October 2001 – After CEO Jeff Skilling resigns, Enron’s stock falls dramatically after intensive coverage led by The Wall Street Journal. Company eventually files for bankruptcy court protection.
Wall Street Journal reporters Rebecca Smith and John Emshwiller dug deep into Enron’s accounting and found where a lot of the problems were buried. In a series of articles for the paper in the fall of 2001, the two reporters disclosed some of the accounting tactics used by the company to make its financial performance look better than it actually was. Their first story to examine Enron’s accounting looked at limited partnerships run by Chief Financial Officer Andrew Fastow and how the executive had received millions from the deals. Days later, they pointed out that Enron would have to issue more stock to satisfy some of its financial obligations from the partnerships.
By the next month, Smith and Emshwiller explained the complicated financial structure that had been used at Enron that helped boost its earnings – and was now causing its problems. And by the end of the month, Smith documented how the company was near filing for bankruptcy court protection because of its inability to untangle its finances.
Yes, these stories were written by business journalists at three of the most prestigious business publications in the country, and they likely had help from financial experts and other journalists with an accounting understanding. But these stories could have been written anywhere. Smith and Emshwiller had no particular insights into Enron. Neither had covered the company in any detail, and neither was based in Houston, the location of Enron’s headquarters. McLean had spent just a handful of years in journalism and had no real interest in energy companies. Her interest in the Enron story was spurred by a comment made by a source.
What the Enron story showed business journalism was that it needed to know accounting. Business reporters and editors needed to have an understanding of how to read financial numbers and explain them to readers. Too many journalists don’t have that training. And even some of the journalists who did help break the story were not as critical as they should have been early on. Smith, in writing about Enron in 2000, wrote stories that were “entirely devoid of skeptical voices,” noted Columbia Journalism Review. Bethany McLean’s Fortune had listed Enron as one of the country’s “most innovative” companies in its annual list of “Most Admired Companies” for six years in a row.