Skepticism, hard work, good sources pay off

Enron’s fraud had been going on for several years before journalists caught even a whiff of it, as Michael J. Borden noted in a study of the role of financial journalists.

When journalists did catch on to what Enron was up to, Borden notes, it was because of “skepticism, hard work, ability to analyze accounting reports, and cooperation with analysts and other experts.” Having the know-how to do that kind of rigorous reporting, he says, makes journalists the catalysts that set off legislative and regulatory reactions that lead to reforms.

How do journalists acquire that kind of savvy, short of returning to the university for an advanced accounting degree?

It sometimes takes an expert to spot trouble, and that’s why journalists need to develop good sources at all levels.

It was a hedge fund manager who alerted several journalists from prominent foreign publications that managers of the Russian energy company Gazprom were shifting corporate assets to entities controlled by friends and relatives. Eventually, the company’s chief executive resigned and Gazprom instituted other reforms.

Story Toolbox

Story idea: How do the companies you cover match up with the good governance codes established in your country? Stay on top of any changes in the corporate governance code, which could be a story in itself.

A story also might examine how companies in your country compare with their neighbors in the region when it comes to compliance with good governance practices. Take just one issue: transparency and disclosure. Check the company on these items:

  • Does it have an external auditor? Is the external auditor a recognized national or international auditing firm? Any conflicts of interest?

  • Do directors disclose their buying and selling of company shares? Do they do so in a timely manner?

  • How much information does the company disclose about directors’ backgrounds, expertise and other board affiliations? From this information, are there any conflicts of interest? Are board directors independent?

  • How extensive is the company’s disclosure on compensation for management and for directors? Is this consistent with other companies’ practices?

  • Are non-executive directors compensated? If not, what is their motivation for serving on the board?

  • What do companies reveal about their strategy and their foreseeable risks?

For an example of a story on this topic, see: http://bit.ly/IjIFaY