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April 09, 2004
Book Review--The Best Business Stories of the Year: 2004 Edition
    by William Baue

Ethics, disclosure, labor relations, executive compensation, and insider trading are among the topics related to socially responsible investment in this collection of business articles.

The 2004 edition of The Best Business Stories of the Year is a compendium of articles that reveal the human stories behind the headlines. The book features some of the best journalists being published, so it is not surprising that the articles were brimming with crisp writing and perspectives you cannot get from front page news. Several of the articles hit home to me personally, as they discussed Henry Blodget, the disgraced former Merrill Lynch (ticker: MER) stock analyst.

I went to high school with him, and dated his sister--she and I had a pretty honest relationship, an anomaly in teenage romances. So I was surprised to read news accounts quoting emails where he branded companies that he publicly rated as investment-worthy with the labels "pos" (or "piece of s---"). It was hard to fathom how this brother of someone I knew to have integrity could have made such clear ethical lapses.

John Cassidy provides elucidation in his New Yorker piece, "The Investigation: How Eliot Spitzer Humbled Wall Street." Mr. Cassidy renders the emails understandable by describing the context within which they were written, cybernetic bull sessions where morally questionable actions seemed commonplace, even laughable.

Mr. Cassidy lucidly describes the New York State District Attorney's "entry point" into the case, a smoking gun of sorts--emails about the Merrill Lynch investment banking division's bid to represent, an internet search company, in a stock issue. Stock analysts are supposed to maintain a strict Chinese wall between investment banking activities.

However, on the day the internet company hinted it might choose Credit Suisse First Boston (CSR) over Merrill Lynch, a colleague emailed Mr. Blodget about downgrading Mr. Blodget assented in even more colorful language than the above quote. Two weeks later, when officially hired Credit Suisse as its lead underwriter, Mr. Blodget downgraded his recommendation just hours after the announcement.

In the bright light of hindsight, such actions seem indefensible. However, reading Mr. Cassidy's description of the events as they happened, Mr. Blodget's transgression seemed as normal as locker-room boasting of sexual exploits, which similarly seem more sexist and crass outside the locker room than inside it.

The beauty of collections is the diversity of perspective. Michael Lewis, in his New York Times Magazine piece entitled "In Defense of the Boom," presents this same issue from a different angle: he defends Mr. Blodget's actions as reasonable in the context of the still-inflating internet bubble.

The two diverging views create dialogue across the pages of the book. Mr. Lewis's view introduces complexity and nuance into Mr. Cassidy's story, and facts revealed in Mr. Cassidy's story shake the foundation of Mr. Lewis's argument. Ultimately, readers benefit by having a rounder, fuller view of the picture, and can decide for themselves which angle has more credence (or whether the truth lies somewhere in the middle.)

Now, headlines are filled with the exploits of former Tyco (TYC) CEO Dennis Kozlowski, what with his grand larceny trial and Directors & Boards magazine reprinting his 1995 opinion piece decrying the jet-setting, playboy antics of CEOs. The Best Business Stories collection opens with another New Yorker piece, this one written by James B. Stewart, that similarly humanizes its subject, Mr. Kozlowski, and similarly describes a smoking gun entry point.

Mr. Stewart describes how Mr. Kozlowski evaded New York State sales tax on five paintings, including a $5.5 million Renoir and a $3.95 million Monet, by shipping empty boxes to Tyco's headquarters in New Hampshire, which has no sales tax. The shipping invoice, however, hinted at the reality of the situation.

"Here is a list of the five paintings to go to NH (wink, wink)," read a note handwritten by Mr. Kozlowski's art adviser attached to the invoice. This episode bookends the article, as Mr. Stewart returns to it at the end, quoting an owner of the business the art adviser worked for: "If you're going to do something illegal, you don't say 'wink, wink.'"

In between these episodes, Mr. Stewart describes Mr. Kozlowski's rise to power in the depth and detail necessary to help readers fathom the seemingly pathological justifications and rationalizations of looting Tyco's coffers for personal gain. Perhaps Ruth Jordan, the juror who derailed the trial over the question of criminal intent, was not paid off by the defendant, as has been suggested, but rather read this article and realized that simple human greed fueled Mr. Kozlowski's actions more than ill intent.

Mr. Stewart makes an interesting choice in the article: he discloses the exact dollar amount of his investments in Tyco, and tracks their precise value throughout the period he was researching and writing the article. This gesture resonates with social investors, who promote corporate transparency.

Many of the other articles in this year's edition of the Best Business Stories address core issues for socially responsible investing, such as labor relations at Wal-Mart (WMT) and Starbucks (SBUX), executive compensation, and insider stock sales.


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