The financial world is a hotbed of intrigue these days with everyone from mutual funds to heads of exchanges getting punished for behavior that would have gone unnoticed just a couple years ago. In the new age of corporate responsibility and transparency, however, no stone (or e-mail in-box for that matter) will go unturned, if regulators and legislators have their way. There are certainly more than a few companies cleaning house now to ensure they won’t be the focus of the financial media’s next feeding frenzy.
What’s amazing about all of this is the role the media is playing in piling pressure to change on powerful organizations. In the US, for example, it wasn’t the SEC that first called for the disclosure of Richard Grasso’s generous compensation package – it was the New York Post.
The daily tabloid raised the question of just how much the former NYSE chairman was getting paid in February this year. Scenting blood, the Wall Street Journal soon picked up the Post’s lead and both papers pursued the story aggressively over the following seven months. And by the time Grasso’s $140 mn package was disclosed in September, the story was front-page news around the world.
Similarly, it was Fortune journalist Bethany McLean who first brought attention to Enron’s misleading numbers, long before the SEC started asking questions. Her March 2001 article, ‘Is Enron overpriced?’, reported that key information was missing from the company’s financials. That story, along with other reports in the Wall Street Journal, are what triggered the SEC investigation into Enron’s financial statements.
By the same token, the financial press had been following the growing influence of hedge funds long before the SEC decided to consider regulating these private partnerships. In December 2001 IR magazine reported that the hedge fund industry was conservatively estimated to be worth $500 bn and warned IR professionals to pay attention to this powerful asset class (see Hedge funds: sharks or sharp investors?, December 2001, page 27). As described in this month’s IR Guide (included in our Americas edition), the hedge fund industry has now ballooned to a whopping $650 bn – and the SEC is finally planning to force these funds to be more forthcoming about how they’re making all this money.
While we don’t claim to have directly influenced the SEC, it’s certainly interesting to watch how news stories lead to regulatory and administrative changes in the era of corporate accountability. Of course, there are downsides to living in a society where public policy (and opinion) is heavily influenced by what’s reported in the news. But, from this side of the desk, it looks like there are definite upsides too.
