Prospects Dimming for Post-Enron Reform Legislation

Stiffened opposition from leading business groups has helped stall the legislative reform drive that emerged from the financial collapse of Enron Corp.

Despite high-profile hearings that Congress convened earlier this year, prospects are dimming that lawmakers will complete work on bills addressing accounting and pension issues raised by the company’s failure.

“It is unlikely that we will get strong reform unless there is a new event that captures the [public] imagination,” said Sen. Jon Corzine (D-N.J.), who is among those pushing for the legislation.

Senate Banking Committee Chairman Paul S. Sarbanes (D-Md.) last week pulled a measure he wrote that would reform accounting practices after it appeared it would not win the panel’s approval. And Senate Democratic leaders, fearing they lack the votes for passage, have not brought to the floor pension reform legislation that cleared another Senate committee two months ago.

“When you see them pull back like that ... it means they know they have problems on their side of the aisle, not just with Republicans,” said Bruce Josten, executive vice president for government affairs at the U.S. Chamber of Commerce, one of the groups opposing the proposals.

Even if Senate Democrats can revive these struggling bills, lawmakers would face the daunting task of reconciling them with more industry-friendly plans that the House approved earlier this year.

President Bush, at the height of the focus on Enron’s troubles earlier this year, proposed both pension and accounting reforms. But so far, legislative sources say, the White House has played virtually no role in trying to resolve the disputes in Congress or force legislation to the president’s desk.

And while the enormous attention to the Enron scandal provided a strong tailwind for change, that momentum has ebbed as other events have crowded out the story from the headlines. Now, supporters and opponents of the reform legislation agree, the underlying current of business opposition that blocked action on some of these issues for years has reasserted itself.

“It seems like things are in slow motion,” said Ann Yerger, director of research at the Council of Institutional Investors, a shareholder rights group.

For Senate Democratic leaders, the slowdown follows a familiar pattern. Though they had hoped the Enron-inspired bills would help them sharpen distinctions with Republicans and the White House, their initiatives have been stymied by resistance from centrists and conservatives within their ranks.

Said Corzine: “We have a very close balance of power in the Congress ... and that makes it very tough to draw sharp distinctions and move with real reform, whether it is prescription drug benefits or dealing with Social Security or in this particular case, dealing with financial reform.”

That’s apparent on both the pension and accounting fronts.

Enron workers who invested heavily in the company through their 401(k) plans saw their retirement savings wiped out when the stock collapsed. Responding to that, the Senate Health, Education Labor and Pension Committee approved legislation in March that would make it less likely workers would be as dependent on their company’s stock for retirement.

Under the bill, sponsored by committee chairman Sen. Edward M. Kennedy (D-Mass.), companies could offer their own stock either as a matching contribution or as an investment option, but not both.

Business groups have charged that such restrictions would encourage companies to simply drop their matching contributions to retirement plans. A bill the House passed contains no such limits; the measure instead would give employees new rights to sell company stock and diversify investments in their 401(k) retirement accounts.

The Senate bill cleared Kennedy’s committee on an 11-10 party-line vote. Senate insiders say it lacks the 60 votes it would take to break a filibuster, and may even be short of the 50 votes it would need for a simple majority. As a result, Senate Majority Leader Tom Daschle (D-S.D.) hasn’t scheduled the legislation for a vote.

“At present,” one Democratic source said flatly, “Kennedy’s bill can’t pass.”

Accounting reform is also struggling to stay afloat.

In April, the House passed a bill that would limit the freedom of accounting firms to provide other consulting services to the companies they audit. The measure also would establish a new regulatory organization to oversee the accounting industry.

Many investor groups and accounting watchdogs blasted the measure as insufficient. “The House version is much weaker than we would be looking for,” said Yerger, of the institutional investors group.

Earlier this month, Sarbanes circulated legislation that would impose tougher accounting regulations.

It also would require corporate chief executives to personally certify the accuracy of their company’s audit report. If a company was forced to significantly restate its earnings, executives could be forced to forfeit bonuses.

Sarbanes planned to move the bill out of his committee last week. But it ran into intense opposition not only from accounting groups, but lobby groups such as the Business Roundtable and the U.S. Chamber of Commerce, which sent out an “action call” urging its members to oppose the bill.

“While being touted as an ‘Enron reform bill,’ it is in reality an excuse to create new bureaucracies, substitute government intervention in place of informed market decision-making and open the door to ... lawsuits,” charged chamber leader Thomas J. Donohue. He warned Sarbanes’ bill would “raise costs, slow growth and inhibit job creation.”

Against such opposition, Sarbanes postponed his committee’s consideration of the bill. Democratic sources said the bill lacked support from three Democrats on the committee.

That would have given opponents more than enough votes to kill the measure.

Sarbanes is now negotiating with committee members--and trying to sort through 123 amendments filed on his proposal. Some reform supporters fear that even if he can secure majority support, Sarbanes will be forced to significantly dilute the bill.

Other reform advocates remain optimistic that the pension and accounting changes may still prove difficult to vote against if bills reach the Senate floor, especially as the November election nears.

“A lot of people want to snipe at things in committee. It’s a different matter when it comes to the floor,” said Damon Silvers, an associate general counsel at the AFL-CIO. “At the end of the day a similar dynamic will take hold in the Senate that did in the House: People will want to pass something.”