Steps Business Reporters Should Take to Avoid the Next Enron

By Chris Roush
June 27, 2006

For the past five years, the name of one company - Enron Corp. - has come to personify what went wrong in business journalism in the late '90s and early part of this decade.

Now that executives Kenneth Lay and Jeffrey Skilling have been found guilty and, pending their appeal, appear headed for the Big House, it's time for business journalism to shed part of its rightful blame for allowing the excesses and illegal activity at the Houston-based company to go unnoticed for too long.

Here's my list of how that can happen, and how the field can avoid another "Enron-like" failure:

1. Every business reporter in the country should be required to review the SEC documents of every company they write about. If there is something that they don't understand in the documents, then they need to take the passage to someone - like a local accountant - who will and ask them to explain what it means. This will take more work, but it will prevent another scandal from slipping through the cracks, as Enron did for so long.

2. There needs to be more skepticism of corporate news releases. When a high-ranking executive such as Skilling abruptly announces that he is leaving a company for "personal reasons" or to "pursue other interests," there needs to be some serious digging. Rarely are these corporate spin phrases the actual reason, but too often they are accepted as gospel.

3. The examination of cash flow needs to grow in importance by financial reporters in assessing a company's financial situation. Despite Enron's $100 billion in revenue and multi-billion profit right before its collapse, its cash flow was decreasing. Yet, this was rarely reported by any media even though it's a common barometer of corporate health by many on Wall Street. I'm not saying ignore profits or profit margin. What I am saying is look at the entire picture.

4. There needs to be better source development by reporters covering companies. We can no longer rely on getting stories solely from who the company PR people want us to talk to. Who knew the true story about Enron, or at least that there was something amiss? Lower-level employees who never talked to the media, and investors who had taken a critical look at the financial statements.

Not every company has the potential of being the next Enron on a business beat. But if we're too eliminate the stigma that came with failing to uncover Enron, WorldCom, Adelphia and other recent corporate scandals until it was too late to help investors and employees, then we've got to learn from past failures.

Copyright © 2008 Donald W. Reynolds National Center for Business Journalism