Company executives are paid to maximize profits, not to behave ethically. Evidence suggests that they behave as corruptly as they can, within whatever constraints are imposed by law and reputation. In 1977, the United States Congress passed the Foreign Corrupt Practices Act, to stop the rampant practice of bribing foreign officials. Business by American multinationals in the most corruptÂ countries dropped.Â But they didn’t stop bribing. And American companies have beenÂ lobbying against the lawÂ ever since.
Extrapolating from frauds that were uncovered during and after the dot-com bubble, the economists Luigi Zingales and Adair Morse of the University of Chicago and Alexander Dyck of the University of TorontoÂ estimated conservativelyÂ that in any given year a fraud was being committed by 11 to 13 percent of the large companies in the country.
Yet it may be wrong to shrug off the latest boomlet of corporate crimes and misdemeanors as a mere reflection of the business cycle. Americans appear to believe that corruption has become more prevalent over the years. And some indicators suggest they may be right.
In 2001, Transparency International’s Corruption Perceptions Index ranked the United States as theÂ 16th least-corruptÂ country. By last year, the nation had fallen toÂ 24th place. The World BankÂ also reportsÂ a weakening of corruption controls in the United States since the late 1990s, so that it is falling behind most other developed nations.
The most pointed evidence that breaking the rules has become standard behavior in the corporate world is how routine the wrongdoing seems to its participants. ”œDude. I owe you big time!… I’m opening a bottle of Bollinger,” e-mailed one Barclays trader to a colleague for fiddling with the rate and improving the apparent profit of his derivatives book.