Reform ‘Frenzy’ Divides, Quiets Business Lobby
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.”
Bruce Josten, the chamber’s executive vice president, discounted the split between his organization and the Business Roundtable, saying the two groups were simply taking a different tack in pursuit of a similar end: to get the bill into a conference committee where negotiators will iron out differences between the Sarbanes bill and the more limited version passed by the House.
Also pushing for changes has been the American Institute of Certified Public Accountants, representing the accounting profession. The group wants to ease the Sarbanes bill’s restrictions on nonauditing services and ensure accountants have a role in setting new audit standards.
But the accountant group says the accounting profession is so under siege that it hired a media consultant to tell reporters its officials would not be talking to the press.
A Democratic aide to the Senate Banking Committee said the accountant lobby had been active while the panel was considering the Sarbanes bill. But the lobbyists were lying low during last week’s Senate debate because “they have lost credibility,” the aide said.
Proponents of the Sarbanes bill expect the accountant group to mobilize to push for what they want in the House-Senate conference committee.
“They are very shrewd and have deep pockets,” said a senior Senate Democratic aide.
According to the Center for Responsive Politics, a nonpartisan research group that tracks campaign contributions, the accountant group gave more than $8.5 million to congressional candidates in both parties from 1989 to 2001.
Lobbyists for other industries are working to keep the fervor for corporate reform from spreading to measures that directly affect their interests. That’s why the high-technology industry has worked so hard to block an amendment by Sen. John McCain (R-Ariz.) to require companies to deduct from their income the value of stock option grants--an important part of high-tech compensation packages.
McCain argued that the current practice of not deducting options allows companies to overstate their profits--and that executives had an incentive to resort to gimmickry to inflate the value of their options. He fumed Thursday when a parliamentary maneuver by Senate Democratic leaders effectively blocked him from offering his amendment--a maneuver he called a gift to Silicon Valley.
Ralph Hellman, vice president of the Information Technology Industry Council, said the high-tech industry’s position was bolstered when President Bush did not endorse McCain’s proposal in his speech on corporate responsibility Tuesday. That’s an outcome the high-tech lobby labored to ensure by swaying Bush to their position months ago, Hellman said.
High-tech lobbyists were not alone in trying to influence White House thinking on these issues. One well-connected business lobbyist said he had encouraged the administration to “embrace this issue with indignation” to avoid putting Republicans on the spot politically.
Overall, however, many Senate aides said the most remarkable feature of business’ lobbying recently is how relatively quiet they have been during the Senate’s debate on legislation that would amount to the most aggressive regulation of corporate corruption since the Great Depression.
“They have been pretty quiet,” said Deb Fiddelke, a spokeswoman for Sen. Charles Hagel (R-Neb.), who supports the bill. To oppose it in this climate, she said, “is like getting in front of a buzz saw.”
