Corporate DNA - the ecology of companies

By Simon Longstaff

A version of this article was first published: (publication unknown) - December 2002

Part of the legal fiction associated with the life of corporations is that they are 'immortal'. Certainly, their life span can (and often does) exceed that of any natural person.

Furthermore, it has been persuasively argued that the principal duty of a company director is owed to shareholders 'in perpetuity' – and not just those with a contemporary interest in satisfying their immediate wants. To give in to such pressure would be to 'rob' future shareholders for the exclusive benefit of today's crop of investors.

Of course, the reality is that the ecology of companies is one of constant flux – with 'births' and 'deaths' taking place on a regular basis and usually without comment. After all, competition in the market place is often accompanied by the demise of those who fail to perform – with their slot in the universe of companies being filled by more agile or resilient competitors. Then again, there are occasions in which the passing of a corporation causes huge controversy – HIH and Enron being two cases in point.

Given a general presumption that well-managed corporations should be 'immortal', high profile collapses raise fundamental issues to do with the sustainability of corporations themselves – and not just what they do. So, what should be said about this question?

If we think of the world of corporations as an eco-system, then we might reasonably expect to see corporations either adapting to the changing demands of their environment; or passing into oblivion. Indeed, this is what we find in reality – a succession of failures caused by the redundancy of an idea, product or approach. Failures, caused by a lack of capacity to adapt to a changing environment, may be a harsh and uncomfortable fact of life. However, they should not cause us too much surprise or concern. But there is another source of 'failure' that is far more troubling.

This second form of failure may be somewhat analogous to the cancer that brings down an otherwise viable organism in the natural world. In that case, a successful line of development, in nature, can be snuffed out through the effects of random mutation. Then, the organism is destroyed from within.

The equivalent event in a corporation occurs when the core values and principles of a company are undermined from within. The ethical framework, according to which a company operates, is its 'organisational DNA". In most cases, senior management and the board of a company have only an imperfect understanding of how this ethical framework determines the corporation's course of action. However, the point is easily demonstrated (to those who care to look) that every action (and inaction) taken by a company is, in fact, an expression of values and principles at work deep within the fabric of the organisation.

For example, imagine two companies with different ethical frameworks. One holds to the value of 'trust' and operates according to the principle of “do unto others as you would have them do unto you”. The other values 'cunning' and operates according to the principle of “do unto others before they do it to you”! No one could deny that these will be two very different places in which to work and with which to deal.

As noted above, companies typically ignore the implications of this – and fail to engage in the active definition and management of their DNA. One result of this is that mutations are often common – with all of the risks that this entails.

I am not suggesting that corporations are run by people who set out deliberately to ignore ethical considerations. The truth is less harsh and more challenging to grasp. Put simply, the major problem is that people tend not even to think about such matters – leaving this aspect of a corporation's life to run (or crash) on 'autopilot'. This lack of attention to the ethical dimension of corporate life sometimes leads to disaster. In most cases, the 'crash' is preceded by a series of decisions in which the leadership of the company acts in ways that are a direct repudiation of everything that the corporation claims about itself.

This is occasionally done with full consciousness of the implications (such as when the Board of Enron twice suspended its Code of Ethics to allow related party transactions to proceed). More often than not, people act without even realising the damage that they are doing. They just don't think to ask the question, “but is it right?”.

This kind of behaviour acts like a cancer within an organisation – initially destroying the internal 'ecology' of the corporation as a prelude to its failure in the wider market place.

The lessons are there to be learned. Sustainable corporations need to pay attention to their organisational DNA – the core values and principles that lie at the heart of the corporation's ethical framework. Getting this area of the governance of corporations right will neither guarantee success nor longevity. Ethics is not a substitute for good skills of leadership and management of business. Rather, it is part of these skills.

All that can be said is that, if neglected, this area of management can undermine all others – with fatal consequences that could have been avoided – if only someone had thought to think.