It's tempting to blame the media for failing to spot scandals such as Enron, but the real villains are the lawyers and PR advisers that stifle the news
What do Dame Marjorie Scardino, chief executive officer of Pearson, and William Harrison, chairman and chief executive officer of JP Morgan Chase, have in common?
They both have seen their share prices collapse by two thirds from the peaks of March 2000, and they both think the media is partly to blame.
In a conference call to analysts in July to discuss the slide in his bank's shares, Harrison kicked off with this observation: 'We are now dealing with a political and media frenzy that is quite extraordinary.''
Scardino, who as overseer of the Financial Times should be better informed on this issue than most people, was even more pointed in her criticism of the financial media.
'I do think the business press, and I include the FT in this, has not worked hard enough to ferret out these stories,'' she was quoted as saying to the Royal Society of Arts Journal in Britain, referring to Enron and WorldCom.
'If journalists were better at reading balance sheets, some of these things would be discovered sooner. We could have done a lot more digging,'' she said. 'But business journalists often don't know a lot about business. It's a shame, but that's the case.''
Over at the FT, that went down like an application from Saddam Hussein to join the Houston Country Club. The paper's journalists are sensitive souls, and they don't like being dissed by the boss.
They complained in a memo, UK newspapers reported, rather confirming Scardino's observation that reporters know nothing about business, since the first law of corporate life is that the CEO is always right.
Scardino later e-mailed her staff to apologise. She said her remarks had been taken out of context, those stupid journos messing up again. Still, Harrison and Scardino are raising a valid point. There will be many who agree with them. The media has been having a fine time in the past few months, making accusations, heaping scorn on the rich and the powerful. There have been outbursts of righteous indignation.
There has not been much in the way of newspapers, magazines and TV stations examining their own roles in fueling dot-com madness and corporate corruption.
In keeping with the spirit of the times, let's disclose the conflicts upfront. I'm a financial journalist discussing financial media, so expect this article to be biased and self-serving.
There are four main accusations against the media. One, it created rock star CEOs. We live in trivial, celebrity-obsessed times, and the business media have responded by creating celebrity CEOs.
The faces of businessmen and bankers are slapped on the covers of magazines and fill TV screens, because that boosts circulation and viewing figures.
Yet companies are run by committees, not individuals. Creating rock star CEOs, the media fostered a climate which made it easier for a small minority of chief executives to loot their companies.Two, the media operated on false assumptions during the bubble. For example, many business journalists endorsed EBITDA (earnings before interest tax, depreciation and amortisation) as a valid measure of corporate performance.
It's arguable that the media's endorsement of EBITDA helped companies fiddle their books. Three, the rise of real-time news led to a loss of perspective. News services and TV stations such as CNBC and Bloomberg, speeded up coverage of breaking news.
That got information to investors faster. But it also created a hyped, feverish market. The charge is that the focus on the immediate at the expense of the considered helped the bubble spin out of control. The last accusation against the media, in Scardino's words, is that it didn't dig enough. It exposed none of the scandals now making headlines. Journalists were lazy or financially illiterate. Their negligence let crooks get away with it. How fair are the four accusations? Let's run through them from the back. Four, the media did dig. Enron started to unravel because of good reporting. Analysts' conflicts of interests were first highlighted by journalists.
If CEOs think journalists didn't dig enough, they can help by firing the lawyers and public relations advisers who descend furiously on every mildly critical article. They can stop threatening to pull advertisements. As for the charge that the media made it hard to see the facts clearly, well, it's true the news cycle has speeded up. But that is only a problem when companies fail to adjust to it.
Politicians have learned to live with a 24-hour news cycle. The clever ones turn it to their advantage. Businesses should do the same. Nobody ever lost money because they had too much information too quickly.
As for the second accusation: guilty as charged. Journalists lapped up a lot of rubbish, largely because our greatest weakness as a profession is an addiction to novelty and innovation, and a collective memory that make moths look like deep thinkers.
As for the first accusation: guilty as charged. The media did turn CEOs into rock stars. It was good for business. Still, add it up, and the charge sheet shows the media played only a minor role in the bubble. Think back to the late 1990s. Just about the only people warning that the bubble was a bubble were journalists. Alan Greenspan gave us one warning. Warren Buffett repeatedly said it was all crazy. Most of the world's central bankers, private bankers, investors, auditors, CEOs, treasury ministers, presidents and prime ministers were silent.
Indeed, Scardino and Harrison were silent. Perhaps they were too busy spending millions on free websites, and arranging loans for Enron.
Bloomberg newsroom, New York
Paul Bruns and Elaine Parkes
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