PESSIMISM SPREADS CONCERNING MEANINGFUL REFORM
nytimes.com
Enthusiasm Ebbs for Tough Reform in Wake of Enron
By STEPHEN LABATON and RICHARD A. OPPEL Jr.
WASHINGTON, June 9 — Six months after the collapse of Enron, a wave of enthusiasm for overhauling the nation's corporate and accounting laws has ebbed and the toughest proposals for change are all but dead.
A powerful group of lobbyists, playing on partisan disagreement in Congress, appears to have killed efforts to impose tight new controls on corporate conduct. And while some Democrats hope to turn the inaction to their advantage in the fall elections, other lawmakers say that — barring more business meltdowns that deepen the stock market's two-year slump — voters are unlikely to care enough to influence their ballots.
Bills imposing more stringent accounting standards, changing the tax and accounting treatment of employee stock options and setting tougher conflict-of-interest rules for stock analysts and accounting firms have all fallen victim to political gridlock.
Corporate America and the stock markets have not waited for Washington. Instead, they have undertaken a host of changes in response to the problems highlighted by Enron and reinforced by corporate and accounting failures in the telecommunications, cable and energy industries. Investors have fled companies whose accounting or governance practices fail to measure up to post-Enron standards. Some Republicans say all this is evidence that the system is working without heavy-handed interference by lawmakers.
Congress did much to focus attention on flaws in the nation's corporate and accounting practices with a series of investigative hearings earlier this year, the most dramatic of them conducted by committees in the Republican-led House. Even so, with the debate over Enron at full boil, the House adopted a measure in April that rejected the toughest proposed changes.
Senate Democrats now predict that they will have the votes to get a broad measure of their own out of the Banking Committee later this month on a party-line vote, but only by tempering it to win the support of moderates. Senator Tom Daschle, the majority leader, is said by lawmakers and his aides to be committed to trying to move a bill to the Senate floor before the August recess, in hopes of using the Republicans' opposition to the measure against them in fall campaigns.
Even if that bill survives a filibuster threatened by Senate Republicans, lawmakers and lobbyists say that there is little chance of reconciling the differences between the House and the Senate this year.
All of Washington has not been paralyzed. Federal regulators — spurred in part by state prosecutors — have become more aggressive on the enforcement front. In Congress, meanwhile, legislation to modify pension laws — a response to the enormous losses in the retirement funds of employees at Enron and other troubled companies — might have a better chance of passage.
Still, even lawmakers who favor a tough response to the seeming explosion in business misconduct detect little fervor among voters for a Washington crackdown. Absent a spate of further disclosures, they say, the issues may remain too remote to change many voters' minds.
"The politics will be determined by the circumstances," said Senator Jon S. Corzine, Democrat of New Jersey and a former top executive of Goldman, Sachs & Company. "If we continue to see an erosion of the stock market and more cases like Adelphia and Tyco, then it will be significant. If we see less, then it may have less of an impact, because these can become issues that are hard for people like my mom to understand."
Other lawmakers, particularly Republicans, say Enron's moment as a galvanizing issue has quickly passed.
"The feeding frenzy is pretty much over," said Senator Phil Gramm of Texas, the ranking Republican on the banking committee, who has worked closely with industry lobbyists to kill many of the Democrats' proposals. "People started looking at making all these radical changes and decided there was a real cost involved and that it would not solve the Enron problem."
Mr. Gramm said regulators and the marketplace are already correcting the excesses exemplified by Enron and its auditor, Arthur Andersen, relieving Congress of the need to enact comprehensive legislation.
"A lot of progress has already been made," he said. "The president has put forward a strong program, the Securities and Exchange Commission is moving forward, and the exchanges are changing their rules. No one who sits on an audit committee will be the same after Enron." Mr. Gramm's wife, Wendy, a onetime government regulator who served on Enron's audit committee, resigned from the company's board last week.
Representative Billy Tauzin, the Louisiana Republican who held hearings on Enron's collapse, agreed with Mr. Gramm's appraisal, but he said it was still vital for Congress to act, even though the prospects for legislation are not strong.
"It's all very iffy," he said. "There is a huge rift between where the Senate believes these issues ought to go and what the House has already passed. I don't know if it gets worked out in time."
Both Democrats and Republicans have already begun to consider strategies to make the best political use of the issue in the November elections. The Republicans are relying heavily on the rule-making and enforcement actions of the S.E.C.
On the Democratic side, one idea under discussion by advisers to Senator Daschle is to bundle disparate proposals into one package, making it more efficient to both confront recalcitrant Republicans in the House and make a political issue in the fall of the legislation's defeat.
In any event, politicians and lobbyists say that any change in the accounting treatment of stock options is dead for the year — largely because of the perception that Silicon Valley, where such options are as ubiquitous as the Internet itself, is up for grabs in the 2002 and 2004 elections.
Proposals have been made to force companies to account for options as a compensation cost — now they are not charged against corporate earnings — and to limit the ability of companies to take tax deductions for issuing options. But technology companies, financial firms and corporate trade groups — with the backing of President Bush — have lobbied lawmakers around the country to maintain the current system.
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