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.
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
GoTo.com, 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 GoTo.com. Mr. Blodget assented in even more
colorful language than the above quote. Two weeks later, when ToGo.com officially hired Credit
Suisse as its lead underwriter, Mr. Blodget downgraded his recommendation just hours after the
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
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,
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.