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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.


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.

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