As Motorola Inc. CFO David Devonshire prepares for next month's first-quarter earnings report, he expects to pay special attention to media questions about a restatement of earnings for prior periods. While the revised numbers reflect a simplification of the company's business sectors — organizing them into four groups instead of five — the press often sees red flags in a restatement. "Reporters will want to understand the metrics of the past and the present and the future, and I have to be ready to explain all the changes," he says.
That means that Devonshire and CEO Ed Zander must pack as much as they can into the hour of media interviews that the corporate communications staff typically sets up, just before the analyst conference call that reporters often monitor. Motorola's approach, of course, reflects the provisions of the Securities and Exchange Commission's Regulation Fair Disclosure. "We know that this is the one shot to get things out," Devonshire says. If a reporter's questions have to be answered later, "I have to be very careful about it."
How times have changed. Twenty years ago, "the CEO was the one the Street and the press wanted to hear from," says Frank R. Gatti, CFO of Educational Testing Service (ETS), in Princeton, New Jersey, and a 23-year veteran of The New York Times Co., where he was vice president for financial management until his departure in 1997. "With the advent of conference calls, and with the use of the Web, CFOs are much more intimately involved," he says.
"The finance chief has got to be a terrific communicator today," adds Peter Crist, whose Chicago-based Crist Associates specializes in public-company CFO recruitment. "Their increasing dealings with the press parallel the end of the green-eyeshade era, and mark the era of the strategic CFO — with all the embodiments of personal style that goes with it."
How does the press explain the evolution of CFOs into media stars? Bloomberg News editor-in-chief Matthew Winkler pegs the emerging high profile to the volatility of interest rates that deregulation started, helping turn junk bonds and merger mania into household terms in the 1980s. As the bull market for stocks and bonds began its 20-year run, the investment community also swelled with participants in newly minted 401(k) retirement accounts and mutual funds — which in turn vastly expanded the audience for the business press. "It was harmonic convergence, with the demographics of the so-called Yuppies coming of age and taking charge of the world, just as there was an explosion of financial assets and values," says Winkler, who helped start Bloomberg News in 1990. "I can't think of anything that was as important in changing the landscape, and in changing the way journalists perceived their subject."
Like Bloomberg, other financial-news outlets sprouted, such as CNBC and the former CNNfn. Publications including the Wall Street Journal, the New York Times, and Investor's Business Daily made some efforts to beef up coverage of accounting and corporate finance, as did the business pages of major metropolitan dailies.
As reporters looked for someone to discuss the company's role in the story, they found that "people involved in finance were not cardboard characters; they had impact on people's lives, and couldn't be relegated to the fourth section in newspapers," according to Winkler. And business journalists often got the same message from Wall Street securities analysts, who long had served as a major link between reporters and the companies they were writing about.
Harvard Business Review editor Thomas A. Stewart says that as American companies began to narrow the gap that had developed between finance- and management-accounting practices — a gap captured by Robert S. Kaplan and H. Thomas Johnson in their 1987 book Relevance Lost: The Rise and Fall of Management Accounting — some finance chiefs found "a new job" in using finance and technology to design new competitive strategies. CFOs "not only had the purse strings, they had the managerial accountability," says Stewart. And often "the CIO and CTO reported straight up to the CFO, so the finance chief became more relevant to the business."
As CFOs were increasingly taking charge, investors were demanding more information showing how earnings would compare with analyst estimates. Such media queries are best answered by the CFO, and CEOs became willing to let the CFO answer. "In past years, I'm not sure CFOs wanted to deal with the press," says ETS's Gatti. "But now, with CEOs endorsing the new press-contact role, for the most part CFOs like the role."
All the while, according to Motorola's Devonshire, the gradual decline of the COO role made more finance chiefs the number-two executive, hastening their designation as media spokesperson. "There was a lot of stumbling initially, because they didn't have the background for dealing as public personae," he says. "But I really think people learn from others" — and a few finance chiefs set the pace. At the top of Devonshire's list of model CFOs: Gary L. Wilson, who left the CFO post at Marriott Corp. and joined The Walt Disney Co. in 1985, leaving there in 1990. Wilson is now chairman of and a principal investor in Northwest Airlines. "You looked up to Gary and said, 'Wow, if he could do it, why couldn't I? He started the trend."
Finance chiefs also began seeking out media training. Devonshire did some while at Honeywell Inc., where in 1992 he was vice president, finance, with responsibility for investor relations. "I also encouraged people to at least see how they looked on video," he says. Devonshire moved on to Owens Corning as CFO, and later to Ingersoll-Rand Co., before taking the CFO reins at Motorola.
While he thinks the business media has improved somewhat in its understanding of corporate-finance principles, Devonshire is tougher on reporters' ability to do real financial analysis — for example, to find the kinds of accounting frauds that make the front pages after the SEC brings charges, or after whistle-blowers make allegations. "I think they fall short" in the area of financial analysis and investigation, he says, "because the press generally isn't quite as sophisticated as the SEC."
The Internet's Impact
The Internet has had a profound effect on financial-news reporting, for better and for worse. Where once business reporters relied on company press releases and their own publications' clippings for basic research, now they can call up all of a company's past releases, analyst reports, news coverage, releases from competing companies, and government filings — and still make their deadlines. The expansion of EDGAR (the SEC's electronic data gathering, analysis, and retrieval system) to cover all public companies made SEC documents far more accessible. And the Internet expanded the number of media yet again, introducing Web entrants like TheStreet.com, along with online editions of BusinessWeek,Fortune,Forbes,Financial Times, and the Journal, among other publications.
But few in the general business media brag freely about improvements in finance and accounting coverage over the years. For one thing, the easy access to other reporters' stories sometimes fosters bandwagon journalism, as well as the recycling of rumors and errors to the point that they sometimes seem true.
"It's not all bleak," is the way Time Inc. editor-in-chief Norman Pearlstine describes the coverage of corporate finance. Pearlstine, with responsibilities for 138 magazines including Fortune and Money, says business publications sometimes suffer because they don't hire people with business experience. Instead, "they tend to hire really smart reporters who can write, assuming they can be taught to cover their business beats." During nine years spent as a top editor for the Journal before he left in 1992, Pearlstine added reporters to the paper's accounting and finance beats, a trend that has continued there.
But he still considers business reporters who know corporate finance well the exception. Bethany McLean, whose Fortune articles raised rare questions about Enron before its 2001 collapse, "was a research analyst at Goldman Sachs before she came to us," Pearlstine notes.
A Different Viewpoint
CFOs often find, of course, that reporters come into press conferences and interviews primarily in search of a story that will grab readers — and thus may pay scant attention to the company's wish to put itself in the best possible light.
Robert E. Mittelstaedt Jr., until recently vice dean of the University of Pennsylvania's Wharton School and an instructor at its 37-year-old seminar program for business journalists, recalls a discussion he had with attendees who had asked him where he thought the press covered companies poorly. "I chided them for not making an effort to understand compensation practices," says Mittelstaedt, now dean of Arizona State University's W. P. Carey School of Business. He cited the example of an executive with a $1.5 million annual salary, but whose total income appears in the press as $7 million because of a $5.5 million stock-option grant. While "reported as income, because that's what the formula says," Mittelstaedt explained, options are very different from salary, and the difference should be noted. The argument was, he says, a very hard sell with the journalists.
CFOs have had a particular problem getting reporters to see the importance of cash flow, in addition to net income. "I think their understanding has improved, but it's not near where it should be," says Motorola's Devonshire. He's optimistic, though, that when the business press eventually has to explain how a company's financial results are changing to reflect the expensing of stock options, CFOs will finally win the ear of the media about cash flow's importance. Says Devonshire: "I hope they'll start to see that the one thing that keeps you honest is the cash-flow statement."
Roy Harris is senior editor of CFO.