The push by business interests for a softening of the laws enacted in response to the 2002 corporate scandals is advancing as an influential private group urges revisions in company accounting rules and reining in lawsuits against corporations.
The campaign has gained traction with Treasury Secretary Henry Paulson questioning whether regulations are hurting the competitiveness of U.S. financial markets by driving some companies away from them.
With the string of scandals that began with Enron Corp.’s collapse nearly five years ago fading further from memory, an array of companies and business leaders have been making the case that the laws and rules enacted amid the crisis are overly onerous and costly. Two groups — one formed by the U.S. Chamber of Commerce, the other a committee of business, legal and academic figures — have been drafting proposals touching on corporate governance rules, class-action lawsuits against companies and executives, criminal prosecution of companies by the government and other areas.
The Committee on Capital Markets Regulation, which describes itself as an independent group of business, legal, investor advocate and academic figures, is releasing a report Thursday billed as “a major study of how to improve the competitiveness of the U.S. public capital markets,” with recommendations to policymakers and Congress for changes in laws and regulations.
Among them: easing of the rules for corporate financial controls that are a key part of the 2002 Sarbanes-Oxley anti-fraud law. In the last few years, companies — especially smaller ones — have been complaining vocally and publicly about the costs of complying with the requirements for companies to file reports on the strength of their internal financial controls and to fix any problems.
The private-sector committee 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. Its mission won praise from Paulson, who said in a speech last week that “the right regulatory balance should marry high standards of integrity and accountability with a strong foundation for innovation, growth and competitiveness.”
But New York Governor-elect Eliot Spitzer, who pursued major Wall Street investment firms and mutual fund companies as the state’s attorney general, called the group’s positions “tired old criticisms from people who have never come to grips with the fact that there were serious ethical lapses that needed to be remedied.”
“Contrary to their claims, fighting fraud is good for business because it levels the playing field for honest corporations,” Spitzer told The Associated Press Thursday.
The influential private-sector panel also is recommending tightening the legal standard the government must meet to charge companies with crimes, reducing the liability of auditors in shareholder lawsuits over accounting fraud and a shift to a financial regulatory system based on principles rather than rules.
Companies should be prosecuted for wrongdoing “but just do it in extreme circumstances where top-to-bottom you’ve got a bunch of crooks or incompetent people,” Hal S. Scott, a professor at Harvard Law School and director of the Committee on Capital Markets Regulation, said in a telephone interview. At the same time, it makes sense for the government to go after miscreant company executives, he said.
Overall, Scott said, shareholder rights need to be enhanced while “the burdens of wasteful regulation and legislation need to be decreased.”
The Securities and Exchange Commission is planning to make some changes next month to the Sarbanes-Oxley internal-control rules that will reduce compliance costs for companies.
But Sen. Christopher Dodd, D-Conn., who will become chairman of the Senate Banking Committee in the new Congress, said recently he believed the rules’ effect on competitiveness was exaggerated by the critics. “I’m not quite as convinced as others are that there’s as big a problem associated with Sarbanes-Oxley as some have suggested,” Dodd said.
And some observers, including Lynn Turner, a former SEC chief accountant, have warned against a major easing by the SEC of the rules — saying that would erode the investor protections in the 2002 law.
“We think these are critically important issues,” said David Chavern, chief legal officer at the Chamber of Commerce, who is leading the lobbying organization’s initiative. “The regulatory and legal constraints” pose a challenge to the financial markets and also can hurt investors, he said.
The Chamber, whose report will be released in February, has been waging a legal assault against what it views as excessive regulation since 2002, suing the Securities and Exchange Commission over rules and scoring several victories in high courts.