Five Years After Enron, Firms Seek Weaker Rules
Wednesday, November 29, 2006
Business interests, seizing on concerns that a law passed in the wake of the Enron scandal has overreached, are advancing a broad agenda to limit government oversight of private industry, including making it tougher for investors to sue companies and auditors for fraud.
A group that has drawn support from Treasury Secretary Henry M. Paulson Jr. plans to issue a report tomorrow that argues that the United States may be losing its preeminent position in global capital markets to foreign stock exchanges because of costly regulations and nettlesome private lawsuits.
Interest groups are trying to build political support to review long-standing rules that govern companies, as well as parts of the 2002 Sarbanes-Oxley law, which imposed stringent responsibilities on accountants, boards of directors and corporate executives. Some key members of Congress have recently expressed concern that U.S. companies may be over-regulated.
For example, Sen. Charles E. Schumer (D-N.Y.) joined New York City Mayor Michael R. Bloomberg (R) to commission a study by McKinsey & Co. on whether U.S. stock exchanges are losing listings to more lightly regulated overseas markets. Sen. Christopher J. Dodd (D-Conn.), who is set to head the Banking Committee, has expressed skepticism that the Sarbanes-Oxley law has led businesses to flee overseas but has signaled a willingness to hold hearings next year on how the legislation is working.
The business groups are initially focused on getting rules changed at the Securities and Exchange Commission, the independent federal agency that oversees U.S. capital markets and companies. The growing bipartisan concern about over-regulation will help set the tone for deliberations at the agency, which is led by Christopher Cox, a Republican and former congressman from California.
"From our perspective, the more people talking about this, the better," said David C. Chavern, director of the U.S. Chamber of Commerce's corporate-governance initiative. The chamber plans to publish its own study next year that attacks what it views as duplicative rules and overly aggressive enforcement by securities regulators.
The renewed push to soften government oversight of business comes as the outcry begins to diminish over a series of financial scandals that erupted five years ago after Enron collapsed, costing thousands of employees their jobs and wiping out billions of investor dollars. The phony accounting at Enron and the bankruptcy of WorldCom months later prompted Congress to pass the Sarbanes-Oxley law.
The chamber panel studying regulation contains several prominent Democrats, including two members of President Bill Clinton's Cabinet -- William M. Daley, who headed the Commerce Department, and former U.S. trade representative Mickey Kantor.
Lobbyists at the chamber are moving to line up meetings with Dodd, who is considering a bid for the presidency in 2008, and soon-to-be House Financial Services Chairman Barney Frank (D-Mass.). Frank recently spoke in general terms of his willingness to compromise with business on some matters to win concessions on minimum-wage legislation and housing reforms.
The current drive to roll back regulation pivots on a complex rule that requires companies to assess their financial controls to prevent fraud and mistakes. The provision, contained in Sarbanes-Oxley, has proved more expensive than regulators envisioned, particularly for small businesses.
With the encouragement of senior federal lawmakers, officials from the SEC and the Public Company Accounting Oversight Board, which sets rules and oversees accountants, are meeting to hash out an accord on scaling back the rule. How far they go, perhaps effectively exempting smaller companies, is raising intense concerns from those who think the rules are necessary to protect investors from fraud.
If they decide to exempt small companies, that would take out "the guts of getting accounting and auditing straightened out" after years of cursory reviews by accountants helped fuel financial scandals, warned Charles A. Bowsher, former comptroller general.
But business groups are not stopping there. They were encouraged when Paulson gave a speech last week calling for "a more balanced approach" to regulation.
The private panel is frequently called "the Paulson group," even though Paulson is not a member. Instead, the panel is directed by Harvard University law professor Hal S. Scott. Other members include R. Glenn Hubbard, former chairman of President Bush's Council of Economic Advisers, and Brookings Institution Chairman John L. Thornton.
The group's report tomorrow is to advocate raising the standard for charging companies with crimes, according to sources briefed on its content who spoke on condition of anonymity because the document has not been officially released. It also is to propose shielding accountants from fraud lawsuits under certain circumstances.
Many of the group's recommendations would require congressional action, and passage of new laws is uncertain in the last two years of the Bush administration, even with a growing concern over regulation among senior lawmakers.
University of Rochester President Joel Seligman expressed concern about any new limits on the ability of people to sue companies over accounting, saying it could "handicap the ability of the SEC to be a vigilant watchdog."
"To have this occur, so soon after the dramatic increase in fraud that led to Sarbanes-Oxley, would be deeply troublesome," he said.