Pro-business panel blasts regulatory burden

December 01, 2006|By Jonathan Peterson | Jonathan Peterson,Los Angeles Times

WASHINGTON -- 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 upon which they rely are losing the competitive battle to rivals overseas.

In the latest development, the private Committee on Capital Markets Regulation yesterday released an interim report arguing that regulation, enforcement and litigation have become a weighty burden on the economy, and point to 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.

To make its case, the 22-member committee noted the rising prominence of private equity firms, which are increasingly buying publicly traded companies and taking them into private ownership.

The report also warned that the United States is losing its dominant role in the launch of new public companies, saying "5 percent of the value of global initial public offerings was raised in the U.S. last year, compared to 50 percent in 2000."

The committee said the Securities and Exchange Commission should revise some Sarbanes-Oxley requirements, rein in shareholder lawsuits and limit liability for corporate directors.

"Firms must choose to come to the United States: they do not have to come," the group said in an advance copy of the 135-page report. "It is the committee's view that in the shift of regulatory intensity, balance has been lost to the competitive disadvantage of U.S. financial markets."

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 the 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 also are encouraged that some Democrats are willing at least 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 called on the SEC to place greater emphasis on analyzing the costs as well as the benefits of new rules. It suggested 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 proposed some easing of liability for independent corporate directors when companies get into trouble, and it urged 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 for many firms.

Other proposals to ease red-tape burdens also are in store. The U.S. Chamber plans next year to release its own recommendations by a panel that is being co-chaired by William M. Daley, former secretary of commerce in the Clinton administration, and Arthur B. Culvahouse Jr., chairman of the O'Melveny & Myers law firm in Washington.

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 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. Of the business groups, she added: "We have a huge fight on our hands. They are very well funded and very well organized."

The Bush administration may be an ally of some of the business proposals. In a recent speech, Treasury Secretary Henry M. Paulson Jr. alluded to the nation's "complex and confusing regulatory structure and enforcement environment."

Further, Paulson noted that some of the post-Enron rules "while necessary" are being implemented in a way that may create "unnecessary costs" and "new risks" to the economy.

Paulson has been closely identified with the Committee on Capital Markets Regulation, but there is no formal connection.

Other members of the capital markets panel included R. Glenn Hubbard, who served as chairman of the White House Council of Economic Advisors earlier in the current Bush administration, and John L. Thornton, chairman of the Brookings Institution and former president of Wall Street investment bank Goldman Sachs.

Jonathan Peterson writes for the Los Angeles Times.

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