Business pushes back on scandal reforms

The push by business interests to ease the laws and rules laid down in response to the 2002 corporate scandals is getting a serious hearing in Washington that is giving the idea gravitas.

An array of companies and business leaders have been making the case that the requirements born of the crisis of corporate malfeasance are overly onerous and costly.

A high-profile committee of business, legal and academic figures put forward proposals in November to clip back corporate governance rules, class-action lawsuits against companies and auditors, and criminal prosecution of companies by the government.

A second group, formed by the U.S. Chamber of Commerce, is releasing its report and recommendations Wednesday. The Chamber also has been waging a legal assault against what it views as excessive regulation from an overreaction to the scandals, suing the Securities and Exchange Commission over rules and scoring several victories in high courts.

“Business is putting a big push on in the final years of the Bush administration,” said James Cox, a law professor at Duke University.

The campaign to roll back the regulations gained traction in recent months with Treasury Secretary Henry Paulson questioning whether they are hurting the competitiveness of U.S. financial markets by driving some companies away from them.

And now, the Treasury Department has convened in Washington a “Conference on U.S. Capital Markets Competitiveness” in Washington, bringing together as panelists a panoply of heavyweights: including legendary billionaire investor Warren Buffett, General Electric Co. Chairman Jeffrey Immelt, brokerage founder and CEO Charles Schwab, former Federal Reserve
Chairman Alan Greenspan and New York Mayor Michael Bloomberg.

Paulson, who headed Wall Street powerhouse Goldman Sachs before coming into the administration last summer, is speaking at the Tuesday conference and acting as a moderator of the panels along with SEC Chairman Christopher Cox. The mere fact that Treasury is organizing the conference — an unusual move for the Cabinet-level agency — is significant. And Paulson and Cox, two of the government’s most important financial regulators, will be asking the questions.

Treasury officials say the purpose of the gathering, with blue-ribbon participants on both sides of the issue, is to begin a discussion that could lead to policy changes.
Paulson said last fall that “the right regulatory balance should marry high standards of integrity and accountability with a strong foundation for innovation, growth and competitiveness.”

In December, culminating an intense monthslong lobbying campaign by a passel of companies, the SEC tentatively adopted a plan giving corporate managers more flexibility in assessing the strength of internal financial controls under the Sarbanes-Oxley law.

The internal-controls provision of the sweeping antifraud law, enacted in 2002 at the height of the scandals that engulfed Enron Corp., WorldCom Inc. and other big corporations, is a key target of the business push against regulations. Companies have complained to the SEC that the rules are overly burdensome and costly, especially for smaller businesses.

In the same week that the SEC acted, the Justice Department restricted its prosecutors’ ability to crack down on companies that withhold confidential information during criminal fraud investigations, in new guidelines that tempered the aggressive legal tactics authorized after the scandals.

The private-sector Committee on Capital Markets Regulation, which issued its proposals in November, is headed by Glenn Hubbard, the dean of Columbia University’s business school and a former economic adviser in the Bush administration, and John L. Thornton, chairman of the Brookings Institution think tank and a former Wall Street executive.

Bloomberg and Sen. Charles Schumer, D-N.Y., released a report in January saying that the burden of tough regulation is contributing to New York City’s loss of its competitive edge in the financial services industry to cities like London and Hong Kong. Unless remedies are made, they warned, New York’s — and thereby America’s — leadership in global finance will be eroded, reducing jobs and chilling the U.S. economy.