By: Adrian Wooldridge | Economist | 9 February 2013

THE basic facts of the case seem clear—and as dramatic as any performance of Prokofiev’s “Ivan the Terrible”. Sergei Filin, the Bolshoi ballet’s artistic director, arrived home shortly before midnight on January 17th. A masked man emerged from the shadows and flung sulphuric acid in his face. A car-park attendant tried to wash away the acid with snow. But it was too late. Mr Filin’s face and eyes had been badly burned. He is now recuperating in a German hospital.

Making sense of this horrific assault is tricky. One school of thought blames artistic squabbles. The Bolshoi has seen several nasty incidents. Mr Filin’s tyres have been slashed and his e-mail hacked. In the past, needles have been inserted into costumes and broken glass into the tips of ballet shoes. A dead cat has been tossed onto the stage in lieu of flowers and an alarm clock set off during a quiet scene. Ballet is not for sissies.

A second school focuses on money and power. Scalpers have made wodges from buying and selling tickets—perhaps with inside help. Bigwigs use their muscle to get their pretty daughters jobs as ballerinas. A lavish renovation of the Bolshoi theatre suffered epic delays and went wildly over-budget.

A third school focuses on sex. The ballet is a hothouse of passion and intrigue. Anastasia Volochkova, a former prima ballerina, once called it a “big brothel”. Two years ago Gennady Yanin, a ballet director, resigned when pictures of him engaged in gay sex appeared online. The heterosexual Mr Filin is so good-looking that men and women alike are infatuated with him.

All this is gripping stuff, but what does any of it have to do with business? Why is Schumpeter, whose subject is people in suits, fussing about people in tights? One answer is that peculiar institutions can tell us a lot about more run-of-the-mill ones. And dysfunction is more common in the business world than you might think. Clayton Christensen, of Harvard Business School, says that he has been struck, at alumni reunions, by how many of his fellow HBS graduates and Rhodes scholars had made a mess of their lives. Jeff Skilling, for example, had gone from making $100m a year as boss of Enron to a federal prison.

A quick glance around any office suggests that dark passions lurk everywhere. Gossip and back-stabbing are rife. (Schumpeter could tell you a thing or two about his editor.) In all companies, bosses wield power, which tends to corrupt. One delightful study shows that giving people power makes them more likely to cheat at games. It also makes them keener to suggest harsh punishments for others who are caught cheating.

All these problems are evergreen. However, three modern trends are making them worse. The first is the enthusiasm for rewarding employees for performance. This is driven by the reasonable insight that paying everyone the same spurs no one to excel. Alas, paying for performance can also have perverse consequences. Banks that pay big bonuses for big profits give traders an incentive to take big risks. Institutions that reward relative performance (ie, did you perform better than your colleagues?) encourage unscrupulous co-workers to sabotage each other. Dancers at the Bolshoi are paid primarily according to the amount of time they spend on stage, so an understudy may not be completely heartbroken if the lead ballerina breaks an ankle.

The second is the economic downturn. Towers Watson, a consultancy, says it has created a class of “trauma organisations” that must take drastic measures to survive. Staff at such companies tend to be pessimistic and cliquish—they huddle together for comfort in the storm. Even in non-traumatised companies, many workers resent having to work harder for stagnant pay. Towers Watson reports that only 44% of British workers have confidence in their leaders.

The third trend is the rise of knowledge-intensive companies that run on “economies of ideas” rather than economies of scale. These companies are all hungry for the best and brightest: for the brilliant pharmacologist who can create a blockbuster drug, for the extraordinary investment banker who can engineer an industry-changing merger or for the razor-sharp accountant who can shave millions off a firm’s tax bill.

The need to hire the best means firms have to put up with prima donnas. That has costs. Talent-driven firms can be torn apart by feuds or rendered dysfunctional by egocentric behaviour: clever people are as clever at finding reasons to argue with each other as they are at thinking up new ideas.

Stars can burn you

A creative environment can often be a toxic one. You may have noticed that films about Hollywood always show beautiful people doing ugly things to each other. One assumes that the directors and screenwriters know whereof they speak. Outside Tinseltown, too, some of the most toxic companies have also been some of the most creative. Enron was once revered for revolutionising the energy business. Lehman Brothers was regarded as the smartest of the smart.

Steve Jobs, the founder of Apple, was a genius. He was also “frequently obnoxious, rude, selfish and nasty to other people”, according to Walter Isaacson, his biographer. He crushed rivals who stood in his path. He enjoyed humiliating people who were less than A-players. He once stormed into a meeting with suppliers and bellowed that they were “fucking dickless assholes”. Joe Nocera, a journalist, commented on his “almost wilful lack of tact”. But this very abrasiveness was essential to Apple’s success—it kept the company passenger-free and relentlessly focused on producing the next big thing. As the poet John Dryden once put it: “Great wits are sure to madness near allied/And thin partitions do their bounds divide.”