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Senate Panel Approves Reforms for Corporations

Finance: Stalled bill gains new urgency. It includes limits on loans to executives and guards on retirement funds.

July 12, 2002|RICHARD SIMON | TIMES STAFF WRITER

WASHINGTON — With an eye on the falling stock market, a key Senate committee joined the bipartisan rush to corporate reform Thursday, approving new restrictions on company loans to executives and protections for workers' retirement savings.

The unanimous vote by the Senate Finance Committee for a bill that had been stalled for months was a further sign of the support for speedy congressional action to restore investor confidence in financial markets shaken by scandals at Enron Corp., WorldCom Inc. and other companies.

The committee action came as the full Senate pressed ahead on a measure that would strengthen federal oversight of the accounting industry.

''We need to get this bill done as quickly as possible,'' said Sen. Mike Enzi (R-Wyo.), who is usually wary of more business regulation. ''The stock market is dropping.''

The accounting reform bill is likely to be approved early next week, and Senate Majority Leader Tom Daschle (D-S.D.) said he would not be surprised if it passes by a unanimous vote.

The Senate bill then would have to be reconciled with a House-passed measure that critics have labeled as too weak.

Sen. Phil Gramm of Texas, a GOP leader on financial issues who usually opposes increased federal regulation, said, ''We have the makings of a good bill that can be broadly supported.... The sooner we put together a bill that will represent a compromise, the more certainty there will be on Wall Street.''

Indeed, House and Senate lawmakers are anxious to begin negotiations and get a bill to President Bush--fast.

Suggesting the chambers are not that far apart, House Speaker J. Dennis Hastert (R-Ill.) endorsed the tougher criminal penalties for corporate fraud put into the Senate bill on Wednesday.

Both the House and Senate bills would set up an accounting oversight board, but Senate Democrats say the House measure would create a weaker board.

Sen. John McCain (R-Ariz.) unsuccessfully pushed for an even tougher Senate version of the bill Thursday. He assailed Senate Democratic leaders for blocking a vote on his amendment that would force companies to deduct the value of stock options from their income, an action opposed by the high-tech industry, which has long used options as a form of compensation.

The Senate bill, sponsored by Sen. Paul S. Sarbanes (D-Md.), grew out of the financial collapse of Enron late last year, as did the measure approved by the Senate Finance Committee. Both bills sputtered as the furor over Enron subsided, then gained new momentum after the recent revelation of WorldCom's nearly $4-billion accounting scandal.

On Thursday, some Republicans on the finance panel pushed for reforms as aggressively as did Democrats.

With 5,000 Enron and WorldCom employees in his home state, Sen. Charles E. Grassley (R-Iowa) said, ''I believe I speak for all of them when I say I'm firefighting mad about company executives and directors who play fast and loose with the retirement money of hard-working employees.''

The bill approved by the panel would give employees new rights to sell company stock and diversify investments in their 401(k) retirement accounts.

It also would crack down on loans made by companies to their executives, a practice that has drawn scrutiny after revelations that insiders at Enron, WorldCom and other scandal-plagued companies received such loans, even while their firms were in financial tumult.

Bush wants to ban such loans. But the White House found itself on the defensive Thursday over $180,375 in low-interest loans that Bush received in the late 1980s from a Texas oil company while serving on its board of directors.

The committee bill would treat corporate loans in excess of $1 million to insiders as compensation, subject to taxation. The measure also would set minimum interests rates for such loans.

The pension reforms in the bill are in response to the huge losses suffered by Enron employees when the value of company stock, which made up much of their retirement savings, plummeted as the company descended into bankruptcy last year.

The finance panel measure also would allow workers to sell company stock after three years of service. A pension reform bill approved by the House earlier this year would allow employees to sell the stock three years after it was acquired.

Currently, companies can impose much stricter limits. Enron required workers to hold company stock in their retirement accounts until age 50.

The finance panel measure also would require investment advisors to employees to be independent of firms that manage their retirement plans.

The House bill would permit advisors to steer employees to investments in which they have a financial stake as long as they disclose that stake.

Sen. Max Baucus (D-Mont.), chairman of the finance committee, said the bill ''strikes the right balance. It prevents companies from keeping workers locked into company stock in their retirement plans. At the same time, it allows workers to keep investing in company stock if they decide that's best for them.''

Senate Democrats must work out differences among themselves before they take up a pension reform bill, expected in September. Sen. Edward M. Kennedy (D-Mass.) is seeking stricter limits on firms' use of company stock to contribute to 401(k) accounts and seats for employees on pension boards.

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