Deadlines and Disruption

From 1984 to 2005, Shepard was the editor-in-chief of Businessweek, with a front-row seat for everything from insider-trading scandals to the rise of personal computing and the Internet. In this excerpt from his forthcoming memoir, Deadlines and Disruption, he recalls what it was like to step into the job—and how he was determined to reinvent everything about business journalism
Photograph by Terry Hourigan/Manhattan Inc./McGraw-Hill

(Excerpted from Deadlines and Disruption by Stephen B. Shepard Published by McGraw-Hill © 2012)

When I succeeded Lew Young as editor-in-chief in the fall of 1984, I had no idea that business journalism was at the dawn of a golden age. The Dow Jones average was around 1,200—less than one-tenth of its current value. The just-introduced Apple Macintosh computer was little more than a novelty. And Chinese leaders still wore Mao suits.

Over the next 20 years, during my tenure as editor, the stock market soared, a technology revolution took hold, and China and India emerged as major forces in the world economy. There was a dot-com boom and bust, and there were scandals on Wall Street (Mike Milken, Ivan Boesky, and their cronies). Corporate chief executives emerged as cultural icons (Warren Buffett, Bill Gates, Steve Jobs, and Jack Welch) or as villains (Jeff Skilling of Enron and Dennis Kozlowski of Tyco).

Business journalism had fully emerged from the media backwaters, and I was lucky enough to have a front-row seat at some of the great events of our time. With a strong wind filling its sails, Businessweek flourished both editorially and financially. We produced more than 1,000 issues on my watch, some 100,000 stories of varying length, and well over 10 million words. At its peak, the magazine topped 1.2 million in worldwide circulation, and it had built a formidable journalistic machine. With nearly 250 people on the editorial staff, we had more foreign correspondents than Newsweek and a larger Washington bureau than Time. By my estimate, we took in more than $6 billion in revenue and earned at least $1 billion in operating profit during my 20-year tenure—making Businessweek one of the most lucrative magazines in the world.

Back in 1984, however, I knew only that Businessweek had to change.

I wanted my first issue to be special, a shot heard ’round the media world. I chose a story for the cover that was already in the works. Two years earlier, two management consultants, Tom Peters and Bob Waterman, had published a book called In Search of Excellence. It analyzed why some companies were excellent performers, including such stars as IBM, Hewlett-Packard, Levi Strauss, and Disney, as well as newcomers such as Atari. It even codified the attributes of their success into eight principles. The book became the best-selling management bible of all time, and several companies printed the eight principles on flash cards for their managers to memorize. Businessweek did not review the book when it was published in 1982 because Young had encouraged Peters and Waterman to write it, sharing ideas with them. The book was dedicated to Lew, and he rightly wanted to avoid any conflict of interest.

When I got around to reading it, I found it a bit reductive but surprisingly uplifting. At a time when Japan was threatening the U.S. economy with superior cars and consumer electronics, when Toyota, Sony, and Nikon were outclassing the rest of the world, it was encouraging to read that some American companies were in the top tier and that their best practices could be learned by all.

By 1984, just before he left, Lew realized that some of those companies had slipped, and he suggested we look into it. We commissioned Standard & Poor’s to update and analyze the data that had been the basis of the Peters/Waterman definition of success. We then called on our bureau system to report on each of the suspected companies. The results were striking: Of the original 43 excellent companies, 14, or nearly one-third, no longer met the Peters/Waterman criteria for success. Among the fallen: Eastman Kodak, Hewlett-Packard, Levi Strauss, Caterpillar, and Disney.

We clearly had a huge story in hand, and I quickly chose it as the cover for my maiden voyage. We sat around brainstorming cover language. “The Search for Mediocrity,” someone suggested. Or: “Still Searching for Excellence.” Finally, I came up with the headline that ran: “Oops!” in bold black type, followed by an explanatory text block in red type—all on a white cover with a small photo of the book jacket.

The “Oops!” story, published in the Nov. 5 issue, became one of the most widely discussed in the magazine’s history. Companies held management classes to consider its implications, and the University of Chicago Booth School of Business, among others, assigned it as required reading.

That cover demonstrated a fundamental truth: The best high-impact journalism starts with an original idea far removed from me-too journalism and is followed by skillful execution—reporting, writing, and presentation. Ben Bradlee, the legendary editor of the Washington Post, called them “Holy S- - - Stories.” You’d read them with excitement and couldn’t wait to tell a friend. Such enterprise stories are even more important these days, when anyone can be a journalist, when aggregation has replaced reporting as the coin of the realm, and when everyone seems to have an opinion based on someone else’s facts.

The “Oops!” story also reinforced another truism: Success in business, always difficult to achieve, is often ephemeral. Sometimes companies had been defeated by technological change (Digital Equipment Corp.), other times by bad management (Revlon) or changing tastes (Levi Strauss). Though thrilled by the story’s success, I was nonetheless chastened by how quickly so many excellent companies had stumbled in a fast-changing world.

After the fanfare of the “Oops!” cover, we started implementing basic changes. Some required bigger budgets from our parent company, McGraw-Hill, which proved willing to invest to bolster a new editor. We gradually converted the entire magazine to four-color printing, enlivening every page with colorful graphics and strong photography. We were able to arrange for later closings of the cover and to double the number of pages that closed at the last minute, enhancing the magazine’s timeliness.

In trying to convey my goals, I recalled a conversation with Oz Elliott, former editor of Newsweek and later dean of the Columbia J-School. He thought that institutions—whether magazines or companies—sometimes fail because of weak leadership. There is no vision or strategy. But sometimes, he said, even strong leaders with good ideas fail because they are unable to get their message to the troops in an effective way. Oz called this a “crisis of followership.” I was determined to say what I wanted to do—and explain why.

So I wrote memos to the far-flung staff, solicited ideas from everyone, met with reporters and writers in small groups, and even codified my ideas into a presentation I called, rather portentously, “The Ten Commandments.” (Commandment No. 1: “We offer insight, not just information.”) I went so far as to issue a didactic roster of a dozen different ways to write a lede for a variety of stories. Finally, I made it clear that I welcomed pushback from the staff. I kept my door open to anyone who wanted to chat, and I ran meetings in a way that I hoped would invite participation and different viewpoints. Unlike King Lear, I was not about to leave the role of internal critic to the court jester.

One of my early goals was to step up our investigative reporting—a core mission of any publication that takes itself seriously. For a business publication, that usually meant scrutinizing corporations for wrongdoing and holding management accountable. We talked about setting up a special investigative unit, as some other publications had done. But we strongly believed that the best ideas would come more naturally from the beat reporters on the ground. They knew the territory, had developed the necessary expertise, and had cultivated sources within the companies they covered.

In the summer of 1986, we hit pay dirt. Bill Symonds, our Pittsburgh bureau chief, began looking into questionable practices at Allegheny International, a $2 billion company that manufactured Sunbeam and Oster appliances, among other things. The company’s financial performance was sinking fast. It had lost $109 million in 1985, it was mired in debt, and its stock had plunged more than 70 percent from its high. Clearly a case of lousy performance. But why?

Symonds focused on CEO Robert Buckley, a pillar of the community who made large donations to the arts, especially the Pittsburgh Symphony Orchestra, where he served as president. During a three-month investigation, Symonds discovered a pattern of lavish spending on executive perks, conflicts of interest, and limited disclosure to shareholders about risky investments in real estate and oil and gas deals. The Securities and Exchange Commission had started an investigation, but Symonds beat them to the punch. Based on internal documents, including expense accounts, he uncovered numerous abuses: more than $30 million in low-interest loans to executives; a fleet of five corporate jets available for personal use; nepotism involving Buckley’s son; and a wine cellar in Buckley’s home stocked with a company-paid wine collection once owned by J.P. Morgan.

All of this had happened under the nose of a blue-chip corporate board of directors that included Al Haig, the former secretary of state; Richard Cyert, president of Carnegie Mellon University; Tony O’Reilly, CEO of H.J. Heinz; and Jean-Jacques Servan-Schreiber, the French writer and politician.

To call attention to Symonds’s terrific reporting, we again chose a type-heavy design similar to the “Oops!” cover. This one blared “Trouble!” with a red text block that billed some of our findings and a small picture of Buckley departing a corporate jet. The story, published in the Aug. 11, 1986, issue, had a powerful impact: Within a week, Buckley had resigned under pressure from the now-embarrassed board.

In addition to investigative stories, I very much wanted to stress big-picture stories, those trend-spotting enterprise pieces that were a hallmark of newsmagazines in their heyday. With all of our expanded editorial systems in place and our metabolism raised sufficiently to jump on the news as a point of departure for analytic journalism, I came to understand more deeply the primacy of story selection. If we had a truly original idea and we executed it well, we would be producing the ultimate form of value-added journalism.

One early cover story led the way. It was called “The Casino Society” and was written by a young finance writer named Anthony Bianco for the Sept. 16, 1985, issue. I didn’t know much about Tony except that he was an exceptionally good writer, and he had seen enough to know that a disturbing trend was taking hold in the financial markets—a stunning increase in borrowing to finance new forms of trading in what was called the futures market.

Futures trading had been around for years, but in the wake of Reagan-era deregulation (accelerated in the Clinton years), the practice got out of hand—to the point that investors could play the stock market without owning a single share of stock. Using borrowed money, euphemistically called leverage, investors could amplify their returns, as well as their risk.

As these and similar practices spread, Wall Street changed from a place that allocated capital through normal investment in stocks and bonds to a vast trading pit—and ultimately into a speculative frenzy. The major investment banks became trading houses, making most of their money not from financial underwriting, mergers and acquisitions, or public offerings for their blue-chip clients but rather from trading in their own proprietary accounts or on behalf of wealthy individuals. The volume of these risky transactions far exceeded anything needed to finance the underlying economy. As a result, Bianco wrote, “the United States has evolved into a ‘casino society’—a nation obsessively devoted to high-stakes financial maneuvering as a shortcut to wealth.”

Sound familiar? It was precisely this trend toward greater risk and leverage, combined with further deregulation and a host of new financial techniques, including credit-default swaps and other so-called derivatives, that eventually helped cause the collapse of Bear Stearns and Lehman Brothers 23 years later. Tony’s prescient piece did not in any way predict the financial collapse of 2008, but it was the first to focus vividly on the rise of debt-fueled speculation on Wall Street—and give it a colorful high-roller name. Wall Street had indeed become a casino, with disastrous results to come.
Many elements of the new Businessweek came into play when the stock market crashed on Monday, Oct. 19, 1987. There was some nervousness in the market during the previous week, but no one expected a rout. That morning we heard the overnight news that the Hong Kong market had plunged, and U.S. markets then headed straight down, like a plane in a nose dive. As the stock market neared its 4 p.m. close, I was standing near a computer terminal watching the final minutes of trading with economics editor Bill Wolman. A certain gallows humor prevailed: I found myself actually rooting for a few more points of decline so that the drop would hit 500 points on the Dow Jones industrial average, a nice round number. We were energized by the excitement of a historic story, but we worried about the economic impact of it all. When the closing bell rang, the Dow had lost 508 points, a 22.6 percent decline—worse than the crash of 1929, which had ushered in the Great Depression.

The main story, of course, had to be about the impact of the crash. Like generals refighting their last war, we first assumed the crash might be followed by a severe recession, possibly even another depression. For our cover, we showed a growling bear on a black background with the headline: “How Bad? Will Wall Street Take the Economy Down?”

But a depression seemed unlikely to us and others because we assumed that the country had learned the lessons of 1929—and that we knew what fiscal and monetary policies to implement. Sure enough, Alan Greenspan, newly appointed chairman of the Federal Reserve, did exactly the right thing by flooding the system with money. Many corporations started buying back their own stock to buttress demand, and many investors saw the plunge as a buying opportunity—the favorite form of recreation in that yuppie era.

The timing of a weekly magazine worked well for us. Because Businessweek’s closing deadline was Wednesday evening, we had two more days of trading to guide us. And happily enough, the market posted a record gain—102 points—the very next day and climbed an additional 87 points the day after. We moderated our fears, avoiding the alarmism of some of the daily papers and television news programs. While a recession was now more likely, we wrote a worried, but much more measured story.

As it turned out, the effects of the crash were surprisingly small. There was no recession, and the stock market gradually recovered. Like everyone else, we pondered the causes of the crash. Some experts blamed Reagan-era budget and trade deficits, or computerized “program” trading, or casino-style speculation, or simply a bull-market bubble that had created a lot of overvalued stocks. But, in truth, we didn’t know any more than anyone else did about why the market crashed or why the crash had so little impact.

The whole episode was a humbling lesson for me. Despite all the analysts and gurus who claimed otherwise, the markets were essentially inscrutable, often driven by the sort of trading Bianco had described in “The Casino Society.” And covering the economy itself was frustrating—riven by the politically tendentious views of its leading scholars. If Nobel laureates such as Paul Samuelson and Milton Friedman disagreed about theory and practice, what was I supposed to think?

Clearly, I was learning on the job, and I made my share of mistakes. One still rankles: a 1984 story about Apple Computer with a cover photo of Steve Jobs and John Sculley laughing together while strolling on a beach. Jobs had brought in Sculley as CEO from PepsiCo, where he was a marketing maven (creator of the “Pepsi Challenge”), and together they were supposed to run the company. Our headline said it all: “Apple’s Dynamic Duo.” Not quite. Within six months of our cover, Sculley and the board ousted Jobs from Apple, and he remained an outsider until his triumphant return more than a decade later. It was my own first oops.

Overall, though, the magazine was doing well, and by the end of 1987 the results were apparent. Newsstand sales, though small at about 30,000 copies a week, had jumped nearly 50 percent, and total circulation had climbed 10 percent to 850,000 copies in the U.S., increasing our lead over Forbes and Fortune.

In February 1988, much to my pleasant surprise, Adweek magazine named me Editor of the Year. “In his three years as editor-in-chief,” Adweek declared, “Shepard has altered everything about Businessweek. Subscribers and advertisers obviously like what they see.”

    Before it's here, it's on the Bloomberg Terminal.