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THE NATION

Senate Passes Broad Corporate Reforms

Business: A measure to restore the public's faith after scandals receives unanimous approval.

July 16, 2002|RICHARD SIMON and RONALD BROWNSTEIN | TIMES STAFF WRITERS

WASHINGTON — The Senate on Monday unanimously approved a bill that would impose sweeping reforms on the accounting industry and corporate management, measures aimed at restoring faith in the beleaguered business community.

The bill gathered unstoppable momentum following a recent spate of business scandals, and President Bush has said he is eager to sign legislation cracking down on corporate corruption. But the bill's final shape remains uncertain. Senate negotiators now will work on a compromise with leaders of the House, which passed a less stringent bill this year.

The Senate bill would create an independent board to oversee the accounting industry, limit the ability of accounting firms to consult for companies they audit, ban corporate loans to company insiders, and crack down on other business practices that contributed to the scandals. It also would add new penalties for securities fraud and make it easier to prosecute dishonest executives.

Bush urged the House and Senate to get together "as quickly as possible and get me a bill that I can sign" before Congress adjourns for its August recess. "We owe it to America," he said.

He and other White House officials have expressed reservations about some key elements of the Senate bill. But the Senate's 97-0 vote approving the measure is likely to heighten pressure on him and House Republicans to rapidly reach agreement with Democrats pushing the tougher version.

Indeed, Senate Majority Leader Tom Daschle (D-S.D.) challenged House Speaker J. Dennis Hastert (R-Ill.) to forgo negotiations and take the Senate bill to the House floor immediately.

"It would be a disservice to the American people to now allow some to go behind closed doors to weaken it," Daschle said. "So I say to our friends in the House: Do this the right way; pass our bill and start putting confidence back in our markets."

John Feehery, a spokesman for Hastert, rebuffed Daschle's proposal. Noting that the Republican-controlled House approved its bill in April and has been waiting for the Democratic-led Senate to act, Feehery said, "We've got a good bill, and we're going to go to [negotiations] and get a better bill."

The Senate bill was drafted by Sen. Paul S. Sarbanes (D-Md.) in response to the collapse of Enron Corp. late last year. It languished for several months, then was revived late last month after reports of WorldCom's nearly $4-billion accounting misstatement caused jittery nerves from Wall Street to Washington.

During debate that began last week, Democrats and Republicans vied to strengthen the Sarbanes bill. The GOP position was particularly striking, given that Republicans generally oppose more regulation of business.

Sarbanes said the bill is needed to "ensure that investors can once again trust corporate executives and their financial reports, and have confidence in the independence of accountants and analysts."

But on one issue, lawmakers were willing to go only so far. On Thursday and Monday, votes were blocked on measures that could have led to new accounting rules for stock options.

"It seems to me we are leaving a significant gap in the reforms which we are struggling so hard to adopt," said Sen. Carl Levin (D-Mich.), contending that current rules allow companies to overstate their profits.

The unanimous vote on the overall bill testified to the change in the political environment powered by the cascade of corporate accounting scandals. Bush, for instance, arrived in office pledging to reduce, not increase, government oversight of business.

Before the second wave of corporate scandals, conservatives such as Sen. Phil Gramm (R-Texas) had hoped to dilute the bill on the Senate floor. But he ended up voting for the bill, saying the final measure emerging from negotiations should "fix what's broken in our financial markets while imposing the minimum burden on those businesses and workers who have not abused the system nor broken the law."

Pressure Is Increasing

The Bush administration had made clear its preference for the House bill. But analysts say the troubles on Wall Street likely will force Bush to bend further toward the Senate than he would like.

"The lopsided Senate vote makes it likely that any accounting reform bill that emerges from the upcoming House-Senate conference is likely to be a strong one--and one that tilts toward the Senate rather than the House bill," said Robert Litan, economic studies director for the nonpartisan Brookings Institution in Washington.

Senate Minority Leader Trent Lott (R-Miss.) said that he discussed the Senate bill with Bush and Hastert last week and "both feel like the Sarbanes bill is within the range that they can support."

A particularly contentious issue in the negotiations likely will be the structure and powers of a new accounting oversight board.

Both versions of the bill would create a watchdog panel for auditors. But critics of the House bill say it would create a weak board.

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