Congress’ Crack at Reform

As President Bush continues to dither about cracking down on corporate fraud, Congress is stepping into the breach with a flurry of proposed reforms.

Even traditional opponents of business regulation like House Speaker J. Dennis Hastert (R-Ill.) are backing changes, but reform forces will have to beware that promising legislation such as the Senate accounting reform bill being debated today doesn’t end up watered down. The nation can’t afford it.

Consumer confidence is plummeting almost as fast as the stock market, and the administration has just revised the budget deficit upward to $165 billion. As a result, legislators staring at fall elections are running scared.

The Senate Finance Committee has approved allowing workers to sell company stock granted as a 401(k) match after three years. The Senate has approved a securities fraud statute that would punish executives with up to 10 years in prison for defrauding investors. These statutes have been incorporated into a bill proposed by Sen. Paul S. Sarbanes (D-Md.). The main provisions of the legislation would create a truly independent auditing board and prevent auditors from working for companies whose finances they are supposed to scrutinize.

For all the talk on Capitol Hill in favor of reform, the fact remains that House Republicans, and the Bush administration, are balking at the Sarbanes bill, which could be weakened in House-Senate conference meetings. Many House Republicans back a much weaker bill by Rep. Michael G. Oxley (R-Ohio).

The White House has seemed impotent in its response to this issue of high public anxiety, perhaps because the president and vice president are themselves so steeped in the culture of corporate boards and highflying deals. If reformers move quickly, the administration will have to come along.