After Enron, Bush Has Little Wiggle Room
Enron Corp.’s collapse is forcing President Bush to balance his skepticism of government regulation against his desire to show his independence from the failed energy giant.
From the federal rules governing private pensions to securities law, accounting standards and even campaign finance reform, proposals are proliferating on Capitol Hill for laws and regulations to cope with the questionable practices highlighted by the company’s crash.
These multiplying Enron-related reform ideas present a pointed political dilemma for Bush.
He arrived in Washington generally committed to rolling back federal regulation of business. And he has staffed many key regulatory agencies--including the Securities and Exchange Commission--with alumni of the industries they oversee.
But now, many analysts say, the White House may face irresistible pressure to distance itself from Enron by proposing new policy initiatives that respond to the firm’s alleged abuses. This pressure “is going to nudge [the administration] even further away from its basic [anti-regulatory] ideological instincts,” said Donald Kettl, a political scientist at the University of Wisconsin.
In the firestorm over Enron, Bush may face a political imperative similar to one that confronted President Clinton when his 1996 campaign fund-raising practices came under intense criticism. Clinton tried to transmute an ethical controversy into a policy debate by arguing that the real problem was a flawed system--not his own actions--and proposing campaign finance reform.
Bush may likewise seek to shift the debate from his administration’s personal and political links with Enron toward policy reforms in areas such as securities and pension law.
“I don’t think [the administration] has a legal problem [in Enron], based on what we know to date,” said John Podesta, former Clinton White House chief of staff. “But they have a political problem--this is maybe the prototypical example of their connection to the wealthy, the powerful, the people who shave the rules to their own benefit. . . . And I think their cure for that will be coming up with some proposals to . . . better protect pensions in this country.”
Bush has already taken a long step toward sanctioning new activism by appointing two administration task forces to review federal rules governing 401(k) pension plans and corporate disclosure requirements under the securities laws. Separately, the SEC on Wednesday confirmed a Washington Post report that it is looking at strengthening the accounting industry’s self-regulatory system.
The range of issues spotlighted by Enron’s failure “is going to require careful attention and deliberation, and we hope there wouldn’t be overreaction,” said Dan Bartlett, White House communications director. “But at its core, there are needed reforms and this administration welcomes the process.”
All this talk of “needed reforms” is raising concerns among business groups that have supported the administration’s deregulatory thrust.
“It would seem to make a lot of sense not to change the entire world because of one bad actor,” said Bruce Josten, executive vice president for government affairs at the U.S. Chamber of Commerce. “Because that’s not going to be beneficial to anybody; it just makes everything more complicated and expensive.”
The profusion of reform proposals follows a powerful historical pattern. For more than a century, scandals have been the incubator of reform, inspiring many of the key statutes regulating business and the way Washington itself operates.
Financial scandals before World War I led to the creation of the Federal Reserve System, Kettl noted, and widespread securities fraud in the 1920s inspired the initial federal legislation regulating the stock markets during the New Deal. Patronage scandals inspired the modern Civil Service system in the 1880s, and Watergate generated campaign finance and lobbying reforms in the 1970s.
“When you look at the growth of the enormous federal regulatory apparatus . . . at each stage, there has been some kind of problem that’s grabbed public attention and . . . moved Congress to act,” Kettl said.
That dynamic is repeating itself with Enron. Members of Congress, especially Democrats, and outside reform groups are advancing an array of proposals to respond to the company’s meltdown, including:
Pension reform: After workers were left holding retirement accounts stuffed with worthless Enron stock, Sens. Barbara Boxer (D-Calif.) and Jon Corzine (D-N.J.) quickly proposed legislation that would limit the amount of an employer’s stock that workers could place in their 401(k) retirement plans to 20%. (No limit currently exists.) The measure also would provide workers more freedom to sell that stock if they choose.
Business groups are bracing for some changes, but many are adamantly opposed to the Boxer-Corzine plan. Employers argue the proposal could lead to reduced pension benefits at thousands of companies that now match employee retirement contributions with shares of company stock. “If you make it too difficult, or too costly, or just too much of a headache for me [to contribute to employee retirement plans], what do I do?” asks Josten rhetorically. “I say, I’m not going to do that anymore.”
Bartlett says that while Bush hasn’t made any final judgments, the administration believes the “most obvious” reforms demanded by Enron’s failure are in the rules governing 401(k) plans. Most expect Bush to propose changes less sweeping than those sought by Boxer and Corzine.
Accounting reform: This may be the arena where the administration faces the most jarring collision between its initial instincts and the new political reality. All of Bush’s three appointees to the SEC have worked for the accounting industry; his choice as chairman, Harvey L. Pitt, represented the industry as a private attorney, and has long championed deregulation.
But the failure of Enron’s auditor, the Andersen accounting firm, to reveal the company’s hidden losses is creating enormous pressure for intensified oversight of the accounting industry.
Some critics suggest that the SEC may have to ban accounting firms from serving as management consultants to firms they audit (the Clinton-era SEC tried to impose such a separation but was forced to retreat amid intense resistance). More sweepingly, a commission spokesperson said the SEC is considering a proposal to replace the existing industry-controlled self-regulatory structure with a new system governed by members largely from outside the accounting business.
But given Pitt’s long-standing preference for limiting regulation, some accounting industry critics say the devil will be in the details of any such proposal.
Energy trading: With intense lobbying, Enron won decisions from the Commodity Futures Trading Commission in 1993 and Congress in 2000 that largely exempted from federal oversight its lucrative business in trading contracts to supply electricity. In effect, those decisions allowed Enron to create a multibillion-dollar online exchange in which neither the price, volume nor terms of contracts were publicly available--a stark contrast with the transparency at the major stock and commodity exchanges.
“If you look at Enron’s business strategy, its sole focus was removing as much government oversight from its operations as possible,” said Tyson Slocum, an energy expert at Public Citizen, a consumer group.
Sen. Jeff Bingaman (D-N.M.) is pushing legislation to require more disclosure about the terms of energy trades; House Democrats working with Slocum want to completely overturn the 1993 and 2000 decisions and place the trading back under federal regulatory oversight.
Campaign finance reform: Enron’s lavish contributions to Bush and members of Congress from both parties have provided campaign reformers a powerful new symbol of excess. Rep. Christopher Shays (R-Conn.) predicts the company’s collapse will soon push advocates over the top in their drive to acquire 218 signatures on a petition to force a House vote on campaign finance legislation that already passed the Senate.
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Times staff writer Nick Anderson contributed to this report.
