Chapter 2 literature review

2-1. The Nature of Corporations

The main news sources for business/financial journalism are people in corporations. They provide and leak the information, and it will lead to the news. To examine the role of business/financial journalism and the way of communication between journalists and news sources, the discussion on the nature of corporation will be the basis of the analysis.

2-1-1.The Pursuit of Profit

Chomsky points out “The goal for corporations is to maximise profit and market share” (Bakan 2004: 174). One example of this is Phizer, a pharmaceutical company. The reason why Phizer makes drugs to treat not malaria and tuberculosis but baldness and impotence is because of making profit. Malaria and tuberculosis are killer disease in developing countries, but the cost to develop them is high. On the other hand, drugs to treat baldness and impotence are mainly sold in developed countries where Phizer can make profit (Bakan 2004: 49).

There is obviously pressure from shareholders to the executives in corporations. A shareholder activist, Robert Monk says in the documentary film ‘The Corporation’ as “I don’t really care what the chairman of General Motors thinks” and the decision on the appropriate level of emissions “must be made by government and not by corporations”.

Former Chief Executive Officer (CEO) of The Goodyear Tire & Rubber Company, Sam Gibara describes his pressure as a CEO in the same film. He talks that lay offs are tough decision but it is necessary to do because of “the consequence of modern capitalism”. In addition, he says “No job, in my experience with Goodyear has been as frustrating as the CEO job. Because even though the perception is that you have absolute power to do whatever you want, the reality is you don’t have that power”

2-1-2. Perception Management and PR

In the pressure to make profit, corporations pursue to control the public through public relations (PR) activity with using the media. One of the resources for profit is the public’s consumption. It is significant for corporations to be recognised by public positively, because “Companies are abstract entities (not people with feelings, families, etc.) audiences may feel freer to doubt and harshly criticize companies in public” (Rosenfeld et al. 2002: 198).

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Rosenfeld et al. introduce the concept, “impression management”. They define the goal of it as “to be liked by others and to be seen as normal”, and “a mutual ritual that helps smooth and control social relations and avoid embarrassment” (2002: 1, 5). For example, annual reports, letters to stock holders, and press releases are the actual actions to create the images. Impression management contributes to make and present “a positive picture”, and sometimes to control the damage at the minimum level.

Chris Komisarjevsky, a former CEO of a public relations company, Burson Marsteller, talks about the perception management in the film, ‘The Corporation’:

“Perception management is a very interesting concept. It’s basically a methodology, which helps us when we work with our clients to go through a very systematic thoughtful process in order to be able to help our clients identify what the resources are that they have, what the barriers to their success are and how we can use communications to help them accomplish their objectives”.

Burson Marsteller had worked with Philip Morris to organise the National Smokers Alliance to fight anti-smoking laws, and with Union Carbide to support its PR after gas leak which caused 20,000 dead in Bhopal. It helps to create the situation for the companies to make profit easily.

When companies use the perception management, they try to cover the truth. In the eighties, an American automobile company, Chrysler (now it is called DaimlerChrysler Corporation) was widely recognised its financial problems. The parts suppliers became reluctant to ship their parts because they were afraid of the situation not to be paid for the parts. Chrysler needed to encourage the supplier to keep its business even though it did not have enough money. What Chrysler did was to show the suppliers its future products and let them understand the future of the business as stable and usual. Chrysler’s attitude is impression management (Rosenfeld 2002: 23). It is the way for companies to shift the agenda favourably.

Another way of perception management is “pseudo event”. Boorstin introduces this concept. For example, in order to increase one hotel’s prestige, the PR suggests having the hotel’s thirtieth anniversary. The event is planned for the media coverage (1961:10).

The nature of PR is “to block unwelcome mainstream coverage” (Davis 2000: 299) so the PR deals with the perception management well. Richards discusses that the relations with the media is important because of its power to mould public opinions and perceptions. He talks about “spin doctors”, and explains it is not only for political organisations, but also for corporations. The job of spin doctors tries to manipulate the public. Richards explains “In communications, there is a gap between the facts and a person’s understanding of them, and this gap is where the spin doctor operates” (2005: 8).

Chomsky summarises this point in Bakan’s book ‘The Corporation’ as “They have to be turned into completely mindless consumers of goods that they do not want. You have to develop what are called ‘created wants’. So you have to create wants”. To create wants, companies need to make up the atmosphere to let people want to buy. Chomsky continues “We have huge industries, public relations industries, monstrous industry advertising and so on. They are designed to try to mould people from infancy into this desired pattern” (Bakan 2004: 174).

2-1-3. The Presence of Corporations Is Bigger

When it comes to control people, “force” is considered as an efficient way in politics. However, it is difficult to use force in democratic society, the PR industry has emerged to influence people. In other words, corporation is getting the power to control the public more than governments. Chomsky says “Today it’s not so much government that exercises control, but corporations” and “Now private tyrannies –corporate systems- play the role of controlling opinions and attitudes” (Chomsky and Barsamian 2005: 22).

In the documentary film, ‘The Corporation’, Gibara also talks that the governments become less powerful than the corporations.

“Corporations have gone global and by going global, the governments have lost some control over corporations regardless of whether the corporation can be trusted or cannot be trusted, governments today do not have over the corporations the power that they had, and the leverage they had fifty or sixty years ago. And that’s a major change. So governments have become powerless compared to what they were before”.

Companies actually break the rules to pursue their own profit even though the government set the rule not to trade with certain countries because of the political reasons. For example, the United States announces the list of penalties which violates the regulation of the Office of Foreign Assets Control (OFAC). According to OFAC’s information which was released in July 2006, “Chevy Chase Bank processed an unauthorised funds transfer with payment information referencing service of Iranian origin”.¹

According to Bakan, General Electric has breached laws such as discrimination against employees, pollution, deceptive advertising and the like, and show how the company does not care the rules because of pursuit for their profit (2004: 75-79). The cost of penalty is less than the cost of compliance. Bakan quotes one shareholder activist comments that the violation of the rules is just a business decision (2004: 80).

2-2 The Role of Business/Financial Journalism

In the previous section, the nature of corporations was argued. They pursue profit and use the perception management which causes the gap between the reality and the perception of people for making profit. In addition, the presence is bigger than governments now, and they sometimes engage unlawful behaviour. The media tend to be used by corporation to make profit, because it has an influential power to the public. In this section, the role of journalism is discussed to examine how to build the relationship for the journalists with their news sources, corporations. At the beginning, the role of journalism in democratic society is argued as a basement of the discussion. Next, it specifically focuses on business/financial journalism, and lastly its problems are examined.

2-2-1. Journalism and Democracy

Journalism provides people the information to help them understand the world and make decision on particular issues (Franklin et al. 2005: 124). Journalism also has an obligation to be loyal to interests of citizens. This differentiates journalism from the business such as information service provider or PR industry.

Strömbäck discusses its indispensable relationship between journalism and democracy. In democratic society, freedom of speech, expression, and information is necessary for citizens, and journalism needs the independence from the state (2005:332). This scholar classifies four pattern of democracy in terms of matureness. In the process of evolution, the role of journalism is getting complicated. At the premature stage of democracy, journalism’s role is just to act as a watchdog for a powerful or burglar alarm exposing wrong doings. This is the basic role in democracy. At the mature stage, journalism plays a role to set the agenda, mobilise citizens’ interest, and present public discussions.

Kovach and Rosenstiel summarise that there are the nine basic elements of journalism: (1)journalism’s first obligation is to the truth (2)its first loyalty is to citizens (3)its essence is a discipline of verification (4)its practitioners must maintain independence from those they cover (5)it must serve as an independent monitor of power (6)it must provide a forum for public criticism and compromise (7)it must strive to make the significant interesting and relevant (8)it must keep the news comprehensive and proportional (9)its practitioners must be allowed to exercise their personal conscience (2001: 12).

2-2-2. Business/Financial Journalism

Business/financial journalism is a part of the journalism and there are the same expectations from the public as discussed above. It covers economic issues such as the central bank’s monetary policy, the movement of economic index, companies’ strategies, companies’ earnings, and the like. However, the contents of business/financial journalism require journalists to have the basic knowledge of economy, and its audience has specifically financial concerns to read or see the business/financial media (PS Burton 2002).

Its audience is not only the individuals but also the professionals such as the bankers, fund managers, the companies’ executives, the academic people and the like. Some of the audience may make decisions to sell or buy the stocks or the foreign currencies, and demand quick information. In response to this demand, for example, Reuters has started to provide the electric machines which show not only the business/ financial news but also the economic indexes on the screen all at once (Hargreaves 2005: 106). This will be the risk to change business/financial journalism into information service provider business.

2-2-3. Problems of Business/Financial Journalism

One of the problems of the business/financial journalism is to fail to draw a big picture of the story. Davis discusses “business news will always follow corporate agendas and ignore non-corporate interests” (2000: 286). The agenda tends to focus on financial issues too much. Hargreaves, who has experience working for the Financial Times for fifteen years, confesses its characteristics as “the atmosphere was intellectually bracing and wonderfully international. But it could also be deadeningly narrow” (Hargreaves 2005: 90).

Another problem is that the business/financial journalism misses to predict and warn future incidents, and contributes to economic boom. According to Uskali, the reason is “the business journalists need to find ‘scoops’ in order to satisfy their paying customers”. Their sources are the analysts and investors who judge the trend quickly and roughly and invest based on their assumption. He argues that the business/financial journalism is influenced by the sources’ framework. In addition, “weak signals” which alarm the potential risk in the future are hard to detect for the journalists because “they[weak signals] are uncertain and irrational” (2005: 6).

The bankruptcy of Enron and the collapse of ‘the dotcom bubble’ in the United States are the examples of the business/financial journalism’s failure to alert the potential risks of those companies’ management style to citizens. Hargreaves introduces the comments of Richard Lambert, the editor of the Financial Times throughout the nineties which says “The Enron affair reveals something about the culture of business journalism”. According to Lambert’s reflection, there are three reasons of the failure to find out the problems: too much influence from the big financial institutions which rated Enron positively, too much concerned with personalities rather than deep analysis, and companies’ lack of transparency and the strict libel law which protect them (2005: 107).

Longman analyses there are six problems in the business/financial journalism which allowed Enron’s fraud and the dotcom bubble. Firstly, many business journalists had little self-consciousness about lack of enthusiasm on business issues. Some journalists cared about the salaries, and that was why they chose the job. Secondly, those companies were not only news sources for journalists but also the advertisers. Business/financial publications were financially supported by advertisers. This would be the pressure not to criticise them. Thirdly, the journalists did not have enough knowledge about the business and the skill to analyse companies in terms of their financial situation. It made them depend on expert sources and fail to have the objective point of view. Fourthly, the news organisations became a part of conglomeration and this “many of the biggest business stories involve media companies themselves” (2002: 21). This would affect the lack of neutrality in news selection or judgement of news value. Fifthly, the rise of public relations was systematically successful to block journalists to contact with executives directly who were the actual players of the stories. Lastly, the restructuring of news organisation such as lay-offs and cutting the budgets affected the number of resources to cover the business news. This led to the lack of enough time for journalists to detect problems.

2-2-4. The Way to Be Independent

When news sources leak journalists the information which is unauthorised, they have certain intention. In politics, leaking is a tool for government to gain advantage over opponents and in business/financial journalism as well. According to Sanders, “It [leaking] is unaccountable and has great potential for manipulation” (2003: 114). This information is the potential scoop, so journalists tend to leap at it. In order to be independent, journalists can pursue their own independence from the news sources through the following actions: verification by other sources, acquisition of document as evidences, examination, suspicion, and getting the other side of story (2003: 110).

Besides, media organisations have their own code of practice regarding to free gifts, free trips and other services from the news sources. Why do they set the code? It shows there are actually many cases for the journalists to be corrupted and manipulated by their news sources in those ways. Sanders argues the reasons as “such practices can be subtly corrupting, undermining a reporter’s detachment and objectivity, or at least giving the appearance that they might” (2003: 122).

2-3. Propaganda Model

Based on the discussion about the relationship between journalism and democracy, and the role of business/financial journalism, “the propaganda model” presented by Herman and Chomsky provides the guideline to analyse how journalists have pressures and risks of being manipulated by circumstances. It consists of five “filters” to analyse the media such as ownership, advertising, limited news sources, flak and anti-communism. With using these elements, they criticise the media as “they serve to mobilize support for the special interests that dominate the state and private activity” (1988: xi). Besides, the media’s action such as “preselection of right-thinking people, internalized preconceptions”, and self-censorship contribute to the tendency to support the elites’ interests. Klaehn summarises that “the PM [propaganda model] constitutes an institutional critique of mass media” (2002: 170).

2-3-1. Ownership

The first one is ownership which has a risk to affect the news selections and the way of reporting. They argue General Electric and Westinghouse are the examples of the media’s ownership. Their boards of directors are dominated by corporate and banking executives and their business gets involved in weapon production. Media became a part of the business conglomerates. As discussed above, the corporations care about the shareholders’ return, and there is “market-profit-oriented forces” toward news organisations (Herman and Chomsky 1988: 14). This pressure is a concern of objectivity because the ownership has a possibility to intervene to the news contents.

Now, not only GE, but also Walt Disney and AOL-Time Warner become the ownership of the media organisations and “subsumed journalism inside their larger corporate cultures”. This means, for example, it becomes harder for the journalist working for Time to cover the AOL and other Internet business companies without any biases (Kovach and Rosenstiel 2001: 126).

2-3-2. Advertising

The second filter is advertising. The advertisers can give the media pressure through pulling out their advertisement. Herman and Chomsky discuss the television networks as “an advertising-based media system will gradually increase advertising time and marginalize or eliminate altogether programming that has significant public-affairs content” (1988: 17). Advertisers like the entertainment and want to avoid controversial and serious programs.

It actually influences media’s situation. According to Kovach and Rosenstiel, “The bonuses of newsroom executives today are generally based in large part on how much money their companies make in profit” (2001: 50).

2-3-3. Limited News Sources

The third filter is limited news sources. According to Herman and Chomsky, “Government and corporate sources also have the great merit of being recognizable and credible by their status and prestige. This is important to the mass media” (1988: 19). A limited number of ‘elites’ are recognised to be reliable enough by the media. Klaehn discusses that “Cited by the corporate media as experts and/or ‘authorized knowers’, their opinions are often accepted without scrutiny” (2002: 159).

Herman and Chomsky also claim that the sources give journalists facilities, advance of copies of speeches and reports, press conference at the time scheduled to their deadlines, press releases in understandable languages, and photo opportunities at the press conferences. Through these actions, sources try to shape the news in their favourable way.

2-3-4. Flak

The fourth filter is flak, “negative responses to a media statement or program” (Herman and Chomsky 1988: 26). It can be another pressure to the media, and according to them, it is related to the growth of market economy. They discuss “Serious flak has increased in close parallel with business’s growing resentment of media criticism and the corporate offensive of the 1970s and 1980s” (1988: 26). The powerful such as the White House and major business firms which can be advertisers can directly give the pressure to journalists through letters and telephone calls with complaints. It also oppresses them through complaining to the media’s stockholders or supporting the institutions financially which can attack the media. Herman summarise the powerful can give “pressure the media with threats of withdrawal of advertising or TV licenses, libel suits, and other direct and indirect modes of attack” (2003: 2).

2-3-5. Anti-communism

The fifth filter is the anti-communism. Herman and Chomsky analyse “This ideology helps mobilize the populace against an enemy” and this concept can be used against people who oppose the elites’ interests (1988: 29). After the collapse of former Soviet Union, Chomsky still argues the validity of the fifth filter. In 1998, he talks,

“You need something to frighten people with, to prevent them from paying attention to what’s really happening to them. You have to somehow engender fear and hatred, to channel the kind of fear and rage –or even just discontent- that’s being aroused by social and economic conditions” (Chomsky, cited in Klaehn 2002: 161).

2-3-6. The Model Is Still Applicable

Herman also argues the availability of this model as a whole in post-Cold War days. “The propaganda model remains a very workable framework for analysing and understanding the mainstream media – perhaps even more so than 1988” (2003: 13). According to him, the political and economic change and the rise of communication industries after nineties devote to increase the applicability of this model.

One reason for him to insist this is because of the increase of the importance of ownership and advertising. Herman points out the elements which show the significance of the model such as the decline of public broadcasting, the increase in corporate power, globalisation, centralisation of the media organisations through merger and acquisition, the rise of competition for advertisers, and being incorporated with budget cuts. Besides, the growth of the public relations industry contributes to journalists’ dependent on sources and causing flak in a systematic way.

Herman continues “The fifth filter –anticommunist ideology—is possibly weakened by the collapse of the Soviet Union and global socialism, but this is easily offset by the greater ideological force of the belief in the ‘miracle of the market (Reagan)’” (2003: 11). Instead of anti-communism, he discusses the adherence of market economy as an ideology.

2-3-7. Criticism

There are mainly three types of criticism on this model. One is about the lack of study on the effects. The media has an influential power in society, however “the PM [propaganda model] takes for granted that media content serves political ends in myriad ways, but does not study these effects directly” (Klaehn 2002:153). About this, Herman argues “the propaganda model is about how the media work, not how effective they are” (2003: 8).

The second criticism is to regard this as a conspiracy theory. However, Herman and Chomsky clearly deny this point with saying “We do not use any kind of ‘conspiracy’ hypothesis to explain mass-media performance”. They emphasise their approach is close to “a ‘free market’ analysis, with the results largely an outcome of the workings of market forces” (1988: xii).

The third criticism is that this model fails to take in consideration about journalists’ professionalism and objectivity rules. Herman analyses this point as “professionalism and objectivity rules are fuzzy and flexible concepts” and professionalism does not mean to be “an antagonistic movement” against the ownerships of the media (2003: 6).