Social sciences frequently delve into the dichotomy of insiders and outsiders when discussing individuals’ capacity to comprehend and authority to comment on groups they do not belong to, be it based on religion, culture, or status (e.g., age, gender, or race).
The central debate revolves around whether insiders' experiential knowledge and subjectivity lead to superior insights about their group or whether outsiders' detached scrutiny and objectivity allow for an impartial perspective on social and cultural truths. Does one need to be French to understand French culture? Does one need to be a woman to discuss women?
In ‘Insiders and Outsiders: A Chapter in the Sociology of Knowledge’ (1972), Robert Merton, an American sociologist, observes that insiders’ privileged access to knowledge leads to the definition of a group-specific truth and ethnocentrism: ‘each group [of insiders] nourishes its own pride and vanity, boasts itself superior, exalts its own divinities, and looks with contempt on outsiders.’ Insiders emerge as superior to outsiders, consistent with a dualistic bias. Only insiders can understand insiders.
Yet, outsiders’ ability to provide unique insights is exemplified by Alexis de Tocqueville, a Frenchman, who shared an exceptional perspective on the U.S. of A. in ‘Democracy in America’ (1835-1840). The American Foreign Service Journal (2020) rightfully concludes that ‘outside observers see the U.S. in ways we ourselves cannot.’
The insider-outsider dynamic extends beyond the realm of sociology and finds relevance in the relationship between a firm and its investors. As insiders, executives and board members may claim privileged access to the knowledge of the company and of the ‘real world’ in which they operate. The insider doctrine suggests that investors, as outsiders, have ‘a structurally imposed incapacity’ to fully comprehend a company and appreciate its potential.
But investors could be considered ‘insiders’ from a market point of view. After all, they enjoy a broad perspective on competing investment opportunities. As such, investors can determine whether a company is ‘off-market’ when considering its strategy, operations, or capital structure. Firms, as outsiders from this perspective, have a structurally imposed incapacity to assess their relative equity market positioning objectively.
The same insider-outsider dynamics are applicable across various contexts, including doctor/patient, foreigner/national, advisor/principal, etc. All outsiders are simultaneously insiders, and vice versa. It is only a matter of perspective.
The insider-outsider dualism is an illusion, a mental trap. As executive teams deepen their engagement with various categories of stakeholders, the framing of interactions as ‘insiders-outsiders’ is counterproductive. Instead, stakeholders may be seen as ‘outside insiders.’
As suggested by Robert Merton’s final words in his essay: ‘Insiders and outsiders in the domain of knowledge, unite. You have nothing to lose but your claims. You have a world of understanding to win.’ In business, in politics, in international affairs.
One needs to be of the world to comprehend the world.