Parties Maneuver Over Risks in Growing Business Scandal
By RICHARD W. STEVENSON and ALISON MITCHELL
The New York Times
WASHINGTON, June 27 — The financial meltdown of WorldCom left President Bush and the Republicans struggling today to limit the political risk from what strategists in both parties say could be a shift in the way voters view business and the economy.
In a telling sign that White House officials feel vulnerable in the face of an aggressive Democratic effort to seek partisan advantage from the string of corporate financial scandals, administration officials said Mr. Bush was planning to deliver a major address on corporate responsibility next month.
At a summit meeting of world leaders in Canada, Mr. Bush found himself on the defensive over WorldCom's announcement on Tuesday that it had failed to record $3.8 billion in expenses properly.
Answering a reporter's question, Mr. Bush turned aside a suggestion that there was a political risk for him and sought to turn attention to the business executives involved, saying he was "concerned about the economic impact of the fact that there are some corporate leaders who have not upheld their responsibility."
White House officials said the president's speech next month would stress the need for companies and their top executives to provide investors with clear, accurate financial information and would offer what one Republican strategist close to the White House characterized as a "very strongly worded, tough-minded set of proposals" for improving corporate disclosure.
"What they're concerned about is people losing faith in their institutions," the strategist said, adding that the business scandals could touch the same public chord as have troubles in agencies like the F.B.I. and the C.I.A.
White House officials and Republican advisers said there were clear pitfalls for Mr. Bush, especially if the stock market continues to fall — or the administration is seen as out of touch with popular disgust at corporate fraud and mismanagement and the associated job losses.
Few administrations have been more closely associated with corporate America. Mr. Bush has an M.B.A. from Harvard Business School and ran an energy company and a baseball team. Vice President Dick Cheney was chief executive of Halliburton, the oil field services company. Treasury Secretary Paul H. O'Neill was chief executive of Alcoa, the aluminum company.
"They've got to be careful that these corporate misdeeds like Enron and WorldCom don't become a latter-day Pac-Man," said Kenneth M. Duberstein, who was chief of staff in the Reagan White House. "It's chomp, chomp, chomp at approval ratings as a result of falling confidence in the economy and the markets. The presidential bully pulpit has to come into play here."
On Capitol Hill, where only a few weeks ago it seemed that most legislation addressing corporate wrongdoing had bogged down under pressure from lobbyists, both parties today were scrambling to keep up with increasing pressure to act.
Democrats, sensing a new political opportunity in the run-up to November's Congressional elections, stepped up their efforts to highlight themes of corporate abuse — everything from the Enron collapse to the prices charged by drug companies to corporate attempts to avoid taxes by incorporating abroad. Within hours of WorldCom's disclosure, Democrats were making the case that corporate misbehavior could be tied directly to Republicans.
Representative Richard A. Gephardt, the House minority leader, said on Wednesday: "It is, I think, telling that in 1995, when the Republican leadership came in, both Newt Gingrich and Tom DeLay made statements that the main goal of their effort was to try to deregulate corporate America. Well, they did a lot of that in the last few years, and now we see some of the results of that."
Republicans fought right back. Representative Thomas M. Davis 3rd of Virginia, the head of the Republican re-election efforts in the House, said today: "It's this administration that's prosecuting Enron and successfully prosecuted Arthur Andersen. The Democrats are the party that defended Bill Clinton and pardoned Marc Rich," the fugitive financier.
In the Republican-controlled House, the Financial Services Committee scheduled a hearing for July 8 and voted to subpoena the current and former chief executives of WorldCom and a prominent Wall Street analyst.
In the Senate, the majority leader, Tom Daschle, Democrat of South Dakota, won agreement from Republicans to bring to the floor early next month legislation that would tighten oversight of the accounting industry. After initially being cool to the bill, written by Senator Paul S. Sarbanes, Democrat of Maryland, White House officials signaled today that they would be willing to support it if changes were made to provisions on issues like the scope of a new accounting regulatory board.
"We've passed the critical mass, both from the standpoint of the political structure as well as the erosion of confidence of the capital markets in corporate America," said John J. Castellani, president of the Business Roundtable, a group of chief executives from the largest corporations. "It bodes for quicker and more intensive action."
Mindful that nearly half of all households and a majority of voters are shareholders, members of both parties said the corporate scandals could ripple into other issues via the stock market. Some political strategists said that just as both parties sought to capitalize on the emergence of a mass shareholder class during the boom of the 1990's, both could face public ire now that the bubble seems to have burst.
They said the large number of people who have seen big drops in their 401(k) retirement accounts and mutual funds mean that issues affecting the elderly and retirement are likely to be especially potent.
House Republicans were pressing to pass a prescription drug benefit before leaving for the Fourth of July holiday this weekend. And senior Republican strategists said the White House was acutely aware that it had to shore up confidence in the market before it could turn to one of Mr. Bush's campaign priorities, creating private investment accounts as part of Social Security.
"I think the privatization crowd on Social Security is going to have one hell of an argument to try to justify this in the public's mind," said Senator Jon S. Corzine, a New Jersey Democrat who is a former chief executive of Goldman Sachs.
Mr. Bush's poll numbers on his handling of the economy have been weakening in recent weeks, in part as the strength of the recovery from last year's recession has been called into question. The crumbling of confidence among investors in the United States and around the world is already showing signs of further dampening the recovery, potentially increasing the pressure on Mr. Bush.
A poll released today by the Pew Research Center for the People and the Press found that Mr. Bush's approval rating for his handling of the economy had slipped to 53 percent from 60 percent in January. The poll found that only 30 percent of the public sees the economy improving over the next 12 months, down from 42 percent a year ago, and just a third of those polled said the president was doing all he could to improve economic conditions, down from 48 percent six months ago.
Since corporate behavior first became a political issue late last year as Enron imploded, the administration has sought to ward off any aggressive effort to reregulate business and financial markets. It is unclear whether the proposals Mr. Bush will offer in his speech next month will alter the administration's approach in any fundamental way.
But clearly sensitive to any suggestion that it is too cozy with corporate interests, the administration has sought to portray itself as unforgiving of corporate fraud and eager to prosecute wrongdoing aggressively. The administration has even come under some criticism for being too aggressive in prosecuting Arthur Andersen, the accounting firm at the center of the Enron case; the recent guilty verdict against the firm in federal court in Houston all but put Andersen out of business.
In his public statements, Mr. Bush increasingly sounds like Mr. O'Neill, who has for months voiced outrage about wrongdoing by executives.
Earlier this month, Mr. O'Neill said of executives convicted of fraud, "I think the people who have abused our trust, we ought to hang them from the very highest branches."
Republican strategists said Karl Rove, Mr. Bush's chief political adviser, and other White House officials have also been tracking the issue closely and have no doubt influenced Mr. Bush's response.
They said the White House had been noting signs that corporate wrongdoing could be one factor in more voters seeing the country as being on the wrong track and in contributing to a general loss of faith in institutions ranging from government to the Catholic church.
"Intellectually, that's where Karl's concerns are," a Republican strategist said. "From a political standpoint, I think this is mostly being driven by the president's actual anger at how these companies are defrauding the public."
White House officials and Mr. Bush are also mindful of 1992, when the president's father was cast by Democrats as out of touch with the economic concerns of voters.
Mark McKinnon, a White House adviser who was Mr. Bush's chief media consultant in the 2000 campaign, said today that there was a "full focus" at the White House on the scandals and the economy.
"This president has an acute sensitivity to the economy," Mr. McKinnon said. "He knows its impact on people, and he knows its impact on the president."
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