A transnational megacorporation that exerts near total monopoly, mints its own currency, fields its own armies, negotiates treaties, and executes convicts. This is not the stuff of dystopic cyberpunk novels, but history books. Founded in 1602, the Vereenigde Oostindische Compagnie (often referred to in English as the Dutch East India Company, but self-styled as the VOC) was the first publicly-traded company, established the first stock exchange, became the first multinational corporation, and boasted the first globally recognizable logo. At the height of its valuation in 1637, the VOC was worth roughly $8.28 trillion in 2021 dollars—more than Apple, Microsoft, Google, Amazon, Facebook, and fifteen more of the world’s most important modern companies combined (or, if you prefer, roughly the GDP of modern Germany, the UK, and France added together). Yet, by the mid-1790s, the VOC was bankrupt. On December 31^st, 1799, the Company dissolved entirely. The principal reason for this collapse was no secret: a popular joke at the time said that VOC actually stood for “vergaan onder corruptie” (“perished under corruption”).

How did the world’s wealthiest and most powerful corporation “perish under corruption” in just a handful of decades? And what lessons can be learned from such a failure?

The VOC struggled with endemic misuse of Company power for private profit by its officers, especially “embezzlement, nepotism, and illegal private trade.” Some of this corruption was probably unavoidable: the VOC’s international scope meant that its agents were solely responsible for handling transactions thousands of miles from Europe, and those agents were “underpaid and exposed to every temptation that was offered by the combination of a weak native organization, extraordinary opportunities in trade, and an almost complete absence of checks from home.” Nevertheless, by the end of its lifetime, the VOC was struggling with a far more endemic corruption problem than any of its competitors, a result which can be directly traced to the policies the VOC itself promulgated.

For the first 150 years of the Company’s existence, the Council of Seventeen (an executive board elected from the Board of Directors) strictly prohibited any form of corruption. This changed, however, by the middle of the eighteenth century. Although the scope of the Company’s trade continued to grow, the VOC had reached the limits of its short term borrowing power in the 1730s, and by 1750 the Company was facing a serious shortage of capital with which to finance its growth and pay dividends to stockholders. The Council of Seventeen’s solution to this problem (a cure that would prove to be worse than the disease) was to dramatically lower salaries for all of the VOC’s already underpaid agents, regardless of rank. To compensate for the lowered salaries, the Company changed its definition of corruption to permit agents to trade goods for their own private gain under the VOC’s flag. In other words, the VOC cut its official personnel costs by slashing salaries, but was able to retain its employees by permitting them to engage in certain forms of corruption—and essentially looking the other way with respect to other forms of corruption that were still nominally prohibited. As one Company official wrote: “It is taken for granted that the officials of the East India Company receive salaries insufficient to live on. It is therefore absolutely necessary not to supervise their financial dealings too closely.”

            This strategy proved quite successful in the short term, helping to maintain the VOC’s illusion of financial health. Even as late as 1781 (nineteen years before the Company’s dissolution), the VOC continued to regularly pay 18% dividends, and its shares traded at astronomically high prices. Internally, however, corruption was rapidly worsening. Despite the lower salaries, the “legalization” of corruption within the VOC caused the take-home of the Company’s agents to spike. As the VOC’s overseas trade grew, it became increasingly decentralized and dependent on its agents; these agents, ever more accustomed to lavish lifestyles enabled by corruption – but aware that the Company itself was doing less for them than their predecessors and that the bulk of their private gain was “self-earned” – demanded even further relaxation of constraints on their personal dealings. Under pressure to placate the agents they depended on, the Council of Seventeen capitulated to these demands.

Although the Council attempted to strike a balance between regulation and employee retention, VOC officials were eventually officially permitted to “earn money at any cost as long as the affairs with the VOC were settled.” This policy, intended to incentivize completion of VOC dealings, instead led officials to find ways to minimize what the VOC’s “affairs” entailed, so as to maximize their personal gain from any business enterprises. Departing VOC ships were laden with trading goods belonging to VOC officials, and only carried a few “official goods” on behalf of the Company on any given voyage. This enriched the VOC’s officials at the Company’s expense. Eventually, the Council stopped trying to regulate corrupt practices altogether—shortly before the VOC’s collapse, its anticorruption “regulations” comprised simply of taxing the graft of its own employees.

To be sure, corruption was not the sole driver of the VOC’s demise. Other contributing factors included changes in the composition of the Council of Seventeen (from invested merchants and traders to members of the ruling nobility), the Dutch government’s increasing interference with VOC management, and Britain’s emergence as a naval power. Yet while corruption may not have been the sole cause of the VOC’s collapse, many leading historians cite corruption as a leading cause of the Company’s demise.

The disappearance of the VOC was arguably a good thing for the majority of people unfortunate enough to interact with it. The VOC was appalling in its use of violence, slave labor, exploitation, colonialism, and mass environmental destruction. Yet the VOC’s demise can also serve as a cautionary tale, applicable to modern corporations and governments alike. No matter how tempting, authorities should resist the inclination to endorse a “regulated” form of corruption. Even if corruption already exists, and authorizing it seems to do little more than acknowledge an existing practice, institutionalization or rationalization is a sure path to normalization, in which corruption becomes endemic and self-reinforcing. The short term benefits derived from such a policy choice will not outweigh the corrosive effects that corruption has on even the most powerful entities.