The One That Got Away    

How did the press miss the Enron story?

Looking back, Houston Chronicle Managing Editor Tommy Miller can almost pinpoint the moment his paper let the biggest business story of the year slip by.

It was mid-August last year and Jeffrey Skilling had mysteriously stepped down from his job as the No. 2 man at Enron, one of Houston's biggest corporations and among the hottest companies in the country. Sitting in the news meeting, the Chronicle's editors sensed something was up. Skilling, just 47, had been CEO of the energy behemoth for less than six months. Why would he leave? A falling out with Enron chief Kenneth Lay? The company's slipping stock price? Something bigger?

Enron beat reporter Laura Goldberg was dispatched to dig a little deeper. She got an interview with Skilling. He spoke of "personal reasons" for quitting but was unwilling to open up, Miller says. Though they were nagged by lingering questions, the editors shrugged and let it go.

"In retrospect, I wish we had put the whole business staff, or at least a whole bunch of reporters, on what the heck was going on with Skilling," says Miller. "Obviously, we missed a lot of red flags.... But we had a lot of company."

Skilling's departure was a prelude to the spectacular implosion of the nation's seventh largest company that took thousands of jobs, its workers' retirement savings and investors' bank accounts with it. It ranks as the biggest bankruptcy in the history of American business. Critics say it may also rank among the biggest failures in financial journalism.

At a time when business journalism is booming, not only did reporters nationwide miss the Enron story, journalists may have helped create the problem. Stories about Enron's almost-mythical success helped fill the newshole created by a growing number of business magazines, expanding newspaper business pages and cable news networks. During Enron's spiral downward, it became almost a sport among financial journalists to zing each other with quotes and headlines from old stories about the company.

Fortune magazine ranked Enron one of the "100 Best Companies to Work For." Worth magazine put Skilling on the cover as one of "The 50 Best CEOs." There were positive pieces and profiles in the New York Times, the Wall Street Journal, the Dallas Morning News, the Houston Chronicle and on the financial cable networks.

But mixed in among the glowing press clips was some foreshadowing. The California press raised questions early last year about Enron's role in the state's power crisis. At Fortune, reporter Bethany McLean wrote a skeptical piece last March titled "Is Enron Overpriced?" But it was the Wall Street Journal, led by energy reporter Rebecca Smith, that really started digging last fall and began uncovering internal documents linking Enron to debt hidden in limited partnerships.

However, the whole spectacular story of Enron's demise--featuring financial maneuvering, off-balance-sheet partnerships and document shredding--wouldn't come out until well after its December 2 bankruptcy filing. By January the company's executives were household names. Readers and viewers, especially those in Texas affected personally by the collapse, wondered why the news came so late.

"I've gotten a lot of e-mails from people just expressing disbelief and frustration," says Richard Connelly, media columnist with Houston Press, a city weekly. "People were saying, 'Where were the Chronicle and [other media] on this?' "

To be fair, Enron appeared to go out of its way to hide what was happening. Neither regulators nor most analysts set off alarms. And while the story was unfolding, most of the media were wrapped up in the all-consuming coverage of the September 11 terrorist attacks and the ensuing war in Afghanistan.

But being distracted by other news isn't a good excuse for missing the Enron story, says Jon Friedman, media editor for CBS MarketWatch. "What strikes me is that in the '60s we uncovered the failure of the Vietnam War. In the '70s we uncovered Watergate. Thirty years later, we have really fallen down on a story like Enron," he says.

Martha Steffens, who holds an endowed chair in business and financial journalism at the University of Missouri School of Journalism (See Bylines, page 8), says the media should take the Enron mess as a lesson. "It highlights the preeminent problem in business coverage, which is journalists don't relish analyzing earning statements," Steffens says. "I think a lot of people just weren't looking behind the curtain."

Steffens, briefly executive editor of the San Francisco Examiner, traces the root of the problem to business reporters relying on Wall Street analysts to judge a company's performance instead of digging through the often-mundane numbers on their own. "Analysts have a split allegiance.... Their business is not here to serve journalists," she says.

Steffens plans to use the coverage of Enron as a centerpiece for her financial journalism course at Missouri this fall. "This might really be a rallying call for all journalists...to really scrutinize the companies in their own backyards," she says.

In Houston, the Chronicle has learned its lesson, Miller says. By late January much of the staff was involved in the coverage. In addition to most of the business staff, about eight general assignment reporters, a staffer from the state desk and a reporter in the New York bureau were on the story. In Washington, D.C., another seven reporters were covering congressional hearings and digging into the company's links to the White House. Several features reporters were mining the lifestyle side of the story.

Miller says there's nothing left to do but move on: "Now what all of us are going to do is pursue the story as hard as we can to answer the question, 'How the hell did all this happen?' "