A Retrospective on Business Investigations

By Alec Klein
July 15, 2008 02:48 PM

Flashback: The Internet hasn’t been invented yet. Google doesn’t exist. Reporters, looking to do research, refer to dog-eared newspaper clips in frayed yellow envelopes in a filing place called a morgue.

Yes, this sounds antediluvian. No, this wasn’t before the Civil War. This was merely two decades ago, in 1990, when I first became a reporter at The Virginian-Pilot in southeastern Virginia. I can almost see the clunky mainframe computers in which we banged out our stories on deadline. I’ll never forget my first business investigation, when I exposed how elected officials had been secretly using taxpayers’ money to give bonuses to city executives, a series of stories that prompted citizens to seek to oust the mayor and forced elected leaders to promise reforms. Readers sent me bouquets of flowers as a gesture of appreciation. It was a time when local communities intensely identified with their local newspapers. And it was a time when such business investigations were less common than today--and business sections were almost a kind of backwater, frequently buried inside of a newspaper’s sports section, an afterthought behind the baseball box scores.

By the time I moved onto The Baltimore Sun in the mid 1990s, business coverage was growing in prominence. One proof: Shortly after my arrival at the newspaper, the editor in chief called me into his office. I could think of only one reason for the invitation: I must be in trouble; did he even know my name? It turned out he knew more than that. He had called me into his office because he had been reading a yachting magazine that had glorified cigars, the smoking of which had become a national phenomenon despite the widespread attacks then on another form of tobacco--cigarettes. In a sign of the growing importance of business investigations, the editor asked me to look into the U.S. cigar boom, which resulted in my next major business investigation, a three-part series showing how tobacco makers had orchestrated the resurrection of cigars in America, targeting young smokers and women, manipulating the media and using Hollywood to glamorize the habit. The stories prompted two federal investigations, and before long, a U.S. Surgeon General warning of the health hazards found its way on cigar boxes.

When I joined The Wall Street Journal in 1998, business coverage hadn’t just become a major story; it was the story. The dot-com boom made it so, democratizing the stock market so that it wasn’t just the province of investment banks and wealthy investors; average Americans were dabbling in the market, betting their 401(k)s on the ups and downs of newfangled Internet firms. But even as we at The Wall Street Journal chronicled the rise of the Internet, we were scratching our chins in the newsroom as we watched the ticker scroll by. The stock of Web companies that had never made a dime of profit continued to rocket in value, minting millionaires out of secretaries. How could it be?

At The Washington Post, which I joined in 2000, answers began to emerge with the implosions of dot-coms and corporations such as Enron, calamities that suggested that the boom in the previous years would inevitably turn to bust. Jobs and employee pensions hemorrhaged not just on Wall Street but on Main Street. Suddenly, everyone was feeling the economic effects, and business coverage became an even more urgent front-page story. Such was the case when I conducted my next business investigation. Using confidential documents and well-placed sources, I uncovered how AOL, hiding the weakness in its dot-com sector, secretly inflated its advertising revenue as it sought to acquire Time Warner to create the world’s largest media company in the largest merger in U.S. history.

The Washington Post series led to investigations by the Securities and Exchange Commission and the Justice Department, AOL ultimately admitted that it had improperly reported at least $190 million in advertising revenue, causing it to restate two years of financial results, and the company paid more than half a billion dollars to settle criminal and civil allegations that AOL improperly pumped up revenue before and after its merger with Time Warner in 2001. In the wake of the investigation, several top AOL executives were forced to resign, several business partners involved in AOL’s schemes were indicted and convicted on fraud charges, and the AOL division that was the focus of the investigation was disbanded.

Now, as I leave daily journalism to become a professor of business journalism at Northwestern University’s Medill School of Journalism, business coverage continues to evolve. In a reflection of the influence of the Web, business investigations, my latest three-part series included, come armed with streaming video, Web chats and interactive graphics that help to give nuance and texture to the written word. It’s a far cry from the old days of dog-eared newspaper clippings in a place called a morgue. But that’s a good thing.

As journalists, we should never be afraid of change. We should embrace innovation, even in our own business. We can be comforted, after all, in the knowledge that newspapers like The Washington Post remain committed to business investigations of the highest standards.

Alec Klein is a bestselling author, an award-winning investigative business journalist and a professor at Northwestern University’s Medill School of Journalism.

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