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Note: Ms. Morgenson will be continuing her work at the end of this month as senior special writer on the Wall Street Journal's investigative team.


Source: The New York Times | Fair Game, November 10, 2017 column


After 20 Years of Financial Turmoil, a Columnist’s Last Shot

Fair Game


Financial executives appearing in 2010 before a congressional panel investigating the financial crisis. From left, Lloyd C. Blankfein of Goldman Sachs, Jamie Dimon of JPMorgan Chase, John J. Mack of Morgan Stanley and Brian T. Moynihan of Bank of America. Doug Mills/The New York Times

For the past 20 years or so, as a business columnist for The New York Times, I’ve had a front-row seat for bull and bear markets, scandals, crises and management mischief.

But I am leaving The Times, and this is my last shot at Fair Game. So it seems a fitting moment to look back at what’s changed and what hasn’t in the financial world, for better or worse.


Fair Game

A column from Gretchen Morgenson examining the world of finance and its impact on investors, workers and families

Small Investors Support the Boards. But Few of Them Vote OCT 6

Consumers, but Not Executives, May Pay for Equifax Failings SEP 13

Sarbanes-Oxley, Bemoaned as a Burden, Is an Investor’s Ally SEP 8

The Accounting Tack That Makes PayPal’s Numbers Look So Good Aug 4

Big Pharma Spends on Share Buybacks, but R&D? Not So Much

Jul 14

The Trump Effect on C.E.O. Pay

May 26

Meet the Shareholders? Not at These Shareholder Meetings Mar 31

Want Change? Shareholders Have a Tool for That

Mar 24

Your Mutual Fund Has Your Proxy, Like It or Not

SEP 23 2016

EpiPen Price Increases Could Mean More Riches for Executives Sep 1

Bloated Pay Came Before Hain Celestial’s Error AUG 19

A Simple Test to Dispel the Illusion Behind Stock Buybacks Aug 12

Investors Get Stung Twice by Executives’ Lavish Pay Package

Jul 8

How to Gauge a C.E.O.’s Value? Hint: It’s Not the Share Price

Jun 17

Fantasy Math Is Helping Companies Spin Losses Into Profits

Apr 22

BlackRock Wields Its Big Stick Like a Wet Noodle on C.E.O. Pay

APR 15

In Yahoo, Another Example of the Buyback Mirage

Mar 25

Stock Buyback Plans, Seen as Shareholder Boon, Can Backfire

MAR 11

FASB Proposes to Curb What Companies Must Disclose

Jan 2


Valeant Shows the Perils of Fantasy Numbers

OCT 30


Safety Suffers as Stock Options Propel Executive Pay Packages

SEP 13

Why Putting a Number to C.E.O. Pay Might Bring Change

Aug 9

Tech Companies Fly High on Fantasy Accounting

Jun 21

Stock Buybacks That Hurt Shareholders

Jun 5

Shareholders’ Votes Have Done Little to Curb Lavish Executive Pay

May 16


When the Stock Price Hides Trouble

Oct 12


An Unstoppable Climb in C.E.O. Pay

Jun 30 2013

When Shareholders Make Their Voices Heard

Apr 8


See More »


In addition to a string of garden-variety banking and business scandals, four seismic financial events occurred during my time as a columnist: the collapse of the Long-Term Capital Management hedge fund in 1998, the bursting of the dot-com bubble in 2000, the accounting scandals of Enron in 2001 and WorldCom in 2002, and the mother of them all — the mortgage debacle — in 2008. That one brought world economies to the precipice and wiped out Lehman Brothers and a raft of troubled banks.

That many episodes of financial tumult in two decades seem like a lot.

Some of this turmoil has generated positive change. Accounting scandals, for example, have been much rarer since Enron and WorldCom shook the financial markets. One reason: a 2002 federal law, known as Sarbanes-Oxley, requiring top executives to attest to the accuracy of their companies’ financial statements.

“Sarbanes-Oxley came into effect 15 years ago, and there have been fewer accounting scandals and more accountability,” said Jack Ciesielski, founder of R. G. Associates and publisher of The Analyst’s Accounting Observer, an accounting research service. “Those accounting scandals were a crisis we should be thankful for; we got through it, a law was passed, and it works.”

It’s too bad that the mortgage crisis six years later didn’t result in heightened accountability.

Here’s another sign of progress: Believe it or not, corporate directors are more active in their oversight than they used to be. Egregious board practices and chummy appointments are less common.

Nell Minow is a corporate governance expert and vice chairwoman at ValueEdge Advisors, a firm that guides institutional shareholders on reducing risk in their portfolios. She has been rattling cages in the governance field since the mid-1980s and says she’s seen a definite improvement in boardroom makeup and practices.

“When I started in this field, O. J. Simpson was on five boards, including the audit committee of Infinity Broadcasting,” she recalled in an interview. “And at another company, the C.E.O.’s father was on the compensation committee. We’ve come a long way.”

That’s not to say that problems arising from sleepy and clubby boards have been eradicated. “Exhibit A is executive compensation,” Ms. Minow said. “The first C.E.O. pay package I ever complained about was $11 million. The very fact that that has gone completely berserk shows that boards are still a long way from where they should be.”

A case in point: Thomas M. Rutledge, the head of Charter Communications, who received $98 million in 2016, according to Equilar, a compensation analytics company. Yes, he’s an outlier, but the average chief executive compensation at 200 large public companies last year was almost $20 million, Equilar said.

Something else that hasn’t changed over the decades is analyst and investor reliance on companies’ creative earnings calculations. These figures, which do not conform to generally accepted accounting practices, typically exclude costs that companies incur in their operations. Such costs include stock awards given to executives and employees and merger expenses. Excluding them makes a company’s results look more dazzling than they otherwise would.

Inventive earnings calculations, while more prevalent today, were very popular in the lead-up to the dot-com crash. Back then, analysts valued companies based on imaginative, nonfinancial metrics like the number of page views a retail website received or the percentage of “engaged shoppers” visiting a site. That didn’t end well, even for many companies that had exhibited highly engaged shoppers and millions of views.

“I find it ironic that GAAP is much better than it has been for a long time, but analysts have more disdain for it,” Mr. Ciesielski said, referring to generally accepted accounting principles. “They blindly accept the methodology that management gives them. Folks prefer darkness, I guess.”

To be sure, embracing management’s preferred financial figures isn’t as perilous when stock prices are rocketing. Bull markets cover a multitude of sins, after all. But as the dot-com episode showed, genuine earnings growth — the kind companies can take to the bank — becomes a crucial underpinning when share prices turn down. That’s not true with financial metrics that can only be characterized as “earnings before the bad stuff.”

President George W. Bush signing the Sarbanes-Oxley Act in 2002. The bill aimed to improve the accuracy of companies’ financial statements. Stephen Jaffe/Agence France-Presse — Getty Images

My search for truths on Wall Street and elsewhere over the years has sometimes raised hackles. That’s to the good. It wasn’t my job to be part of a company’s spin machine.

But responses from my subjects could get a little kooky. A favorite example occurred in the early 2000s, and it involved a major Wall Street firm.

I had written about an arbitration case that an investor client had brought against the firm. The firm prevailed in the matter, and the general counsel convened a dinner to celebrate.

In a phone conversation, the firm’s general counsel told me that the menu for the dinner had featured a photograph of me, placed inside a red circle with a slash though it. The general counsel told me how he had scoured the web for just the right picture. The menu garnered lots of laughs from the attendees, he added.

I never did find out what that celebration cost the firm’s shareholders.

Incidents like that, however, were relatively rare. And they were far outweighed by the appreciation that readers expressed.

“You must continue your work of skewering people and customs in our capitalist society that abuse the process,” a reader in Jackson, Miss., wrote in 2001. Others expressed thanks for my being “a good and consistent questioner,” for writing for the “financially illiterate,” for pushing to make the rules for investing fair and firm.

And I loved receiving a Christmas card from a reader in Maryland a couple of years ago that simply said: “Thank you for telling truth!”

Believe me, it has been my privilege.


Twitter: @gmorgenson


A version of this article appears in print on November 12, 2017, on Page BU1 of the New York edition with the headline: The Reflections Of a Truth Seeker.


© 2017 The New York Times Company



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