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Probe Amplifies Conflict-of-Interest Questions for Chamber of Commerce Chief

By Jeffrey H. Birnbaum
Tuesday, February 6, 2007

As president of the U.S. Chamber of Commerce, Thomas J. Donohue has long been obliged to talk tough against federal regulation, especially by the Securities and Exchange Commission. But now, it's personal.

For 12 years, Donohue has been a board member (including serving on the audit committee) of Sunrise Senior Living, a publicly traded company being probed by the SEC.

Sunrise co-founder Paul Klaassen started as Donohue's driver while still in college and later was a Chamber speechwriter. Donohue, 68, believed in Klaassen so strongly that he allowed Klaassen and his wife to live in his house while they started Sunrise more than two decades ago. He then helped finance the firm's prototype facility by taking out a second mortgage and becoming one of the company's first big investors.

Recently, the SEC opened an inquiry into allegations that the Klaassens and other insiders, including Donohue, may have improperly cashed $32 million in stock options before Sunrise in May announced an accounting problem that caused its stock to drop. Donohue calls the allegations meritless and says they were drummed up by labor unions that want to organize the company. He said that he has not been contacted by the SEC and that its inquiry will amount to nothing.

Nonetheless, the controversy adds fuel to complaints that investor activists have leveled at Donohue ever since he took over and revived the Chamber, the nation's largest business lobby, in 1997.

They have questioned how Donohue could serve on boards at all. After all, they point out, an independent director is supposed to represent stockholders, not management, which is Donohue's constituency. They have also worried that Donohue might tilt the Chamber's potent lobbying to favor the companies he serves. Donohue is a director of Union Pacific, the country's biggest railroad, and XM Satellite Radio as well as Sunrise.

And now that Sunrise is being scrutinized by the SEC, critics are adding a new complaint. They say Donohue has diminished the value of his own arguments against certain regulations because he has a personal stake in curtailing them.

"It undercuts his credibility as a critic of SEC enforcement and regulation," said Barbara Roper, director of investor protection for the Consumer Federation of America. "He undermines any claim he might have to objectivity."

Donohue disagrees. He said the Chamber's board encourages him to serve as a director because it allows him to see firsthand the harm that overregulation causes.

"That I serve on corporate boards gives me a better understanding of what goes on in a boardroom," he said. "The better you understand something, the better you can figure out how to deal with it."

The Chamber Fights Back

The Chamber faces a far more hostile Congress with Democrats in charge. But it is not retreating.

"We refuse to wring our hands and say, 'Oh, we have new chairmen, we have a president who's not as strong as we'd like. Oh, woe is me, what are we going to do?' " Donohue said. "We're going to saddle up the horse and get going."

The Chamber will soon launch its third anti-trial-lawyer newspaper. It already owns two legal periodicals, the Madison County Record in Illinois and the West Virginia Record in Charleston, which publish stories that highlight what it considers trial lawyers' abuse of lawsuits against businesses. It will shortly open a yet-unnamed newspaper in southeastern Texas, which it calls a hotbed of anti-business legal actions.

In addition, the Chamber plans a huge new effort to "manage" government's reaction to global warming. The tentatively named Institute for Energy Security, Competitiveness and American Jobs will raise about $20 million from oil companies, electric utilities and automakers to try to temper Washington's regulation of greenhouse gas emissions.

Donohue vs. Airlines

A travel industry coalition called the Discover America Partnership unveiled a proposal last week to ease the entry of foreign visitors into this country and to promote tourism in the United States abroad. To pay the plan's $300 million tab, the group suggested that a modest fee could be imposed on airplane travelers leaving this country -- an option that the Air Transport Association opposed.

Donohue ridiculed the airlines' position. Nobody cares "about a $2 fee on the ticket or something, they just don't want to get in another line to pay it," he said. "Would your El Salvadoran maid, legitimately in the United States, who is going home to see her family, care about a $2 fee? If she does, she shouldn't go."

People will be miffed at that statement, he added, "but I don't care."

Winners and Losers

Low-income people and small-business owners were the big winners in legislation the Senate passed last week that would boost the minimum wage and expand tax breaks for small businesses that would be hurt most by the change.

Yet buried in the bill were write-offs not just for small firms but also for restaurants and retailers of any size. Score victories for the National Restaurant Association and the National Retail Federation, which lobbied hard for the measure.

The legislation's losers include the Chamber and the National Association of Manufacturers, which tried and failed to block the bill's elimination of tax-free deferred compensation for highly paid executives.

A major thumbs down also goes to the AFL-CIO, which called the Senate's action "disgraceful" because of the business benefits, even though it has fought for a minimum-wage increase for years.

Hires of the Week

African Americans are vastly underrepresented among lobbyists. The Washington Government Relations Group, a trade association of black lobbyists, has about 100 members and a database of black federal lobbyists that tops 200 names. That compares with 31,000 registered lobbyists overall.

But the Democratic takeover on Capitol Hill has thickened the ranks of black lobbyists quickly, thanks in part to the new prominence of the Congressional Black Caucus. African American staffers who have recently joined the lobbying ranks include: Paul Brathwaite, former executive director of the caucus, now with Podesta Group; Joyce Brayboy, former chief of staff to Rep. Melvin Watt (D-N.C.), now with Glover Park Group; Richard R. Boykin, former chief of staff to Rep. Danny K. Davis (D-Ill.), now with Barnes & Thornburg; Jennifer Fisher, ex-aide to Rep. Artur Davis (D-Ala.), now at the American Dental Association; and ex-caucus aide Myra Dandridge, now at the National Association of Broadcasters.

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