Donald E. Graham, Knight-Bahehot Anniversary Dinner
October 23, 2002
Keynote Speech by Donald E. Graham
I am not now, nor have I ever been a financial reporter.
I started at The Post as a Metro reporter, did a little national reporting at Newsweek, and had one glorious year as sports editor of The Post.
But over the years, I realized as I thought about this speech tonight that I have fallen in love with good business reporting and it has changed my habits. I still read The Washington Post in the correct manner, from the sports section out. But I now turn to the business page with pleasure and anticipation.
When Ben Bradlee became the editor of The Washington Post in 1965, we had a business staff of one-now, they won't even tell me how many people they have down there. The arrival of the business magazines is something I look forward to. I tried to think a bit about what seemed to me the essential qualities of good business reporting and realized that as a non-practitioner, it was hard to pin down. I decided to use the opportunity of tonight's speech to talk to half a dozen people I consider outstanding business reporters and to ask them: What in your opinion makes a good business reporter? And would your definition be different since Enron, WorldCom, et cetera.
I talked to Paul Steiger, to Carol Loomis and Andy Serwer at Fortune, to Allan Sloan and Bob Samuelson at Newsweek, to financial editor Jill Dutt and several colleagues at The Post. I would have liked to talk in particular to Floyd Norris and Gretchen Morgenson at the Times and to many, many people at the Wall Street Journal, and others.
What these people had to say was reasonably consistent. I will try to attribute their most interesting observations to them, except when they said something really good. In which case I'll steal it.
It seems ridiculous to start here, but everyone started with the point that you've got to love the subject-which isn't the same as loving the system or the companies. If you go through this program and reaching for the business section still isn't a treat in the morning, I think I'd go back to covering cops (unsurprisingly, I also think that's really important).
To analogize to a field where I was a practitioner, I've seen several attempts to make sports writers or, God help us, sports editors out of excellent journalists who didn't care much for sports. A few stuck it out; none became much good.
Here follows the most unbelievable line in my speech: Sloan started as a sports writer. Full stop. Bob Samuelson wrote his first business story because Ben Bradlee, having offered him a summer internship in Metro, reassigned him to financial. But once those two got interested in business, they really got interested.
Does a good business reporter have to know numbers, have to know accounting? I know there's some disagreement about this in the profession, but the folks in my sample all said hell yes. In fact, it will interest those of you from the Wall Street Journal to know that Steiger said "You better know more than something about accounting."
Jill Dutt made a very interesting comparison between business reporting and science reporting. She said, "If you're a science reporter and you don't know science, scientists won't talk to you. If you're a business reporter and you don't know business, your sources will take advantage of you."
Unless you are a very unusual reporter, you'll still need help from an accountant or a specialist when it comes to complex companies or subjects like derivatives. The job Carol Loomis has done over the years evaluating things like loss reserves in the insurance industry-there ought to be a separate wing in the Hall of Fame for Carol.
Companies in a sense are like people. They come from somewhere, they think they're going somewhere-and maybe they are, maybe they aren't. They're at some particular point in a long story. The numbers don't tell you the whole story, but they tell you a lot.
One thing a couple of people-Bob Samuelson in particular-said was: if you run across facts that challenge some hypothesis in the story you're writing, you'd better respect the facts. My favorite teacher in a school of business-this would be the Omaha School of Business-quoted Charles Darwin in a speech a couple of years ago. Darwin said that when he ran across a fact that contradicted a long-held belief, he felt he had to write it down within 30 minutes, so powerful was the human instinct to ignore what you don't believe.
How good a job did we do looking back at Enron and the bubble? I didn't run across anyone who thought there were clear pieces of evidence in Enron or WorldCom financial reports-hints maybe, but as Allan Sloan put it: "if people run a foot out of the baseline, they're easy to catch. If they're so far out of the baseline they're in a whole other playing field, they're impossible to catch without inside assistance."
As to the bubble, there probably ought to be a separate Bubble Hall of Fame. In it, from my very limited reading, would be the editors of the Economist, Alan Abelson, Floyd Norris, Carol Loomis, Allan Sloan and Bob Samuelson, and no doubt lots of others.
As to the rest of us, I'll go with Steiger, who says: "I'd give us a B on it, not an A or a C. "Some of the major scandals were broken by financial reporters. Some stories were tough, some were cheerleading." Carol Loomis told me years ago that there were only two types of business stories. One might be titled, "Oh, the wonder of it," and one "Oh, the pity of it." In the 90's, we veered too far in the direction of the first type of story. Now, we might have to watch how far the pendulum swings.
Finally, I want to turn things around a bit and ask you a question. Before I do, I guess I should remind you of one of our quirky stances as a company. It's October 23rd (but the same would be true on December 23rd): I don't know what we're going to earn for the next quarter. As we've said on Wall Street a few times: there are still a few unhappy analysts trying to estimate our earnings each quarter, but I don't know what their estimates are. And as our company has said quite often: if you're particularly interested in what we'll earn for the next quarter, you probably shouldn't own our stock.
This is a somewhat unusual stance. We can take it because of the unusual nature of our ownership, because we're known to be quite profit-minded, and because our board includes a number of famously tough graders.
From this point of view, I ask you: Is the business press paying too much attention to how companies perform against analysts' estimates?
You certainly can't ignore such stories. If Coca-Cola missing a quarter by a penny knocks $12 billion off the market value of the company, the business press has to write about that.
On the other hand, let's say a company really changes a lot in 3 years-it adds billions of debt, and doubles capital spending or it gradually starts performing much better. And suppose 90% of your stories over 3 years are about whether they made or missed a quarter. Are you telling the story of that company?
I'm fascinated that even in the case of Berkshire Hathaway, many news organizations diligently write whether the company exceeded analysts' estimates even though everyone knows that management has repeatedly said it's interested in intrinsic value not reported earnings.
I know why companies behave this way-as one man who runs a company explained it to me "Because those are the rules of the road."
Well, should they be the rules of the road? Parsimonious gent that I am, I'll bet you all a nickel that 10 years from now there will be less emphasis on quarterly earnings. Why? Because it doesn't make much sense.
If any of you owned 100% of a small business-a shop, a small newspaper, whatever-you could run it any way you wanted-to maximize profits right now, employ the most people, make the most inventions, or grow in the longer term. I ask you, would you call up someone at Merrill Lynch, ask what your company should make for the next 3 months, and then bend every effort to doing it? If you wouldn't, why should a public company?
Every CEO begins every annual report "We're running this company for the long term," and most of them mean it. Should even a tiny bit of quarterly and annual earnings stories be devoted to companies' progress against described long-term goals?
As I say, I don't have the answers to any of the questions I'm posing. You'd be crazy to ignore the quarterly-earnings barn dance, because for many companies it is an important objective. I just wonder if we are placing an emphasis on it that's a little bit disproportionate.