03-02-2002
LOBBYING: How Enron Has Stirred Up Business
High-tech executives are jittery about a bipartisan Senate bill that would
require many corporations to account for stock options as expenses, a
change that could significantly damage their earnings reports. Trade
groups such as the National Association of Manufacturers and the U.S.
Chamber of Commerce are fighting legislation that would cap the amount of
company stock that can be placed in the 401(k) plans of employees. And
accounting-industry lobbyists are battling bills that would place stiff
new regulations on accountants and potentially subject them to more
litigation.
Welcome to the post-Enron world of lobbying. As fast as members of
Congress introduce legislation to deal with the financial, regulatory,
pension, and accounting abuses that have been linked to the collapse of
the Texas-based energy-trading giant, lobbyists are devising campaigns to
protect their clients' interests from Enron Corp. fallout on Capitol
Hill.
"We thought we had to get going quickly before people did something
that we'd all come to regret," says former Rep. Rick White, R-Wash.,
explaining why some three dozen high-tech leaders are coming to Washington
on March 6. The executives will be lobbying against legislation introduced
by Sens. Carl Levin, D-Mich., and John McCain, R-Ariz., that would mandate
an accounting change if companies claim stock options as tax
deductions.
White, who is the president and chief executive officer of TechNet, the
lobbying group based in Silicon Valley that's bringing the executives to
Washington, says that several of the business leaders have already been
working the phones to let members of Congress know they're troubled by the
Senate bill.
Other fights over Enron-related bills are looming as well. For instance,
lobbyists for Wall Street investment houses are monitoring bills that
might curb popular tax products they sell to companies to help shelter
income, while other lobbyists are warily watching legislation that would
increase regulation of energy derivatives, the volatile financial
instruments that Enron apparently used to disguise some of its
losses.
For many big and small K Street lobbying shops, the wave of legislation is
welcome. "I think re-examining a lot of long-established rules is
good for [the lobbying] business," says John Jonas, a partner at
Patton Boggs, whose clients include some pension-plan providers and the
International Swaps and Derivatives Association Inc.
Still, many lobbyists regard most of the new bills as overkill. In some
cases, they have a sense of deja vu about their efforts. White of TechNet
notes that his group spent much of last year explaining to the Financial
Accounting Standards Board, the private-sector body that sets accounting
standards, "why expensing [of options] doesn't make
sense."
Given the fallout from the Enron scandal, White and his allies have a lot
more work ahead of them. The Levin-McCain bill was introduced in
mid-February in the wake of reports that Enron's use of certain stock
options helped the company avoid paying hundreds of millions of dollars in
taxes. The bill's sponsors say it would eliminate a dangerous double
standard. Currently, companies are allowed to take a tax deduction for
stock-option pay as a business expense, but they're not required to show
such compensation as a business expense on their financial statements.
This practice, critics say, can grossly inflate and distort reported
earnings.
A broad ad hoc coalition of manufacturers, retailers, and high-tech
companies is also fighting the Levin-McCain bill. Leading the campaign is
Mark Nebergall, the Washington lobbyist for the Software Finance and Tax
Executives Council, a group composed of the chief financial officers and
tax executives of some two dozen leading software makers. This group,
which also includes the Business Roundtable, the National Association of
Manufacturers, and the U.S. chamber, argues that changing the rules for
stock options would unfairly penalize businesses and discourage them from
using a popular tool for compensating executives and employees.
The ad hoc coalition has been focusing on generating e-mails to Senate
offices, says Nebergall, and is considering whether to hire outside
public-relations and grassroots help. The coalition is heavily focused on
the Senate, where the goal is to develop more allies to join longtime
supporter Sen. Joe Lieberman, D-Conn.
The bill is also drawing opposition from a high-tech coalition that was
started several months ago, mainly to block new standards being discussed
by an international accounting standards board. This coalition, which
includes the National Venture Capital Association and the Financial
Executives International, has been boosting its cause with help from two
outside lobbying firms, Griffin, Johnson, Dover & Stewart; and Mayer,
Rowe, & Maw.
Mark Heesen, who runs the venture capital group, says that as stock
options have proliferated, they've benefited many employees, particularly
at start-up companies that have used them heavily. But in some cases,
Heesen acknowledged, "the front offices and top managers have gotten
greedy. We're seeing a lot of excess at some companies. Now we've gotten a
black eye, and some of the smaller companies are going to suffer."
Still, he argues that the Levin-McCain bill "doesn't fix the problem.
It just makes it worse."
On the other side, the proposal has won backing from some consumer groups,
from super-investor Warren Buffett, and from former SEC Chairman Arthur
Levitt. On March 25, the Council of Institutional Investors, a powerful
nonprofit group, is expected to formally endorse the accounting change,
reversing its previous position on the issue. "We were used as the
poster child for opposing charging options to earnings," says Sarah
Teslik, the executive director of the council. Teslik said the group
reversed itself, in part, because rule changes by the Securities and
Exchange Commission and the New York Stock Exchange deprived the council
of some its former influence in the stock-options field.
Another lobbying dustup is taking place over a bill introduced by Sens.
Barbara Boxer, D-Calif., and Jon Corzine, D-N.J., that would place a 20
percent cap on the amount of company stock that an employee could have in
a 401(k) plan. The business community views the bill as one of the most
onerous of a number of measures recently introduced to reform pension
plans.
In recent years, many companies have opted to put more stock, rather than
cash, into employees' 401(k) plans, in part because it's less costly to do
so. Opponents of the bill contend that it's wrong for the government to
interfere with employees' right to choose their own stocks or to limit
employees' holdings. But critics charge that current practices can lead to
an overconcentration of company stock that can hurt employees badly if a
company collapses. In the case of Enron, company stock made up about 60
percent of employees' 401(k) plan investments, and thousands of employees
were left with virtually nothing when the energy giant went under.
A coalition opposing the bill, called the Coalition on Employee Retirement
Benefits, boasts not only the National Association of Manufacturers and
the U.S. chamber, but also such groups as the American Benefits Council
and the ERISA Industry Committee.
James Delaplane, the top lobbyist for the benefits council, which includes
slightly more than half of the Fortune 500 companies, says that some of
its members have been sending e-mail messages to members of key Senate
committees, boasting that "our 401(k)s are working
well."
Several outside lobbying firms are also weighing in on behalf of corporate
clients. One example: Capitol Tax Partners was recently retained by Cisco
Systems Inc. and Microsoft Corp. to work the 401(k) issue. The firm is
also representing Anheuser-Busch Cos. Inc. on the bill.
So far, support for the Boxer-Corzine bill has been limited. The Pension
Rights Center is one of the few groups to publicly endorse the
measure.
In the wake of Enron's failure, accounting firms are also bracing for a
wave of legislation that could hurt their fortunes. At present, the
accounting industry is trying to keep a low profile because of all the
criticism swirling around Arthur Andersen, Enron's auditor, which shredded
Enron-related documents and failed to raise red flags about its client's
financial health.
But some new proposals are likely accounting-industry targets. For
instance, Sen. Richard C. Shelby, R-Ala., has a bill that would roll back
much of the Private Securities Litigation Reform Act of 1995, which curbed
lawsuits by shareholders against corporations. The act helped shield
accounting and law firms from litigation.
The Shelby bill, which is expected to benefit from the lobbying muscle of
trial lawyers, would essentially hold legally accountable all those who
participate in financial wrongdoing.
"They're anxious about anyone who tries to undo the '95
legislation," says Vic Fazio, a partner at Clark & Weinstock
Inc., which represents the American Institute of Certified Public
Accountants, the industry's lobbying arm. "This is an area of great
concern."
Other opposition to the bill is coming from the TechNet executives coming
to Washington and from some securities firms. On February 25, Sen. Phil
Gramm, R-Texas, hosted a meeting with about two dozen accounting-,
high-tech-, and securities-industry lobbyists, urging them to get going
because of the new threats to the '95 act.
Similarly, accounting-industry lobbyists are poised to fight bills that
would bar firms from doing any consulting work for their audit clients,
Fazio says. Sen. Kay Bailey Hutchison, R-Texas, has a provision in a
pension-reform bill that would prohibit accounting firms from consulting
at all for clients that they audit. Several big accounting firms have
recently indicated they're willing to forgo some of their consulting work
for audit clients, but most of the Big Five seem eager to hold on to their
lucrative tax-advisory services, which they often provide to audit
clients.
"I think most of the firms want to do tax-advisory work," Fazio
says. "They're going to be involved in the definition of what is and
what isn't consulting."
Peter H. Stone
National Journal
