Business Scandals Force GOP to Consider Broader Reforms
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Business Scandals Force GOP to Consider Broader Reforms
Policy: Bush's speech on Wall Street may mark a change from his party's
anti-regulatory stance.
By Richard Simon
LA Times Staff Writer
Monday, 8 July, 2002
WASHINGTON -- Mounting public concern about the new wave of business
scandals is forcing President Bush and congressional Republicans to consider
a more intrusive government role in monitoring the private sector than they have
been willing to accept.
For months, Bush and fellow Republicans have held the line at relatively
limited federal action in response to accounting abuses and controversial
financial practices, blaming problems on a few corporate bad apples and
contending the business world was already stepping forward to clean up the
mess.
Now, their restrained approach has begun to give way as the scandals have
spread to some of the nation's largest corporations, including telecom giant
WorldCom, and as Democrats have mobilized behind tougher government
action.
On Tuesday, Bush will move to seize a prominent place in the reform
campaign by going to Wall Street to deliver a stern lecture on ethics to
business leaders. He is widely expected to propose new or tougher criminal
penalties, such as mandatory jail time, for executives guilty of misleading or
defrauding stockholders.
The address should represent a notable turn for an oilman-turned-politician
who boasted of being shaped by the culture of business rather than government
and who has often inveighed against government meddling.
On Sunday, White House Press Secretary Ari Fleischer said Bush "will
focus on strict enforcement and tough punishment," pressing for adherence to
existing laws and punishing corporate wrongdoers. Fleischer spoke in
Kennebunkport, Maine, where Bush was spending the holiday weekend.
Also this week, the Democratic-controlled Senate will debate a tough
corporate reform measure that has been strengthened by the recent revelations
of an almost $4-billion accounting fraud by WorldCom. It is expected to pass,
with a significant number of Republicans supporting it.
In the House, Republicans are planning to take the lead in grilling current
and former WorldCom officials at a hearing today on the company's accounting
misstatement.
Unclear is exactly how far beyond tough words Bush and GOP lawmakers
are willing to go in supporting increased federal oversight of business.
White House officials vow that the administration will follow through with an
aggressive stance toward corporate wrongdoing. "We think this administration
will show through action, not rhetoric, that it means business," White House
communication director Dan Bartlett said.
At the very least, the recent corporate miscues have put the president and
other regulatory-wary Republicans in the center of debate on a subject they
would have preferred to avoid.
Some political analysts expect Bush in his Tuesday speech to sound like a
modern-day Theodore Roosevelt, the most notable GOP president to go toe to
toe with big business.
"President Bush's challenge is to get in touch with his inner Teddy
Roosevelt and demonstrate that he can be a regulator with results," said
Marshall Wittmann, a political scholar with the conservative Hudson Institute.
Some also see Bush inching closer to accepting much of the reform bill
drafted by Senate Democrats.
"There's a perception that the GOP are in bed with industries that need
tougher regulation," said Greg Valliere, chief strategist for Schwab Washington
Research Group, which provides investment-oriented political analysis. "The
Republicans need some political cover."
The bill, written by Senate Banking Committee Chairman Paul S. Sarbanes
(D-Md.), is stricter than an industry-backed measure passed by the
GOP-controlled House this year. It would establish a new board to oversee and
discipline accountants. The House bill also would create such a panel but is
less specific about its powers.
The Senate bill also would go further in limiting the amount of consulting
that accounting firms could provide to companies they audit, a response to
suggestions that Arthur Andersen's consulting and auditing work for Enron
Corp. led to a conflict of interest that may have delayed the disclosure of the
energy giant's financial weaknesses late last year.
The House and Senate bills include a number of common features,
improving prospects that the chambers can reconcile their differences and send
Bush a bill he can sign.
Both bills would impose new financial disclosure requirements on public
companies and prohibit senior executives from selling company stock during
periods when lower-ranking employees cannot.
Democrats plan to try to make the Senate measure even more stringent,
adding new criminal penalties for securities fraud and document shredding, new
protections for corporate whistle-blowers and extending to five years from three
years the time frame for investors to file securities fraud lawsuits.
Democrats also are expected to make a new push to pass pension reform
legislation that was proposed at the height of the focus on Enron's financial
collapse. That measure, which has been stalled in Congress for months, would
give employees new rights to sell company stock and diversify investments in
their 401(k) retirement accounts.
Sarbanes said he has seen a change in attitude by members of both parties
in recent months.
"You've had these egregious practices," he said. "You've had enough of
them that people are reaching the conclusion that it's not just bad apples who
need to be punished, that you also need to make changes in the system."
Sarbanes said big losses for investors, declining confidence in financial
markets and worries about the effect of the scandals on the economy have
helped generate bipartisan support for his legislation. "I think there is a growing
appreciation that this is a serious situation, and we really need to come to grips
with it."
Indeed, Sen. Rick Santorum of Pennsylvania, a key Republican on financial
issues, said he now favors creation of a board to oversee accountants. "I didn't
always feel that way," he said.
But Santorum said he thinks Sarbanes' bill would go too far, contending that
it amounts to Congress legislating accounting standards. "What we're doing
here is new. We have to be very careful that we don't overdose on the
medicine."
There remains a wide gulf between House Republican and Senate
Democratic lawmakers over how far Congress should go in responding to the
wave of scandals.
Senate Majority Leader Tom Daschle (D-S.D.) on Sunday assailed
Securities and Exchange Commission Chairman Harvey L. Pitt as a "huge
disappointment" and blasted the administration for its "permissive" attitude
toward business. "That's the kind of thing that got us into the trouble in the first
place--winking at regulation," Daschle told CBS' "Face the Nation."
"We've got to have tougher enforcement of the regulations that exist,"
Daschle added, "but we need a new framework, a better system of regulation
than we have today."
But Rep. Michael G. Oxley (R-Ohio), chairman of the House Financial
Services Committee, said on "Fox News Sunday" that the reform bill he wrote
"gives the SEC added authority to do what they do best and regulate that area.
But I don't think that we want to interfere with the capital markets, and I fear
there may be some overreaction."
Defending Pitt, Fleischer on Sunday said that "the SEC has taken more
enforcement action against major" corporate wrongdoing "this year than in the
previous eight years, and the year isn't over yet."
Those who have followed the business reform legislation say they think
House Republicans will gravitate toward the Senate bill.
"Since [President] Reagan, anti-regulation has been Republican dogma,"
said Larry Sabato, director of the University of Virginia Center for Politics.
"But electoral necessity is the mother of political flip-flopping."
But Valliere contended that more is at work in the evolving GOP attitudes
than political considerations. Most Republicans, especially Bush, are really
steamed at business, he said.
"They feel betrayed by people they thought they could trust. This anger
seems to be genuine, and I think Bush will sound pretty tough" in his speech,
Valliere said.
When Bush travels to Wall Street, he will be walking a political tightrope,
experts said.
In order to "satisfy swing and independent voters, he has to sound suitably
horrified about what has been going on in parts of corporate America," said
Patrick Basham, senior fellow at the libertarian Cato Institute. "But, at the
same time, he can't recommend too draconian a solution for risk of offending
his conservative political and fund-raising base or making it unnecessarily
costly for businesses to keep their accounts straight."
Fred Smith, president of the Competitive Enterprise Institute, a pro-market
Washington policy group, said he hopes Bush will use his bully pulpit to "calm
the populist anti-business rhetoric now sweeping the country."
"Bush should note that he will pursue fraud aggressively.... No one is
entitled to lie to their investors," he said. But, Smith added, Bush also should
discuss "the creative chaos of the economic frontier, the fact that entrepreneurs
are basically making it up as they go along. That this trial-and-error process is
the only way to invent the future, and to realize the wealth that America must
have to enjoy that future."
Some analysts expect Bush's speech to mark a significant departure for
him and his party.
"The president's speech will likely signal the end of the past 20 years of
Republican deregulatory zealotry," Wittmann said.
Others are more cautious in assessing its long-term effect.
"What the Republicans really have to hope for is that this spate of corporate
scandals runs its course by summer's end, with the stock market picking up
and the press' attention turning elsewhere," Sabato said.
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