Red faces on the City desks

Enron, Andersen, AIB ? why didn't business journalists see them coming?

These are hectic times on City desks. Meltdown at Enron,rogue trading at a US subsidiary of Allied Irish Banks (AIB), and now the accountancy firm Andersen stands charged with shredding piles of embarrassing documents relating to its work for the defunct US energy firm. The end of the late-Nineties boom is throwing up an array of disaster stories, leaving observers wondering which will be the next blue-chip name to crash.

A good time, you might think, to edit a newspaper's business section. But two senior City editors, Neil Bennett of The Sunday Telegraph and Kirstie Hamilton of The Sunday Times, appear to think differently. In the past two weeks they have both announced their departure for the richer territory of financial PR. Hamilton said she was unexcited by the current crop of stories and it was time to do something else. Bennett, too, said he needed a change.

The Enron disaster, in particular, raises questions about the way business is being reported. Only a few months before its collapse, the energy giant was being hailed by gurus, financial analysts and journalists as a muscular model of 21st-century capitalism. The AIB scandal was another unexpected calamity.

So is business journalism guilty of failing to spot looming disasters? The prosecution is led by Will Hutton, the Industrial Society's chief executive and a former Observer editor. "Over Enron, the US and British journalistic establishment was, quite rightly, critical of regulators, accountants, tax experts, failures in corporate governance and the corruption of the US political process," he says. "But amid all these failures there's been another one: financial and business journalism.

"Enron increasingly looks like one of the biggest frauds of the last 25 years, but as recently as last summer The Economist, for example – which did good work on Crédit Lyonnais and [Italy's premier Silvio] Berlusconi – was less prepared to turn its fire on this product of the US capitalism it lionises." (In June 2001, The Economist wrote: "Enron has created what may be the most successful internet venture of any company in any industry anywhere.")

Geoffrey Goodman, the editor of the British Journalism Review and a former industrial editor of the Daily Mirror, is also concerned. "The whole nature of City journalism reflects an unhealthily close relationship between the investment banks, City PR – largely paid for by the big financial institutions – and correspondents, particularly on the Sunday papers," he says. "The coverage is far too uncritical – at times it's hardly journalism at all."

City editors, unsurprisingly, deny they are failing to adopt a proper scepticism. In their defence, you may feel that company accounts with the Andersen seal of approval might have been considered reliable.

But wasn't Enron clearly too good to be true? "20/20 hindsight is a wonderful thing, of course," says Andrew Gowers, the Financial Times editor. "The few critical voices who asked questions about Enron earlier were drowned out by the hype of the bull market. But the media should be asking itself if it got carried away with its own enthusiasm."

Jeremy Warner, the City editor of The Independent, says that on Enron it would be fairer to point the finger at US media rather than the British. "This was a US story. It is disappointing that the US press, with the resources at its disposal, failed to ask the right questions sooner."

Anthony Hilton, the City editor of the London Evening Standard, says the story was hard to pin down. "Enron was, in a sense, a far-away company of which we knew little. Some of us had been asking questions about its so-called 'sophisticated financial engineering'. But when things are booming criticism like that marks you out as a siren voice – you're told you are simply failing to 'understand the new realities'.

"In the past 10 years financial PR has become far more sophisticated," he adds. "And the majority of financial journalists working today have only known bull markets. The PR men and analysts have only seen the markets going one way.

"Thirty years ago if you asked a company a straight question you got a straight answer. Now, you never get a straight answer. They will tell you that 'analysts are expecting this result'. Companies also lie more than they ever used to."

Gowers aims to increaseinvestigative reporting in the FT. "When the market is going up, and corporate bosses are apparently walking on water, the media is not immune to being enticed into joining in. But it's clear that the analysts' community is completely bought. I would just hope our people will take a step back from all that, and avoid both the euphoric hype on the way up and excessive gloom on the way down."

The new imperatives were set out in an FT leader last month. "The business media can be accused... of too much celebratory or routine journalism; too little numeracy or appetite for tackling complex financial statements; and too much credence given to analysts. The remedies are simple: digging deeper into apparent success stories; not allowing companies riding high to dictate the terms of their coverage; training journalists better; and giving them the time to dig... The FT will be reviewing its own practices."

In the newsroom the talk is even livelier. "We're being told to print more stories that someone somewhere doesn't want published," says an insider.

A recent Economist cover headline, "The lessons from Enron", was accompanied by a drawing of accountants locked up in a cage. The media got off without a mention.