06-08-2002
LOBBYING: Business Blitz Slows Enron Reforms
In a meeting just before Congress's Memorial Day recess, Sen. Phil Gramm,
R-Texas, delivered a blunt message to several dozen accounting and other
corporate lobbyists. He reminded them it was important for business
leaders back home to tell their senators that a reform bill sponsored by
Senate Banking Chairman Paul S. Sarbanes, D-Md., was much too tough on the
accounting profession.
Gramm advised his K Street allies not to let up on their lobbying, even
though Sarbanes had just postponed a markup on his bill and the measure's
chances were not improving. To bolster their chances of knocking off the
Sarbanes bill and passing an industry-friendly measure sponsored by Gramm,
the lobbyists knew they had to focus on three key swing votes on the
Senate Banking, Housing, and Urban Affairs Committee.
Gramm's message was noteworthy because just a few months ago, accounting
industry lobbyists were scrambling against long odds to stave off sweeping
post-Enron reform measures-such as the Sarbanes bill-that would sharply
curtail accounting firms' lucrative consulting practices and would create
a tough independent oversight board for the industry.
But now, the flurry of sweeping reform bills introduced after Enron's
collapse that were aimed at toughening accounting regulation, protecting
employee pensions, and setting new rules for executive stock-option
programs are mostly losing out to more-modest bills acceptable to business
lobbyists.
"I think we've accomplished a lot in terms of educating people and
restraining some of the political overreaching," says R. Bruce
Josten, the top lobbyist for the U.S. Chamber of Commerce. The chamber is
heavily involved in fighting the Sarbanes bill because it would impose new
requirements on corporate boards and could spur litigation. The chamber
has also lobbied hard to slow down some pension reforms and other
Enron-related proposals.
"We're certainly in an Empire Strikes Back mode," says Damon
Silvers, an associate general counsel at the AFL-CIO, which is lobbying on
the opposite side of the issue. "The accounting industry and others
who have benefited from the practices that gave us Enron have deployed
their lobbying muscle."
For instance, business lobbyists have largely succeeded in warding off the
strongest bills aimed at regulating 401(k) plans. The bills sought to
reduce the problems associated with Enron, where thousands of employees
lost their life savings because their plans were heavily invested in
company stock, which they were barred from selling as the Houston energy
firm collapsed.
"Meaningful reform is meeting enormous resistance from the accounting
industry and broader corporate interests," says Sen. Jon Corzine,
D-N.J., who early this year pushed accounting reforms that were
incorporated into Sarbanes's bill. Corzine and Sen. Barbara Boxer,
D-Calif., also introduced a pension reform bill that would have capped
company stock in a 401(k) plan at 20 percent, but a heavy business blitz
forced the two senators to drop their proposal.
Of the industry lobbyists, Corzine says, "It's like they all woke up
one day and went to work. They started chanting the same
speech."
Political factors have also slowed the reform efforts. With Congress split
almost evenly between Democrats and Republicans, Enron-related legislation
has a partisan edge, in part because of the firm's famously strong ties to
the GOP and President Bush. Further, there's a perception that the
country's interest in Enron-related abuses has waned.
"The proposed reforms have not caught fire with the general public as
some had thought they might," says Larry Sabato, a University of
Virginia political scientist.
To be sure, the unions and a handful of consumer groups have been working
these issues, too. Since April, the AFL-CIO has held 12 town hall meetings
in Atlanta, Chicago, Miami, and other cities to talk about the
ramifications of Enron's collapse for workers and to rally support for
pension and accounting reforms. Silvers says the meetings have each drawn
hundreds of participants and enjoyed extensive coverage.
But business seems to have the edge. "The initial congressional
response was a knee-jerk unrestrained political reaction to a business
calamity," says Josten. From the chamber's perspective, "the
first order of business is do no harm."
In a similar vein, accounting industry lobbyists have warned lawmakers
about the "unintended consequences" of bills such as the
Sarbanes measure that would restrict consulting by accounting firms and
about tough proposals to police the industry.
Over the past few weeks, the accounting industry's lobbying blitz
intensified in the House and is now under way in the Senate. The effort
has included a mix of traditional Capitol Hill lobbying, plus a hefty
grassroots drive that's been ginned up by Qorvis Communications, a
Washington consulting firm. The American Institute of Certified Public
Accountants and four big firms hired Qorvis to generate letters, faxes,
and phones calls to members.
The industry, which early on hired such high-powered lobbyists as former
Reps. Vic Fazio, D-Calif., and Vin Weber, R-Minn., of Clark &
Weinstock, has more recently been hiring "niche" lobbyists to
target key members. For instance, as the fight in the House was coming to
a head in late April, the industry tapped Gary Lytle and Stephen Clark,
two longtime K Street allies of House Financial Services Chairman Michael
G. Oxley, R-Ohio, who sponsored a measure that the industry found
acceptable.
For extra muscle, the industry recently brought on Richard Roberts, a
partner at Thelen Reid & Priest. Roberts used to be a commissioner at
the Securities and Exchange Commission and was an aide to Sen. Richard C.
Shelby, R-Ala.
All this firepower helped spur the passage of Oxley's bill, which has some
limited restrictions on consulting and which sets up an oversight board
that gives the industry some input into the board's operations. In
contrast, the Sarbanes bill imposes stricter curbs on consulting, requires
that auditors not work for the same client for more than five years in a
row, and establishes a tougher oversight board under the Securities and
Exchange Commission.
Business lobbyists argue that the Oxley bill represents real change. The
bill is "clearly something that wouldn't have been on the
congressional agenda before Enron," Fazio says.
"There's no grassroots public pressure bubbling up here," adds
one accounting lobbyist to explain the industry's successes.
Nonetheless, labor and other groups backing Sarbanes have some prominent
allies. Four heavyweights-including former Federal Reserve Chairman Paul
Volcker and former Deloitte & Touche Chairman J. Michael Cook-wrote to
Sarbanes last month endorsing his bill. "The accounting profession is
misguided in not wanting a strong oversight board," Volcker told
National Journal. "Nobody likes supervision, but sometimes it's a
help."
"The accounting profession must restore public confidence, and it
must do it promptly," says Cook, who once chaired the AICPA. "If
that means working with Congress and taking some bitter medicine, that
ought to be done. But I don't see that happening." Corzine says that
the industry is being shortsighted in its opposition and that
"corporate America is going to suffer from an insecurity that
investors feel with regard to information that they're getting from
companies."
Silvers of the AFL-CIO thinks that the committee will pass the Sarbanes
bill. The bill gained some traction following the recess when Sen. Evan
Bayh, D-Ind., threw his support behind the measure after he and Sarbanes
negotiated some compromise language. But Silvers adds that Senate GOP
leaders could "kill (the bill) on the floor" if they want
to.
Similarly, broad protections for the nation's 50 million 401(k) plans
don't seem to be in the offing, partly because of formidable business
opposition. A coalition led by the National Association of Manufacturers
has been fighting against diversification requirements. The coalition
includes the chamber, the Business Roundtable, and the Profit
Sharing/401(k) Council of America.
The House has passed a pension reform bill that unions have criticized as
not going far enough in requiring diversification of 401(k) portfolios or
in restricting company stock contributions to such plans. The bill would
let employees sell their stocks after three years and would allow the
pension administrator to also advise employees on their stock
investments.
More recently, the Health, Education, Labor, and Pensions Committee
approved a union-endorsed measure sponsored by Sen. Edward Kennedy,
D-Mass. But analysts say that the Kennedy bill, which would mandate some
automatic diversification, will encounter stiff Republican and business
opposition on the Senate floor.
Probably the most uphill battle after Enron's collapse has involved
legislation sponsored by Sens. Carl Levin, D-Mich., and John McCain,
R-Ariz. The bill would require companies that take tax deductions on the
stock options they pay to executives to also account for those options as
expenses on their financial statements. The Levin-McCain bill has met with
ferocious business lobbying and most likely won't get out of the Senate
Finance Committee, despite the fact that Federal Reserve Chairman Alan
Greenspan has endorsed the general concept of expensing.
Leading the fight against the bill have been such high-tech groups as
Silicon Valley-based TechNet. TechNet has brought top executives to lobby
in Washington and recently co-hosted a fundraiser for the Democratic
Senatorial Campaign Committee that drew about 12 senators. The measure,
TechNet argues, would crimp new investment and hurt fledgling
companies.
Despite all the business successes, Democratic pollster Mark Mellman says
that the public "remains very concerned" about Enron-related
legislation.
"To the extent that votes are perceived as weakening protection for
pensions and 401(k) plans or letting companies get away with fraudulent
accounting practices," Mellman says, "members will pay a
price."
Peter H. Stone
National Journal
