life more difficult for the new intruders, and it develops a composition of antibodies and killer cells to cope with new types of intruders. Without thinking, your body has moved into a mode of resistance and rejection. This is not necessary beneficial for you. You experience a fever, exhaustion, headache, and tension in your digestive system. The reaction to the entrance of a foreign substance may even have more severe effects. Your resistance and rejection may upset your own equilibrium so much that it could lead to shock or even death.

This state of affair is as true for corporations as it is for individuals. The health of a company is under constant attack from the inside and the outside. The attacks come from individuals or groups of individuals who do not want to be part of the whole. They are there for their own purpose. It does not matter how honorable or dishonorable these purposes may be. The health of community is under threat.

This biological view does not distinguish between inherently good or bad behavior, for instance – even if it were possible to define what is good or bad. Consider, for instance, a highly intolerant institution, which hires a group of consultants to improve its practices. Now, new ideas and new people enter the firm, with the intention of opening up the institution’s behavior and improving its chances of survival. This intent is assuredly “good” – but to the existing (intolerant) membership, the intruders’ behavior will seem “bad” and parasitic. The corporate immune system will go into action. The temperature will go up, and killer cells may finish off the intruding ideas. When this happen, it should not be taken as a comment on the quality of those ideas. It is a reaction to the strength of the host system’s immunity mechanism.

In biological terms, a merger or an acquisition represents an intrusion of foreign bodies, ideas, and values into the host organization. If you acquire a competitor who is 25 percent of your size, you have accepted an intrusion of 25 percent of your existing population. A 50 percent merger with a foreign partner means an intrusion of 50 percent for each of the two partners.

At these proportions, many acquisitions and most mergers are likely to rise well above tolerance limits of both partners. Acquisitions and mergers are infections. That is why the temperature goes up and the corporate body goes into a resistance mode. Many cases of this resistance have been well documented. Harvard management professor Michael Porter analyzed 2,700 mergers and acquisitions by 33 majors U.S. companies over a 36-years period. His report found failure rates between 50 and 75 percent.

The tribes within the merged institution continue to see themselves as separate entities. If I come to your country as part of the merger of our companies, you will still see me as an outsider. You will trust me less than someone from your home institution.

In the early 1970s when “diversification” was fashionable Royal Dutch/Shell bought a medium sized metal company, Billiton. In term of people, capitalization, turnover, or any other measurement, the Shell Group was so much bigger than Billiton that Shell could absorb this acquisition without any difficulty. However, by any standard, Shell’s intrusion was way above Billiton’s tolerance level.

Shell did not show a rejection mechanism. But Billiton did. The Billiton entity ailed, and in effect, died. Less than a decade later, nearly all of the senior Billiton managers had left – notwithstanding the utmost care Shell had exerted to leave the original management in control. For Billiton, the merger represented an infection and had to be repelled. This meant that Shell was unable to reap the benefits that Shell had hoped might emerge from the Billiton measure. Shell was simply too big for Billiton.

There is no easy way to manage mergers and acquisitions, once the bankers have left. The infection analogy is useful because it shows why money cannot buy intelligence, knowledge, and innovative behavior in large quantities. Learning is not a matter of “filling up the tank” by buying a new partnership. Learning is a process. Partnership takes times.

The less a company operates in control of its environment, the more open it should be: foreign bodies and ideas will be able to enter easily. That is as it should be; indeed, it becomes strength of the company. However, the company can never be sure how these bodies and ideas will behave, once inside. Every intruder has a choice: it can select a symbiotic relationship or it can pursue its own benefit, to the exclusion of all others.

All intruders are not alike. Richard Dawkins, who has written at length in “The Selfish Gene” about the role of intruders and parasites in evolution, describes them all as egoistic. None of them “cares” about the welfare of the host body, except as a vehicle for their own survival. They serve their own genetic interests. At the same time, however, many of them serve the host body well: They are symbiotic, increasing the sophistication and capability of the host body at the same time they remain dedicated to their own interests. There are bacteria that live in beetles, for examples, and use the beetle’s egg as transport into the bodies of new beetles. They do not obstruct the reproductive process of the beetle; indeed they depend on it.

Destructive parasites can also exist anywhere in the corporate host body. They can be excluded individuals or even individuals in positions of power, but planning their exist on their own terms. Power can be used to manipulate the definition of “us” in the service of someone else’s strategy. A senior manager manipulating a situation to make his or her own résumé look good, but leaving all the rest vulnerable, is behaving parasitically. Similarly, when a division of a company resents being part of the whole, that division can easily become a parasite in the host body. It does not matter whether this resentment is justified. All of these people and subsystems, in Richard Dowkin’s sense, are serving their own self-interest at the expense of the natural functions of the host company.

If a company begins to perform seemingly self-destructive acts, you should not ask, “Why is this activity in the interest of the corporation?” You should ask, “Whose interest is served by this self-destructive act?” Is it the small group that has misused its power to define the company as only the five or six top people? Is it the large intestinal snail called a partner company, a division, or a trade union?

We normally think of intruders as parasites and of parasites as entering with the intention of weakening their hosts. This need not always be the case. On entry, every intruder has the same choice: a symbiotic relationship or a parasitic one. Indeed, there is a great deal of leverage available from cultivating symbiotic relationships with organizational parasites. To understand such relationships, the critical question is this: Why would certain people or substructures work with a kind of group loyalty to one another when others would not?

Dawkins answer this question: All the members that stand to gain from trying their fate to the host institution will “corporate.” They will work together to make the whole institution behave as a single coherently purposeful unit. They are symbiotic, increasing the sophistication and capability of the institution at the same time they remain dedicated to their own interests.

It is clear that management’s responsibility for guarding the corporate health is best served by preventive medicine and setting a context for mutual cooperation. Make sure, when a new member enters, that there is a shared value system in place. When a new member enters the system, make sure that there is a contract based on long-term harmonization of goals. In this way, the company has the highest certainty that entrants will elect for member status, instead of becoming parasites.

Money is not enough of an incentive. If the salary and bonus levels represent the sole or the most important condition of the contract between company and individual, the chances are increased that the lure of larger amount of money will lead to parasitic behavior. This will be even truer for people who are in a closer position to higher amounts of money. The management levels in a company are the most propitious, from a parasite’s points of view!