Market panel issues call for relaxing rules
Business lobbyists and their intellectual allies have begun a broad effort to lighten the regulatory burden of corporate America, warning that U.S. companies and the capital markets they rely on are losing the competitive battle to rivals overseas.
In the latest development, the private Committee on Capital Markets Regulation today plans to release an interim report contending that regulation, enforcement and litigation have become a weighty burden on the economy, and cite evidence that America’s long-envied capital markets have lost some of their allure.
“The first conclusion is that we have a real competitiveness problem,” said Hal S. Scott, a Harvard University law professor who directed the work of the panel.
The 22-member committee includes corporate chieftains and leading academics and was launched Sept. 12 with the backing of Treasury Secretary Henry M. Paulson Jr.
To make its case, the panel cites the rising prominence of private equity firms, which are increasingly buying publicly traded companies and taking them into private ownership.
The report also warns that the U.S. is losing its dominant role in initial public offerings. “As measured by value of IPOs, the U.S. share declined from 50% in 2000 to 5% in 2005,” it says.
“Foreign companies are not coming here, and private companies are not going public as much as they did in the past,” Scott said in an interview Wednesday. “Over time, if we don’t deal with the problems, it’s not just going to be foreign companies that don’t want to come here but our own companies won’t want to be traded here.”
Such complaints aren’t new, but some see a change in the nation’s attitude toward big business that could give the panel’s report greater currency.
Memories of fraud at Enron Corp., WorldCom Inc. and elsewhere are starting to fade, and the corporate investments held by millions of Americans through stocks, 401(k) plans and mutual funds are swelling thanks to a booming stock market.
Business leaders are also encouraged by signs that some Democrats are willing to consider working with Republicans to ease the regulatory burden.
“Right after Enron, the American business community felt they had to keep their mouths shut and not complain even when they saw poor regulation or poor management of capital markets issues,” said David C. Chavern, chief legal officer of the U.S. Chamber of Commerce. “Now, people are saying just because some executives did bad things, that doesn’t mean we should screw up our whole capital markets system because of it.”
The new report calls on the Securities and Exchange Commission to place greater emphasis on analyzing the costs as well as the benefits of new rules. It will suggest that the SEC, the Justice Department and state regulators do a better job of coordinating their enforcement efforts so that companies aren’t vulnerable to multiple attacks.
It also proposes easing of liability for independent corporate directors when companies get into trouble, and it will urge a change in the standards demanded for internal controls that were required by the Sarbanes-Oxley corporate reform law.
The controls, used by companies to guarantee the accuracy of their financial records, have been assailed as unduly, costly and burdensome by many firms.
The group emphasizes investor protections as a “bedrock principle” of the marketplace but nonetheless concludes that the intensity of regulation has become extreme. “The evidence suggests that the balance needs to be restored,” said a summary of the report that was obtained Wednesday.
Other proposals to ease red-tape burdens also are in store. The U.S. Chamber of Commerce plans next year to release its own recommendations by a panel that is being co-chaired by William M. Daley, the Democratic Commerce secretary during the Clinton administration, and A.B. Culvahouse, chairman of the O’Melveny & Myers law firm.
More narrowly, the SEC is preparing to propose guidelines next month that some fear will ease the requirements for internal controls.
The combination of developments has become a concern for shareholder-rights activists who have applauded an array of post-Enron measures and until now have been able to rely on bipartisan congressional support to uphold them.
“I’m very worried,” said Barbara Roper, director of investor protection for the Consumer Federation of America. “We have a huge fight on our hands. They are very well funded and very well organized,” she said of business groups.
Democrats, who won control of the House and the Senate in the midterm elections, have been careful not to alarm big business interests that have traditionally favored Republicans.
On Wednesday, Rep. Charles B. Rangel (D-N.Y.), likely to be the next chairman of the House Ways and Means Committee, said he planned to hold a bipartisan retreat with Treasury Secretary Paulson to consider cooperative approaches on such matters as taxation and trade.
And Rep. Barney Frank (D-Mass.), soon to be chairman of the House Financial Services Committee, believes that regulators can exert their discretion in implementing the Sarbanes-Oxley rules to address business concerns without having to amend the law itself.
“In a nutshell, he believes there’s enough flexibility in the law to reduce some of the costly burdens -- especially to small business -- before any legislative remedy is sought or even thought about,” said Steve Adamske, a spokesman for Frank.
The Bush administration may be an ally of some of the business proposals. In a recent speech, Paulson alluded to the nation’s “complex and confusing regulatory structure and enforcement environment.” Furthermore, he noted that some of the post-Enron rules, although necessary, were being implemented in a way that might create unnecessary costs and new risks to the economy.
Paulson has been closely identified with the Committee on Capital Markets Regulation, with some even referring to it as the “Paulson group.” But although Paulson hailed the creation of the committee at its launch, there is no formal connection. The Treasury Department plans its own conference early next year on the concerns related to U.S. capital markets and economic competitiveness.
“Treasury is not a member of the committee nor is it working in collaboration with this committee,” said Jennifer Zuccarelli, a Treasury spokeswoman. “But the department is open to hearing new ideas from respected academics and industry leaders to encourage the strength of the capital markets and uphold investor protections.”
In addition to Harvard’s Scott, other members of the capital markets panel include R. Glenn Hubbard, who served as chairman of the White House Council of Economic Advisors earlier in the Bush administration; John L. Thornton, chairman of the Brookings Institution and former president of investment bank Goldman Sachs; and James Rothenberg, chairman of Los Angeles-based Capital Research & Management Co., the parent of American Funds.
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