Political Caution In Zeal for Reform
Hill Plays Down Its Pro-Business Past
By Jim VandeHei and Juliet Eilperin
Washington Post Staff Writers
Saturday, July 13, 2002; Page A01
Corporate scandals have sparked a new wave of reformist zeal in Congress, but in the rush to offer competing remedies this week, Democrats and Republicans are playing down their own roles in allowing financial irregularities to go undetected until recently.
On many of the key pieces of legislation since the 1990s that would have subjected the financial practices of Arthur Andersen, Enron, WorldCom and other big companies to closer scrutiny, most lawmakers sided with business. Republicans proudly led the charge against regulatory action, but many Democrats eagerly followed.
Congress balked at imposing tougher regulations on chief executives and the auditing agencies watching over them. They made it harder for investors to sue corporations and accounting firms involved in fraud, and easier for CEOs to escape penalty. Even today, lawmakers are reluctant to cross the politically powerful high-tech industry by forcing companies to count high stock-option costs as an expense -- a move that would eliminate a practice that helps the firms inflate their earnings.
In part, members of Congress, like the public they serve, were caught up in the euphoria over a booming economy. "There was a natural tendency toward 'if it ain't broke, don't fix it,' " said Rep. Adam Smith (D-Wash.). "That wasn't just here, it was the consensus in the whole country as well."
But the '90s were also a time when the relationships between the corporations and the Republicans and Democrats they were trying to influence became increasingly intertwined.
Congress, as a whole, was "too willing to accept the theory of deregulation from corporations that they were growing increasingly dependent on for campaign contributions," said Gene Kimmelman, director of Consumers Union. "When the scandals erupted, Congress scrambled to fix the mess they created."
Both parties have experienced a dramatic increase in donations from Fortune 500 companies, which traditionally hedge their bets by giving to Democrats and Republicans alike. Between 1995 and 2002, businesses accounted for nearly 90 percent of the massive, unregulated "soft money" contributions both parties received, according to the Center for Responsive Politics. Corporate soft money contributions nearly doubled between the 1996 and 2000 congressional elections, rising from $209 million to $383 million.
And while Republicans received more business money than Democrats did, the giving was not entirely lopsided. Six firms at the heart of the current corporate scandals -- Adelphia Communications Corp., Arthur Andersen, Enron Corp., Global Crossing, Qwest Communications International Inc. and WorldCom Inc. -- gave $7.7 million in soft money to Republicans and $5.2 million to Democrats over the past decade, according to the watchdog group Democracy 21.
"It takes so much money to run campaigns nowadays. There's a lot more pressure on Democrats to take more corporate money," said Rep. Sherrod Brown (D-Ohio). "It's not good for Democrats, and it's not good for the country."
Democrats were often even more aggressive than Republicans in courting high-tech and telecommunications firms in the late 1990s, as their sectors were producing the fastest-growing companies in the United States. This strategy, coupled with the party's bruising battle over health care reform in 1993 and 1994, at the outset of President Bill Clinton's tenure, made some Democrats wary of attacking corporate interests.
Rep. Patrick J. Kennedy (R.I.), who chaired the House Democrats' fundraising arm in the 2000 election cycle, said the health care debacle taught his party that, "to change the status quo here, we would have to overturn too many vested relationships." Now, his constituents complain that "Democrats are not always carrying the liberal mantle as the dominant part of our agenda," he said.
But the relationship transcends campaign contributions. Lawmakers have bought stock in companies they oversee, prompting the unheeded conflict-of-interest concerns of government watchdogs. Lawmakers and aides take free trips, eat free meals and watch professional sporting events, all paid for by corporations.
This practice isn't new, and is governed by loosely enforced laws on gifts to politicians. But it has flourished as more and more companies have opened Washington offices and have sought to influence policymakers.
Scores of former lawmakers and aides have also spun through this city's revolving door and into high-paying jobs representing corporations. According to a report just issued by Common Cause, Arthur Andersen retained seven Republicans and 12 Democrats last year to press its case on the Hill, along with two lobbyists who had worked for both parties.
Pharmaceutical companies, which employ more than one lobbyist for each member of Congress, use a similar approach. Of the 23 former lawmakers who are now on the drug industry payroll, according to Public Citizen, 13 are Republicans and 10 are Democrats.
The investments have paid off. When drug companies demanded a six-month patent extension in exchange for agreeing to a Food and Drug Administration requirement to include children in their drug trials, for example, two Democrats, Sen. Christopher J. Dodd (Conn.) and Rep. Anna G. Eshoo (Calif.), fought aggressively for the industry's position. One of Eshoo's former aides worked for Merck & Co., according to Public Citizen, and both lawmakers ranked among the top congressional recipients of pharmaceutical industry donations.
Republicans, however, remain the largest beneficiaries of corporate largess, as measured by Federal Election Commission records, lobbying disclosure records and a less scientific turn of the neck at lunchtime at the Palm and Capital Grille. And Republicans have been much more aggressive in promoting a pro-business agenda since taking control of the House and the Senate in the 1994 elections. (They lost control of the Senate last year, when Sen. James M. Jeffords of Vermont became an independent.)
The "Contract With America" that then-House Speaker Newt Gingrich (R-Ga.) sought to enact after his party captured the House rolled back regulations, lowered taxes and relaxed tort laws. His party also led the charge to gut the Securities and Exchange Commission's enforcement budget.
The GOP campaign to deregulate markets, from energy to telecommunications, was a direct reaction to government mandates and rules that many economists felt were a drag on the broader economy. Gingrich and his allies went further than most mainstream economists by contending that virtually every rule governing business practices and workplace standards should be reviewed, if not overturned.
House Minority Leader Richard A. Gephardt (D-Mo.) made this deregulatory zeal the theme of a 26-page report titled "Drive to Deregulate: GOP Congress Paved the Way for Enron & Other Corporate Misdeeds" that House Democrats released earlier this week. The report contends that Republicans, starting with the Contract With America, have tried to "eviscerate common sense protections for America's families" by deregulating markets and providing companies new legal protections and tax breaks. It charges that, by ridiculing regulation and refusing to crack down on companies that locate in offshore tax havens, Republicans "set the stage for the Enron scandal and others that have now spiraled into a corporate crisis of confidence."
Gephardt concedes that some Democrats voted with Republicans on regulatory issues, but he insists that Republicans deserve more blame because they initiated the measures and provided more votes for them. "It was the Republican leadership that was setting the agenda on the floor," he said this week.
To Gephardt, tying corporate scandals to the Republicans is critical to his party's chances of recapturing the House this fall, but not all Democrats agree.
"I don't think that trying to politicize the problem is going to enhance confidence in the market," said Rep. Calvin M. Dooley (D-Calif.).
Smith, who like Dooley considers himself a pro-business New Democrat, said Gephardt's strategy could be "particularly damaging to the entire Democratic Party" if it is seen as hostile to business.
Republicans, for their part, have argued that it is not deregulation but the "anything goes" environment of the Clinton era that led to the unethical practices of Enron, Andersen and other corporations. They circulated their own report this week describing how most of the scandals started when Clinton was president.
The National Republican Senatorial Committee even nominated North Carolina Democrat Erskine B. Bowles, a Clinton chief of staff, as "the National Poster Boy for corporate irresponsibility and personal non-accountability" for his ties to companies now embroiled in scandals.
"Democrats have no credibility" on the issue, said Rep. J.C. Watts (R-Okla.), noting the large number of Democrats who have backed pro-business initiatives that their leadership is now assailing.
One of the most vivid examples of how Democrats and Republicans joined forces to ease curbs on corporations came in December 1995, when the House and the Senate overrode Clinton's veto of securities litigation reform. High-tech executives had lobbied aggressively for the bill, which made it harder for unhappy stockholders to file and win class action lawsuits when they thought they had been misled by company officials or accountants. This bill made it easier for CEOs to escape penalties for making dubious financial projections.
Dodd, who chaired the Democratic National Committee at that time, was one of the bill's most prominent champions.
Nearly half of all Senate Democrats voted to defy Clinton on the issue, making it Congress's only successful veto override of the president during his two terms in office. On the House side, 89 Democrats joined 230 Republicans in voting for the override.
Dooley said he would vote for it again, as would a "significant majority" of Democrats.
Rep. James P. Moran Jr. (D-Va.) said lawmakers saw the bill as a curb on frivolous lawsuits. "It was appropriate, because the system was being gamed by trial lawyers," Moran said.
Moran himself has come under criticism for his financial ties to business executives and companies with a direct interest in legislation, having accepted personal loans from a credit card lender, a pharmaceutical lobbyist, and America Online's founder and former chief executive, James V. Kimsey.
In 1998, Congress voted to make it even harder for shareholders to win lawsuits when it required that securities fraud cases be tried in federal courts instead of in state courts, which are often harsher on businesses. Again, virtually every House Republican voted for this bill, as did 106 Democrats -- more than half of the party's House members.
And in 2000, when then-SEC Chairman Arthur Levitt was campaigning to bar accounting firms from serving as consultants to their audit clients, Republicans took the lead in blocking the measure. Again, they were joined by prominent Democrats such as Sen. Evan Bayh (Ind.).
Levitt's plan would have prevented accounting firms such as Arthur Andersen from getting paid as consultants to companies whose books they were auditing. In retrospect, many believe that such a reform would have helped avert some of today's financial scandals.
Levitt backed down when lawmakers threatened to gut the SEC budget.
But while many lawmakers are intent on revisiting such past actions, there is a prevailing fear that they should not go too far. "Many times business interests coincide with workers' interests," said Rep. Timothy J. Roemer (D-Ind.). "The corruption of these few bad apples doesn't mean the whole orchard" is corrupt.
© 2002 The Washington Post Company
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