Corporate crime is on the rise The rot spreads

A survey reveals that desperate times have led to illegal measures.

The recession has taken its toll on morals as well as profits, Pricewaterhouse Coopers (PWC), a consulting and accounting firm, has conducted a bienni­al survey of economic crime for the past ten years. The most recent, published on November 19th, is not only the most thorough, based on over 3,000 responses from firms in 54 countries. In many ways it is also the most worrying.

A third of those responding reported that they had suffered at least one eco­nomic crime in the past year. The in­cidence was particularly high in devel­oping countries, notably Russia; in financial services and communications; in big companies and in state-owned enterprises.

The three most common forms of crime are theft, accounting fraud and corruption. Of these, fraud has shown a particularly sharp rise (see chart): 43% of all corporate victims of crime and 56% of those in financial services reported an increase. The rise in fraud stems from a mixture of increased opportunities and growing incentives. Companies have been reducing the number of people employed to monitor workers at a time when employees are more tempted to break the rules because their living stan­dards are eroding and their jobs are looking shakier. The proportion of frauds committed by middle managers has shown a particularly sharp rise, from 26% in 2007 to 42% today.

Economic crime has dismal conse­quences for everything from corporate morale to financial performance: a quarter of the firms that reported accounting fraud believed that it had cost more than $1m. What can be done to stamp it out? PWC argues that senior managers should play a more active role in combating the problem. Just 26% of executives reported economic crime in their organisations compared with 34% of respondents from lower ranks.

The survey also raises doubts about performance-related pay. Economic crimes of all kinds are markedly more common in firms that make a lot of use of it. Of firms that link more than half of bosses' pay to performance, for example, 36% report frauds, compared with just 20% of firms that use no such incentives. A growing number of executives, it seems, are discovering that the only way that they can hit their performance tar­gets is to break the law.

Unit 5. A Competitive Spirit in Business Spit and polish

But bilious outbursts and business success often go hand in hand. This is partly because people with outsize commercial nous also tend to have outsize personalities. The same passions that drive them to make something from nothing also drive them to crush anybody who gets in their way. Charles Revson, the architect of Revlon, boasted, "I built this business by being a bastard, I run it by being a bastard. I'll always be a bastard."

But it is also because personal animosity can be the grit in the oyster of competition. Sometimes it can actually create business opportunities: Mr Murdoch's personal dislike of smug liberals has helped him create a right-of-centre media empire that now includes both Fox News and the Wall Street Journal. Even when vituperation does not drive competition-as is the case in the Google-Apple dust up-it can certainly sharpen it. Mr Jobs's habit of personalising his commercial rivalry with Microsoft and Dell has honed Apple's self-image as the coolest company on the block. Mr Ellison's competitive spirit has helped his company to thrive for decades. The Ellisons and Jobses of this world may drive their fellow executives to carpet-chewing fury. But the world is the better for them.