The media’s inconsistent coverage of Wall Street’s woes has exacerbated the public’s confusion, eroded investor confidence and reinforced the worst fears about the soundness of overall investments, according to a major new study released today by research group CARMA International.
CARMA’s four-month analysis of media coverage, entitled “Mixed Messages, Volatile Markets,” also reveals a growing acknowledgement of the need for firewalls between research and investment banking activities. The findings, the latest in an ongoing series of reports by CARMA, looked into the media’s depiction of the investing environment, corporate malfeasance and the financial markets.
Says CARMA CEO Albert Barr, “The highly volatile performance of the markets over the last four months has been reflected in the media’s coverage of investor issues. CARMA’s findings suggest that the public has likely found few widely agreed upon answers from the media regarding how best to navigate today’s volatile markets.

“With so many conflicting views, various political agendas and mixed messages bombarding the public, there appeared to be little consensus in the news media regarding what steps individual investors, politicians, securities regulators and Wall Street brokers should take. Instead, reporting has often presented a barrage of news on scandals and corporate abuse, exacerbating public confusion and reinforcing the public’s worst fears about the soundness of their investments.”

By a two-to-one margin, news media reports suggest that Wall Street as a whole cannot be trusted. Reporting seemed to largely dismiss the idea that only a minority of the business world had been engaged in questionable business and accounting practices.

“While only a small number of companies may have been engaged in illegal activities, the fact that these companies were not caught has been taken as proof by many that there are fundamental flaws in the current regulatory framework governing American businesses and the securities industry overall,” according to Barr.

The high level of investor distrust expressed through the media reports appears to be addressed primarily at the financial oversight system at large rather than particular companies, although alleged improprieties by such high-profile CEOs such as Martha Stewart and Bernie Ebbers helped to personalize the issue.

Government-mandated reform, such as the Sarbanes-Oxley Act and the certification of financial results to the SEC, usually was cited as necessary, but less effective at restoring the public’s trust in the long-term. According to most media reports, restoration of public trust will depend largely on concrete corporate governance reforms initiated by the companies themselves, especially in the areas of more conservative accounting policies.

The idea that most corporations are trustworthy and that the financial services industry is championing reform was generally conveyed by financial industry and corporate executives, and so much of its impact was diminished, says Barr.

“This research uncovered a striking disconnect between investors’ and executives’ views in coverage addressing the honesty and integrity of corporate America,” says CARMA COO Elizabeth Miller. “Furthermore, most of the coverage either provided commentary from business executives or individual investors, but not both views. Consequently, the coverage was very black-and-white in terms of whether it was conveying support or mistrust of Corporate America.”

The media coverage did reflect a pronounced effort by corporate America to defend its trustworthiness. Numerous stories quoted executives arguing that the current crisis was prompted not by widespread abuse, but by the misdeeds of a handful of companies.

“Although this public relations effort was successful from the standpoint of enabling corporate America to offer its defense, CARMA found little evidence that the effort shifted journalists’ or investors’ opinions,” says Miller. Individual investors offered considerably more pessimistic appraisals about the honesty and integrity of corporate America. Even those who agreed that most public companies are trustworthy still expressed hesitation about making new investments.