The press have always had a key role to play in the maintenance of democracy. They have free speech rights which are protected by the courts – in particular they have the right to protect their sources – which other people aren’t afforded. However, there’s a view that this power brings responsibility, and that responsibility is to hold the rich and the powerful to account.
Yet financial journalists have, with a few exceptions, been conspicuous by their absence when the great financial scandals of the twenty first century have unfolded. Indeed they’ve often been implicated in the issues, egging on investors with hyped up stories of superpowered CEOs and overly optimistic forecasts. And, frankly, if financial journalists aren’t able or willing to exercise their duties, should we continue to allow them the rights to do so?
At the heart of the modern corporation is a peculiar split between their ownership and their management. Shareholders own the firms but executives manage them. This split opens up an agency issue – the interests of the managers are different from those of the owners, and this separation of responsibility raises great temptations for managers. As we’ve seen, time and again, many executives are unable to resist.
Still, a great many executives don’t allow themselves to fall victim to such tendencies but whether this is because most of them are fundamentally honest and moral or because they fear the sanctions that would apply if they were caught is an open question. In one view managers are less likely to furtively steal their shareholders’ business if they are placed in the danger of possible exposure by financial journalists. This argument sees journalists as gatekeepers, helping to keep the majority of managers on the straight and narrow.
This would suggest that the role of financial journalists is critical to the good functioning of markets and the way that they’re treated by regulatory bodies argues that they share this apprehension. Financial journalists’ public interest defence – essentially a protection against possible defamation proceedings – is part of the regulatory framework on both sides of the Atlantic. This defence exists in addition to many other rights that journalists are allowed, and extends the legal and regulatory protection afforded financial journalists. However, this is not done lightly, and it’s a de-facto recognition that proper investigative journalism is needed to hold to account powerful corporations and executives.
Unfortunately the idea that they should actually go out and dig for stories rather than just accepting the dubious pap fed to them by PR agencies and assorted corporate types isn’t something that a lot of financial journalists actually seem to be able to do. Virtually without exception the press has failed to identify the great financial issues of our times, ahead of time, and has often been in the vanguard of the cheerleaders of the latest bubble. Even when they’ve actually been given the story on a plate, as with Harry Markopolis' relentless attempts to expose Bernie Madoff, they’ve generally looked the other way. It is, in truth, a pretty ignominious record.
Even worse, perhaps, is the idea that the journalists themselves are biased in favour of a particular viewpoint, one emphasising the values of middle aged scribblers of a certain mindset. As Peter Wilby remarks in How To Play Footsie With Younger Readers:
"The press presents the world through a middle-aged, middleclass prism. When young people read that house prices have shown "healthy increases", they must think journalists live in a parallel universe. No wonder they don't read newspapers or feel any affection for them."So by promoting a simplistic view of the world – rising house prices/share prices are good, falling house prices/share prices are bad – journalists actually contribute to the world’s financial problems. Falling prices are no doubt bad for many journalists, but they’re generally not a big issue for impoverished youngsters trying to scrape together a deposit.
The cock-up theory of failed journalistic oversight suggests that this is just one of a number of unintended consequences of modern markets. One problem, noted by multiple correspondents, is that many journalists simply don’t have the forensic skills to ferret out stories, and if they did they’d probably not be working for media companies but would be using their talents to earn much more money working for the financial sector. In a way this theory itself is a sad state of affairs, since it enshrines an attitude that everyone is out for their own self-interest, as defined by money, a view which really runs exactly counter to what we’d expect from top-class investigative journalism. Does no one have a calling for truth and justice any more?
Another problem is simple access to the information needed to develop stories. PR companies are now active gatekeepers for corporations, aiming to spin stories in their clients’ interests, and using their control to punish journalists who step out of line. If you don’t provide the story they want then your sources will dry up, and without information there are no stories. As Damian Tambini points out in What Are Financial Journalists For?:
“One very real problem is that interested parties - including corporate executives and analysts - sometimes constitute the only repositories of relevant data and employ the main experts. With the help of proactive PR, information can be controlled despite the fact that – as we have found – ultimately the financial system is a public matter that effects us all.”
This is boosterism, pure and simple.
Still, the tendency of people to fail to warn about possible market crashes is nothing new. For instance, this was discussed by the economist JK Galbraith, noting that those that speak up:
"…will be the exception to a very broad and binding rule. They will be required to resist two compelling forces: one, the powerful personal interest that develops in the euphoric belief, and the other, the pressure of public and seemingly superior financial opinion that is brought to bear on behalf of such belief"
This, of course, is groupthink, the underpinning of herd behaviour. Let’s face it, if financial journalists are unable to speak out against unnatural over exuberance in markets because they’re caught up in the market zeitgeist, who will?
However, behind all of this is the rapidly changing nature of journalism and the press. There’s no monopoly on news channels any more, and there are few journals who can afford to mount long and expensive investigations of potential wrong-doing, only to find out that there’s no story. So the growth of competitive pressures is subtly leading to a gradual settling of standards, and a dearth of real investigative journalism.
Who Are Journalists
All of which leads to the question of what constitutes a financial journalist – should bloggers, for instance, be afforded the same protection as those who scribble for mass market publications? Should financial journalists be allowed privileges that would not be granted to others by regulators if they don’t properly exercise their so-called duties? And if they aren’t who will hold the rich and the powerful to account?
After all, if the only time we find out who’s swimming naked is when the tide goes out then who do we trust – we certainly shouldn’t be placing much faith in reports and analysis from the mass media, since most of the time this is simply recycled news with which they’re pump-primed. Or at least that’s what we should assume.
There are honourable exceptions to this sorry state of affairs, but the reality is that most media stories about corporations should be taken with a great pinch of salt. One of the reasons that they’re full of untestable punditry is that printing the opinions of so-called experts is a great deal less expensive than actually doing proper analysis and fighting off the lawyers and the PR agencies. Investors should take note, and do their own research.