BUSINESS DAY

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

Fair Game

By GRETCHEN MORGENSON    NOV. 10, 2017

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.

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.”

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