Corruption, Negligence, and Mismanagement at the Dutch East India Company

October 23, 2019

Marie Jane Jumawan-Matero
Challoner Matero
John Francis Diaz

Abstract: This case study investigates the unethical practices and internal struggles of the world’s first multinational company, the Dutch East India Company (DEIC). These problems contributed to its collapse in 1799 after almost two centuries of existence. The company was unable to cope with the shift in global economic powers, changing consumer preferences, rise of competition, the cost of wars it financed, and the inadequate supervision of its merchants. Moreover, internal corruption in private trading, high dividends to shareholders, and uncontrolled administrative costs compounded the company’s problems.

Introduction

Internal corruption and corporate malfeasance at the Dutch East India Company were facilitated by a number of factors: a) an organizational structure that allowed conflicting officer-trader roles for employees; b) the constraint of distance for timely communications, and effective internal discipline of personnel; c) the prevalence of deception that resulted in corrupting labor hiring and in slavery; and d) the unethical trading practices rampant among the shipping companies. Officials also serving as merchants free-rode on the company’s resources to trade for personal gains while representing their official designations from DEIC (Erikson & Bearman, 2006).

Some of the company’s personnel pocketed brokerage percentage from suppliers, overloaded ships with personal cargoes for trading, diluted precious metals to produce more volume, colluded with other traders and inspectors, and bribed local government officials. Being the first publicly-traded corporation, the influence of DEIC on current business practices, securities market, bookkeeping, and the financial system are lasting. The case of DEIC is therefore, an illuminating source of strategic and ethics learning.

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About the Journal

Moral Cents: The Journal of Ethics in Finance (Summer/Fall 2019)
The general impression of microfinance or microcredit is as a positive force in alleviating poverty. Yet, the assumptions behind the lending practice are questionable, burdening women with more work, more social pressure, and more debt. Microcredit subscribes to an essentialist understanding of gender. Schemes target women as they are often seen as ‘better credit risks’ and are more manageable, unlike men. Sariththira Selvakumar shines a light on microcredit and asks if a lending model based on neoliberal ideology can solve a problem caused by that same approach and whether a lending system based on gender essentialism is fair.
It’s been 11 years since the Great Financial Crisis. Ludovico Picciotto investigates if banks have been successful in fostering an ethical culture across the industry in the ensuing years. Top-down regulation is unable to prescribe specific ethical conduct and is therefore, generic and ineffective. Yet, solely relying on voluntary commitments from banks does not ensure industry-wide cultural change. Picciotto recommends regulators focus on principle-based policy to create systemic incentives for banks to foster ethical culture.
When it comes to ethical culture, perhaps banks can benefit from the advice of moral philosophers. Andrea Roncella applies virtue ethics frameworks drawn from Aristotle, Alasdair MacIntyre, and Catholic Social Teaching. He applies natural and unnatural chrematistics (the study of wealth accumulation) to distinguish between the ethics of market-making versus that of high frequency trading. The failure of the Reserve Primary Fund is seen through the lens of MacIntyre’s external and internal goods. Finally, he weighs the ethics of Collateralized Debt Obligations using principles of Catholic Social Teaching.
Alex Zhihao Wang thinks government policy has something to do with ethical culture in finance. He posits the federal government’s goal of promoting homeownership since the Great Depression resulted in these homeownership goals ultimately spreading subprime mortgages throughout the overall economy. Thus, policy created the environment that allowed for a larger financial crisis in 2008. Wang combines an ethics analysis of these housing policies with an analysis of the financial implications of the policies. He conducts his analysis from a utilitarian point of view, examining the positive and negative externalities of homeownership.
This edition of Moral Cents ends with a brief historical review by Jumawan-Matero, Matero, and Diaz of the Dutch East India Company and its ethical failings. The type of corporate misconduct is not unfamiliar in a contemporary setting – conflicts of interest, abuse of monopolistic power, and poor treatment of staff being some of the major problems, which led to the demise of the once powerful Dutch East India Company.

Dr. Kara Tan Bhala
Editor-In-Chief

Moral Cents: The Journal of Ethics in Finance is published by
Seven Pillars Institute for Global Finance and Ethics
ISSN 2326-5663

Editor-in-Chief: Dr. Kara Tan Bhala
Editor: Eric Witmer

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