The signs were there for anyone who cared to look. The fact that Enron executives had for some time been selling their shares for all they were worth was public information. So were the company's links with the obscure off-balance sheet partnerships that were subsequently to trigger its downfall.
The annual report for the year 2000 should have raised all kinds of questions: about the group's cash flow, which was a lot less impressive than you might have expected; about conflicts of interests involving an unnamed senior executive who was also working for the off-balance sheet partnerships; about the sheer length and complexity of the footnotes to the accounts-often a warning that things are not quite what they appear to be.
Above all, no one for years had come up with a satisfactory answer to the question: how exactly did Enron make its money? Even the company seemed a little vague about the answer to this one. According to its website: "it's difficult to define Enron in a sentence but the closest we come is this: we make commodity markets so that we can deliver physical commodities to our customers at a predictable price."
You can understand why Wall Street missed-or ignored-all these signals. Enron was a cash machine, spinning out enormous investment banking fees by way of its many transactions. It set itself ambitious growth targets and always met them. No one had an incentive to ask awkward questions so long as this process continued.
But why wasn't the press on to the case sooner? After all, it is now clear that the company had encouraged a culture of rule breaking, or worse, for years. Enron was arrogant-it described itself as the world's leading company. It was opaque-even its supporters acknowledged difficulties in making the numbers add up. And it made no secret of its political connections in its home state of Texas, in Washington, and in the world at large.
Why didn't someone kick the tyres? More generally, why is the media less successful in spotting trouble to come in big corporations than it is, for example, in governments? The first serious questions about Enron that I can find were raised by Fortune magazine in a perceptive article published last March. Until that point, Fortune had been one of the company's prime cheerleaders. Enron was featured in a gushing article on the world's most admired businesses which was published just a few months earlier and, in the summer of 2000, its shares were tipped by the magazine as one of the world's outstanding investments for the next ten years. The headline was rather unfortunate: "Ten Stocks to last the Decade."
Most publications only started to take Enron's problems seriously in the final few months of last year, when the game was already up.
Part of the explanation for this indifference lies in the mood of the times. Enron rose to its position as one of the world's biggest companies during a period that ranks among the greatest financial bubbles in business history-a time when the willing suspension of disbelief seemed the best route to prosperity. In the South Sea Bubble itself, nearly 300 years earlier, one ambitious promoter launched "a company for carrying on an undertaking of great advantage, but nobody to know what it is." That slogan might have served as Enron's mission statement.
But there is more to the story than the bubble mentality. The Enron affair reveals something about the culture of business journalism. As editor of the Financial Times over the period, I was part of this culture. Business reporting is unlike other forms of journalism in some important respects. As Russ Lewis, chief executive of the New York Times wrote in January in the Washington Post, it is far easier to investigate governments than businesses: "the press is aided by laws that provide reporters with access to government meetings and documents. But much of what happens in corporations goes on behind closed doors."
Political reporting deals in opinions-which often turn out to be adversarial hot air-as much as it does in hard information. If you call a politician a villain in your columns, as like as not you can expect a lunch invitation.
Business reporting has a harder edge: a lot of it is about facts, which are either right or wrong. Call a business leader a villain, and you are more likely to receive a writ-at least if you work in Britain. If you work for a fragile publication, there is also the worry about what the cost might be in terms of cancelled advertising.
So it takes courage and conviction to say that the emperor has no clothes. This was doubly so in Enron's case. First, the company's management was brutal in its response to questioning. People who didn't buy the story were told in public that they simply didn't get it: they were beneath contempt.
Second, Enron had a fervent fan club among the big financial institutions. They were, of course, profiting from its excesses. But if as an inexperienced reporter you see a company being championed by a Citigroup or a JP Morgan Chase, you think twice about saying that it is built on sand.
Financial journalists in general have come to rely too heavily on the guidance of investment analysts. Analysts have done the homework and have fat research reports full of numbers to demonstrate it. But, as Enron shows, they have every incentive not to make trouble. Many of them were rating its shares a "buy" almost up to the end.
Another trend that allowed the company to avoid bad headlines for so long has been a shift towards soft, personality-based journalism in the business pages. You don't read about Microsoft so much as about Bill Gates. Ken Lay, Enron chairman, made a great cover story for many admiring magazines.
Fortune magazine is itself a good example of this development. It used to be full of worthy pieces about the long-term strategy of Caterpillar Tractor. Over recent years, it has shifted sharply towards personality stories, and prospered mightily as a result.
All of this matters because business matters even more than it used to and has a bigger political influence. The Enron story did not just have an impact on its employees, creditors, customers and shareholders. It also reached into government in the US and, more tangentially, in Britain.
In Washington, the company successfully lobbied for legislation two years ago that exempted much of its trading activity from regulatory oversight, and spread its funds around politicians of every stripe. Senator Phil Gramm chaired the Banking Committee looking at the regulatory changes: his wife sat on the Enron board.
On a much smaller scale, Enron shows that soft money is playing an increasing part in funding British politics also. The Tory peer, Lord Wakeham, sat on Enron's board and the company made small donations to both Labour and the Conservatives.
In a recent pamphlet for the think-tank Demos, diplomat Robert Cooper argued that in years to come the corporate sector could be better placed than national governments to set international standards. "Transnational corporations may even work out international procedures for arbitration themselves," he wrote.
And according to Russ Lewis, "If the creators of the US Constitution had foreseen this development, they would have recognised the necessity for the press also to serve as a check against the excesses of big business."
One of the main tasks of the media is to hold power to account. With no serious alternative to free market capitalism, governments are increasingly obliged to enter into relationships with corporations. An intelligent examination of business starts to become a crucial component of democratic choice.
How to make that possible? Lewis's call for laws requiring greater transparency and disclosure of corporate actions, a kind of First Amendment for the business pages, is probably impractical-and anyway laws tend to get ignored when companies run into serious trouble. What is more, plenty of clues were ignored by the business press in the Enron case.
No, the answer has to lie in the hands of the media themselves. Developing journalists who are capable of tackling an Enron takes time and the investment of resources. Publications such as the Wall Street Journal and the Financial Times have already recognised this requirement. Among other changes, training is taken much more seriously than it used to be.
For the next year or two, every business story will have to face a lot more scrutiny. Until the Enron scars are healed, no one will take anything on trust. The real test for the media will come a little further off, when the good times next start to roll and the new Enrons start to emerge.
