Global Policy Forum

By James Ledbetter

The year that just ended will be remembered as a year when the failures of America's corporate governance and accounting procedures became widely apparent. But a full reckoning of the Enron-WorldCom era must also take into consideration the ways in which the business press failed, too.

The late 1990's witnessed an explosion of business media. CNBC became the most profitable cable channel in America. New magazines and Web sites sprang up: Business 2.0, Red Herring, The Street.com and the publication I worked for, The Industry Standard. All purported to untangle the mysteries of the burgeoning Internet economy.

Yet for all that increased attention, it's difficult to say that the enlarged business media played a decisive role in exposing the shortcomings of American corporate practices. Indeed, too often the new magazines and Web sites acted as incurious cheerleaders, championing executives and innovative companies without questioning their books. Do a search, for example, of the word "Enron" in the databases of those publications prior to 2000 and you'll find little but praise for its market innovations.

The mainstream media, too, did its share of hyping the technology boom, but no one did as much evangelizing as the so-called new economy publications. They preached about how technology created new paradigms. But they were frequently slow to note when technology didn't work, or markets didn't exist, and they relied far too much on a handful of self-interested bankers for information.

The billions that poured into Internet companies in the late 1990's usually came through the hands of venture capital firms or large Wall Street brokerage houses, each of whom had a vested interest in the company's success, or at least its rapid growth. But they were often among the only people who had studied the industry closely enough to have an informed opinion, and so they were the ones we called. With the benefit of hindsight, it's now clear that I and others were wrong to rely so heavily on sources who had so much at stake.

I had begun to get an inkling of this in early 1999: while writing about the merger of two large Internet music retailers, I sought a comment from one of the bankers following the stock of the newly formed entity. Yes, he acknowledged, the merger had taken too long to complete, and in the meantime Amazon.com had taken the lead in online compact disc sales. But, he insisted, the management team was solid and the company was on track. I was impressed, and put his endorsement in my story.

In a matter of weeks, I noticed, the bank had dumped all its stock in the merged retailer. I resolved never again to rely on analysts, but I confess that I didn't bring this epiphany to the attention of my colleagues or my readers.

Another part of the problem was that our own businesses were too far inside the beast we were covering. The Industry Standard, which began publishing in 1998, had the same start-up mentality as many of the companies it covered. Inevitably, some of their worldview rubbed off on us. At exotic conferences in Aspen and Barcelona, our management mingled with the leaders of high-flying tech firms, some of whom were simultaneously advertising in the magazine, sponsoring a section of our Web site, speaking at magazine-sponsored conferences they had helped pay for, selling us software and giving colorful quotes to our reporters. This was not a formula for sustained independence.

As we grew — The Industry Standard sold more advertising pages in the year 2000 than any magazine in America — we inherited some of the dot-com hubris as well. We spent millions on television advertisements, without being able to track whether they actually brought in subscriptions. The magazine's very success was sometimes a distraction that blurred the difference between us and our sources. Our competitors, too, acted brashly; both Red Herring and Business 2.0 had so many pages of advertising that in order to publish a respectable amount of editorial content in certain issues they simply reproduced articles they had already published. (One editor went so far as to defend the practice, arguing that his magazine had acquired lots of new readers since the articles had first been published.)

The storm of information surrounding the Internet boom was blinding. So many words and press releases were swirling around that it was impossible to know if anything anyone said made a difference. This depressing suspicion was made real for me one morning, when I appeared on CNNfn, the cable network's financial channel, to discuss the state of the market for initial public offerings. I had specifically told the producer that while I could discuss some Internet offerings, I was not an expert on the market for I.P.O.'s. No matter: when I turned up on the screen, the words "I.P.O. analyst" showed up beneath my head.

As if that wasn't bad enough, the anchor then asked me a question about a company called Bamboo.com that was scheduled to issue stock later that week. Unfortunately, I had never heard of Bamboo.com, so I found myself improvising.

Here's what I said, warts and all: "Bamboo.com is a specialized technology and Internet company that does certain kinds of currency exchanges. Internet currency exchanges, I should say, come up with a specialized currency just for the Internet and it's one that people are looking at. I'm not convinced that's an absolute winner."

It's not just the grammar that was off. Bamboo.com was an online real-estate company that specialized in a technology that allowed for 360-degree images on the computer screen. Could I have said no comment? Sure, I suppose, and I was furious with myself.

Equally disturbing, though, was the fact that it just didn't matter. The stock doubled in value on its first day of trading, and no one from the company ever bothered to contact me to correct my error. The froth of stock trading during that period obscured the facts and, it seemed, even the need for facts.

It would be wrong to blame the news media alone for the business debacle. If a company sets out to mislead regulators and investors, and finds a prestigious accounting firm willing to sign off on baked books, it's extremely difficult for an outside reporter to uncover the truth, especially on deadline. And there were plenty of occasions when The Industry Standard and others did diligently expose practices of tech and financial companies that seemed less than above-board; we wrote about questionable sales tactics at America Online and tried to curb enthusiasm for Priceline's discount grocery service, which has since failed.

But on balance I think even the best new economy journalists could not shout down the hype coming from the bankers and public relations machines. (And when the banking and advertising money stopped flowing, journalism was not enough to keep us alive.) I'd like to believe that those of us who witnessed the tech bubble will be smart enough to prick the next bubble that comes along before too many investors get duped. Encouragingly, some improvements have been made; CNBC now usually identifies whether a banker it is interviewing owns stock in or does business with the companies being discussed on the air.

But in more skeptical moments, I fear that the rise of any boom sector in the American markets will bring with it an attending press that is at least compliant, if not out-and-out boosterish. Editors and reporters need to be able to resist the notion that any single development in technology or business creates a new economy that defies traditional laws of business. That's not a problem that the Securities and Exchange Commission and Congress can solve.

James Ledbetter, business editor of Time Europe, is author of the forthcoming "Starving to Death on $200 Million: The Short, Absurd Life of The Industry Standard."

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