Corporations look to revise reforms

Groups want to limit measures passed after business scandals

October 29, 2006|By STEPHEN LABATON | STEPHEN LABATON,New York Times News Service

WASHINGTON -- Frustrated with laws and regulations that have made companies and accounting firms more open to lawsuits from investors and the government, corporate America - with the encouragement of the Bush administration - is preparing to fight back.

Now that corruption cases like Enron and WorldCom are falling out of the news, two influential industry groups with close ties to administration officials are hoping to swing the regulatory pendulum in the opposite direction. The groups are drafting proposals to provide broad new protections to corporations and accounting firms from criminal cases brought by federal and state prosecutors as well as a stronger shield against civil lawsuits from investors.

Although the details are still being worked out, the groups' proposals aim to limit the liability of accounting firms for the work they do on behalf of clients, to force prosecutors to target individual wrongdoers rather than entire companies and to scale back shareholder lawsuits.

The groups also hope to reduce what they see as some burdens imposed by the Sarbanes-Oxley Act, landmark post-Enron legislation adopted in 2002. The law, which placed significant new auditing and governance requirements on companies, gave broad discretion for interpretation to the Securities and Exchange Commission.

The groups are also interested in rolling back rules and policies that have been on the books for decades. To alleviate concerns that the new Congress may not adopt the proposals - regardless of which party holds power in the legislative branch next year - many are being tailored so that they could be adopted through rulemaking by the SEC and enforcement policy changes at the Justice Department.

The proposals will begin to be laid out in public shortly after Election Day, members of the groups said in recent interviews. One of the committees was formed by the U.S. Chamber of Commerce and until recently was led by Robert K. Steel.

Steel was sworn in Friday as the new Treasury undersecretary for domestic finance, and he is the senior official in the department who will be formulating Treasury's views on the issues being studied by the two groups.

The second committee was formed by Harvard Law professor Hal S. Scott, along with R. Glenn Hubbard, a former chairman of the Council of Economic Advisers for President Bush, and John L. Thornton, a former president of Goldman Sachs, where he worked with Treasury Secretary Henry M. Paulson Jr.

That group has colloquially become known around Washington as the Paulson committee because the relatively new Treasury secretary issued an encouraging statement when it was formed last month. But administration officials said Friday that he was not playing a role in the group's deliberations.

Its members include Donald L. Evans, a former commerce secretary who remains a close friend of Bush's; Samuel A. DiPiazza Jr., chief executive of PricewaterhouseCoopers, the accounting giant; Robert R. Glauber, former chairman and chief executive of the National Association of Securities Dealers, the private group that oversees the securities industry; and the chief executives of DuPont, Office Depot and the CIT Group.

Jennifer Zuccarelli, a spokeswoman at the Treasury Department, said Friday that no decision had been made about which recommendations would be supported by the administration.

"While the department always wants to hear new ideas from academic and industry thought leaders, especially to encourage the strength of the U.S. capital markets, Treasury is not a member of these committees and is not collaborating on any findings," Zuccarelli said.

But another official and committee members noted that Paulson had recently pressed the groups in private discussions to complete their work so it could be rolled out quickly after the November elections to achieve greater political impact.

Moreover, committee members say that they expect that many of the recommendations will be used as part of an overall administration effort to limit what they see as overzealous state prosecutions by such figures as the New York state Attorney General Elliot Spitzer and abusive class action lawsuits by investors. The groups will also attempt to lower what they see as the excessive costs associated with the Sarbanes-Oxley Act.

Their critics, however, see the effort as part of a plan to cater to well-heeled constituents of the administration and to insulate politically connected companies, including the accounting industry, from prosecution at the expense of investors.

One consideration in drafting the proposals has been the chain of events at Arthur Andersen, the accounting firm that was convicted in 2002 of obstruction of justice for shredding Enron-related documents; the conviction was overturned in 2005 by the Supreme Court. The proposals being drafted would aim to limit the liability of auditing firms and include an enforcement policy shift to make it harder for prosecutors to bring cases against individuals and companies.

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