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THE NATION | CRISIS IN CORPORATE AMERICA

Reform 'Frenzy' Divides, Quiets Business Lobby

Congress: A crackdown on corporate fraud looks inevitable. Advocates are biding their time until competing bills reach a conference committee.

July 14, 2002|JANET HOOK | TIMES STAFF WRITER

WASHINGTON — With legislation to crack down on corporate fraud primed for Senate passage Monday, Capitol Hill's usually powerful business lobbyists suddenly are playing an unfamiliar role: defense. And they are deeply divided over exactly what their strategy should be in dealing with a newly hostile Congress.

The group representing the chief executives of the nation's largest businesses has decided to go with the tide for now, endorsing the Senate bill that would slap a host of new penalties and regulations on corporate America. But the U.S. Chamber of Commerce, the voice of businesses large and small, opposes the bill's major provisions.

The high-tech industry is lobbying hard against stricter accounting of stock options, so far succeeding in keeping it out of the bill. But other business groups are keeping a low profile rather than fighting a losing battle in the Senate.

The fact that any business lobbyists are supporting--or not vigorously opposing--vast new regulation of corporate America is a measure of how dramatically the environment has changed as a result of the cascade of business scandals, especially since WorldCom Inc. announced it had misstated its earnings by almost $4 billion.

"No businessman or woman is applauding when there is a highly regulated structure in place," said Johanna Schneider of the Business Roundtable, the lobbying group for the chief executives of major corporations. "However, much like the situation changed after 9/11, this is a completely new situation and it has to be handled as such. Our typical response is less regulation, but in this situation there obviously needs to be some regulatory solutions."

The quandary the business groups confront is an object lesson in the difficulty of lobbying on an issue such as corporate reform that is hot, hot, hot.

President Bush and the Democrats made corporate fraud the subject of their radio addresses Saturday.

"Perhaps the greatest need for our economy at this moment is restoring confidence in the integrity of the American business leaders," Bush said.

In the Democratic response, Rep. David D. Phelps of Illinois said the "opportunity for bipartisan reform is being fought by special interests."

"Well, I say, enough is enough," he said.

But last week, business lobbyists for the most part could only stand by as their traditional GOP allies joined with Democrats in approving one amendment after another that toughened the Senate bill.

After its expected passage, the measure will have to be reconciled with a bill approved by the Republican-controlled House that Democrats call inadequate. These negotiations will give lobbyists plenty of opportunity to kill provisions they consider onerous. But the seemingly unstoppable momentum surrounding the Senate bill has raised doubts about their chances of success.

"I'm not even sure how relevant the lobbying is at this point," said Mark Isakowitz, a Republican lobbyist with close ties to the business community. "You could do all the lobbying you want, but if there's another big company announcing a restatement of earnings, that could wipe out any progress you make."

The conflicting approaches business lobbyists have taken toward the Senate bill underscore the diversity of interests in a community that often seems monolithic.

The most striking contrast came last week as the Senate opened debate on the bill sponsored by Sen. Paul S. Sarbanes (D-Md.) that seeks to strengthen federal oversight of the accounting profession and would create new penalties for corporate criminals. The Business Roundtable took out full-page newspaper advertisements decrying corporate wrongdoing and embracing the Senate bill.

"Enough is enough," said the ad's headline. "When even one CEO betrays investors, it's one too many."

The group's spokeswoman said chief executives believed any reservations they had about particulars of the Sarbanes bill were outweighed by anxiety about the rapid erosion of public confidence in the entire corporate governance system.

"They are very, very concerned about all companies being dragged down," Schneider said. "CEOs feel the sooner we can get changes in place and move forward, the better."

But the same day the Business Roundtable endorsed the Senate bill, the president of the U.S. Chamber of Commerce called a news conference to detail his group's objections to its core elements, including its provisions to create an independent oversight board for auditors and to limit the ability of accounting firms to sell nonaudit services to audit clients.

Thomas Donohue, the chamber president, said the Senate bill was an overreaction to recent scandals and part of an anti-corporate "feeding frenzy."

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