Michael F. Federle: Business Journalism in an Era of Global Ferment

Michael F. Federle was named the 17th Publisher of Fortune magazine in October 1999. Fortune magazine (www.fortune.com) was founded in 1930. With a worldwide circulation of more than one million, biweekly Fortune is one of the most admired and respected magazines in the world and an indispensable source of information and analysis in the world of business. Fortune is owned by Time Inc., the world’s largest magazine publisher and is a division of AOL Time Warner.

Mr. Federle started his publishing career in 1982 at New England Publications in Camden, Maine, after graduating from Colby College in Waterville, Maine. He joined Time Inc. as sales development manager for People in 1985 and served in a variety of capacities there before joining Life as associate advertising director in 1992. He returned to People for two years in 1993 before joining Fortune in 1995 as New York advertising director, and in 1997, associate publisher. In March 1999, he received a Time Inc. President’s Award for his role in the 1998 Fortune special project “One Digital Day.”

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The Business Journalism Mission

Ethix: What is the mission and role of Fortune and, more generally, of business journalism?

Michael Federle: Our mission is really pretty simple. It is to tell the great stories of the business of our time. We try to capture the essence of what it is to be in business by talking to world business leaders and hearing about their issues and strategies inside their companies. A reader of Fortune should gain a great sense of what business is like.

Is it fair to say you are a “cheerleader” for business as well as a “chronicler”? You are an “analyst” of business, but are you also a “critic,” in any sense?

No one here would say we are cheerleaders for business. We are chroniclers of business, both the good and the bad. At the height of the dot.com boom, for example, it was heresy to say anything negative about what was going on. If we did, people in Silicon Valley would be on the phone screaming at us that we just didn’t get it. Nevertheless, during the boom our editors ran a big cover story on “dot.com ethics,” documenting questionable business practices of pumping up a stock, getting family and friends involved, etc.. That was a lot more questioning than cheerleading and, in hindsight, we obviously did “get it.”

Enron is another good example. Bethany McClain, a Fortune writer who came out of Goldmann-Sachs with a lot of experience digging into spreadsheets and P&L statements, was the first journalist to ask a simple question: is Enron stock over-priced? Long before anyone else, she concluded that the emperor had no clothes. So, yes, Fortune reports on business success stories and sometimes plays the cheerleader but we also report on business failure when we see it and as we see it.

A PBS Frontline special earlier this year exposed the scandal of some media business analysts who were promoting stocks in which they, or their sponsors, had a financial interest. Could Fortune provide an alternative, unbiased evaluation of investment options for its readers?

We strive to be a trusted source that gives an unbiased perspective on a company and its management and many of our readers use us as a source for investment advice. But for us to go further and to start putting out analyst-like reports on companies, to recommend a buy or sell, and so on, would put us in a different business.

Have you ever considered having a small section in Fortune magazine called “misFortune” which would address the people who, for a variety of reasons, are not enjoying much “Fortune”?

Actually, we’re already doing this — just not under a regular column with this title. Our editorial mission of chronicling business includes stories of misfortune — whether it is the exploitation of labor in diamond mines or the AIDS epidemic ravaging Africa.

Journalism & Conflicts of Interest

As a publisher, do you have to pay attention to potential conflicts of interest — for example, when you criticize or applaud a company from whom you receive big advertising revenue? Or, for instance, do you have freedom to criticize AOL?

Absolutely. We have written tougher stories than anyone else about the AOL/Time-Warner merger. It’s one of the big business stories of our time and we must write about it. No self-respecting journalist is going to allow the company to say, “hey, go soft on this, or do this or that, or change the story.” Nor can our advertisers influence what we write. It’s what we at Time Inc. refer to as “the separation of church and state” (church being edit and state being the business side). For the most part, our advertisers recognize this as well.

9/11 & Enron/Andersen Impacts

Here in New York, you’ve seen up close both the Enron/Andersen situation and the 9/11 attack. How would you compare these two in terms of their impacts on the business community?

One was a unifying event. 9/11 had the opposite effect of what the attackers intended in that it unified us and brought a lot of positive energy out of a horrible tragedy. Enron, on the other hand, had a disunifying effect in that it sent everyone to the hills asking “is this what corporate America is all about?” 9/11 focused what is best in corporations. They were able to take care of their people, quickly relocate, continue doing business, and allow people to pursue their livelihoods.

But 9/11 certainly had a negative economic impact.

Certainly, but I don’t think the economic impact is as great as initially thought. The southern part of Manhattan will have a long time coming back and may never again be the concentrated center of the financial universe. The bigger effect will be on industries like the airlines but I think they too will come back in time unless there are other incidents.

A recent Fortune magazine cover article advocated putting white collar criminals in jail. Is this Fortune’s official position?

Sure, seems pretty reasonable, right? If you break the law, you should pay the penalty — white collar, blue collar, or tee-shirt for that matter. The story to which you refer tells of white collar criminals who have broken laws over the years without ever really paying for their crimes. In the case of Enron/Andersen, think of all the innocent folks who are going to suffer and pay for crimes they did not commit. Meanwhile, if past history is any indicator, a lot of those most deserving of blame may not get any jail time or even any fines.

Would throwing them in jail change the climate and act as a deterrent?

I think so. It certainly would make them think twice. In the end, however, I think it’s more about an individual’s nature and character than any set of rules or laws. People sometimes behave pretty badly when there is a lot of money to be made. For some it may not really matter what the rules are, their nature will come out one way or the other. Others will choose the right thing with or without the help of rules.

The Future of Auditing

What changes need to take place in the auditing world after Andersen?

Auditing and consulting are going to be completely separate. That’s a done deal. Getting rid of the inherent conflict of interest of accounting and consulting in the same house goes pretty far in clearing up most of the issues. My hunch is that you won’t see a tremendous amount of additional new regulation. Over and over again, self-regulation has not stopped bad behavior, but there’s no guarantee that more regulation will do it either. Some rewriting of the code of ethics and standards will happen but in the end industries are better off self-regulated.

A recent Fortune article argued that if consulting and auditing are completely separated, you may end up with weaker audits because those who work at the cutting edge of the consulting area won’t stay around just to provide support to an audit. Without this expertise the audit itself will suffer.

Whenever changes are considered, it’s always much easier to see all the negatives and disasters that could result, rather than the positive possibilities. So, yes, you could make this argument, but personally I think in the end the auditing profession will be elevated by this separation. The separation of auditing and consulting will have the effect of elevating auditing and attracting dedicated people to the auditing profession itself — instead of attracting those who might see it as their way into the more lucrative consulting.

Transparency, Globalization, and Ethical Uplift

Don Tapscott argues that our internet-connected world creates a degree of transparency that requires corporations to operate ethically. Anything less will be exposed and punished in the marketplace. Tom Friedman argues that globalization forces companies and national economies to conform to generally accepted accounting principles and ethical behavior — or investors will move their money. Do you think there is anything to this optimism about the ethical impacts of transparency and globalization?

Globalization will eventually bring a consistency of standards to business, which is a good thing. China, for example, is playing much differently with the world because of the economic opportunity globalization is presenting to it. The transparency issue is harder. The promise that technology will make it easier for people to get information and thus make a company’s finance and business more transparent sounds good but how real is it? The internet is certainly a great source of information but as far as accuracy goes it’s hard to know what’s good information and what’s bad.

So the same technology that enables transparency, enables complexity.


Complexity and obscurity. Exactly. That’s the flip side.

Global Journalism

What about globalization and Fortune? Are you publishing in more languages or just selling more English editions around the world? Are your foreign editions tailored for different parts of the world or is it largely the same content you are spreading all over the world? Are you drawing more on contributors from other countries?

Of course, we write about foreign-based companies and about what’s happening around the world, but our concentration is on the Fortune 500 and on big U.S. companies. People around the world want to read about how the leading economy of the world is doing business. We’ve had opportunities to create foreign language editions and we have tested some of those in the past but our edition in Mandarin Chinese is currently our only non-English edition. China is a huge, special opportunity right now and we have done some conferences, bringing government officials together with CEOs we bring into China as our guests. But it is not our intent to publish in other local languages right now.

On-Line Media & Print Journalism

How does Fortune view the new electronic media options? Is your print publication your main focus now and forever?

We want to keep a real open mind and listen to all the ideas flying down the pike. Believe me, everyone comes through our offices telling us about the latest and greatest thing. In the long horizon — fifty years or so — print will probably be quite different because of the generations of kids now growing up with the internet and digital media. But the form that we’re familiar with will be here for a long time to come just because of familiarity and ease of use. It’s not inconceivable that something different will eventually evolve. We have done extensive tests on e-books and digital delivery of information. We have web sites for all of our magazines and we’re working with AOL on different sorts of information delivery, such as to cell phones. If consumers want it, you can make a market out of it.

Is a television business magazine something you want to do?

We’re doing it. This past summer we partnered with PBS to produce “Wall Street Week with Fortune.” With a weekly audience of about a million viewers, it’s the largest business show on television.

There is often a long delay between the inception of an idea and the acceptance of it in the marketplace. The VCR was invented in 1952 but didn’t become popular until 1982, a 30-year time frame. Can anything be done to shorten that cycle or do you just have to wait for the public to come around?

Just a couple years ago people said magazines are dead as the internet will take their place. But the dot.com craze created a need for more magazines, not less . It had the complete opposite effect of what everyone had predicted. You can’t force something down consumers’ throats. You can certainly sell them things they don’t need (remember the “Pet Rock”) — we’ve proved that a thousand times. But I don’t think you can create a market that is not there yet. The key is being there when the market is ready to go. There are many examples in business where the first one in has spent all the investment dollars but doesn’t necessarily reap the benefits. The second or third one in often comes out the winner.

CEOs & Technology

In a recent study, Fortune reported that CEOs are much more tech savvy today than they were just a few years ago. What was the biggest surprise out of this study?

Our study tried to measure CEO “TQ” — technology quotient. One of the popular perceptions is that the higher up the ladder you go, the lower the TQ. The biggest surprise was that this is just not true. CEOs are using the internet a lot and feel fairly confident in talking about technology. For a long time technology was sold in the IT department. As technology becomes a key strategic component of business the CEO has to know this stuff. Line items of millions of dollars for technology focus the CEO mind: what are these expenditures delivering for the company?

Maybe the dollars are less important than the strategic impact of the technology.

That has always been true. There was a great flip for technology when the CIO started to report directly to the CEO and occupied more of a strategic role rather than a line role of procurement. This has been a clear trend from the mid-90s to the present. As a senior manager, I am pulled into as many technology conversations as business development conversations because they are one and the same.

CEO Characteristics

One thing that jumped off the page at me in your survey was the comparison of the top ten leadership characteristics admired by dot.com CEOs versus Fortune 500 CEOs. For Fortune 500 CEOs “impulsive” was near the bottom of the list but it was in fifth place for dot.com CEOs. Was the demise of the dot.coms partly because their CEOs weren’t under control?

When that research was in the field, things were pretty hot and heavy and the dot.coms were still looking pretty good. I bet that if you went back and asked that same question today, ”impulsive” would go down on the survey rating. For a Fortune 500 CEO, “impulsive” has negative connotations. For them it is much more important to be strategic — thinking something through and carefully choosing the direction to take.

Jim Collins points out in Good to Great that one of the traits of all CEOs of great companies is humility and an openness to learn. Did you ever have that on your list?

I am not sure that “humility” is the right word but for all the CEOs I have interacted with an inquisitive, constantly learning attitude is very important. I have been impressed by the way many CEOs quickly start drilling down on people, trying to draw things out of them and their experience.

The importance of core mission, vision, and values is also huge in Good to Great and in Built to Last, but is way down there on your Fortune 500 CEO list.

Too many companies have mission statements that were written by a guy who has now been indicted! A ton of time can be spent on company statements of mission, ethics, and core values — but the actual values that guide people’s daily business activities are not necessarily posted on their walls. What counts is building an environment in which you consistently live your values. The way you conduct business is a better indicator of your core values than any written sheet or that kind of stuff.

It’s what you walk, not what you talk.

Absolutely. The cynical response you hear a lot of employees give to the written code of ethics is often justifiable because their companies don’t live up to those ethics.

The Next Big Business Trend

What is the next big trend in business that will change the world?

Biotechnology will probably have the greatest effect on business, leading to many new possibilities and changes. That’s the story to keep your eye on. We need to remember, though, how the dot.com story went. It seemed like a whole new kind of industry was emerging overnight and taking control. It was an incredible period. But a lot of CEOs came in here shaking their heads and asking “what are you guys doing, giving all this ink to these companies that aren’t making any money? They have greater value in the stock market right now than I have? Don’t you realize this is all insane?” It was an interesting, frustrating time to be in business and in journalism. Maybe we’ll never see another story quite that intense in our lifetime but biotech definitely has the potential.