Big Business Is Taking A Bite Out of Corporate Oversight

You'd expect now to be a time of humility and reticence for big business and its advocates. The wave of financial scandals that began with Enron five years ago shows no signs of receding, thanks to ongoing revelations about stock-option abuses. Corporate America's Republican front men in Congress just received a resounding "thumpin'" in the mid-term elections. Fraud and mismanagement among U.S. contractors have exacerbated the mess in Iraq. Recent federal investigations have shown that major energy companies have not been properly paying royalties on the oil and natural gas they have extracted from public property. Former Enron CEO Jeffrey Skilling is starting his 24-year prison sentence for fraud and other offenses.

Whether out of denial of reality or brazenness, corporate interests are not on the defensive. Instead, they have been pursuing an aggressive campaign to weaken oversight of business by revising federal securities law and easing white-collar prosecution practices. Treasury Secretary Henry Paulson and business advocates such as the U.S. Chamber of Commerce are singing from the same hymnal, complaining that U.S. business is now overregulated and thus is suffering from a competitive disadvantage in world financial markets.

These efforts are already paying off. Just this week, the Department of Justice bowed to business pressure by announcing new restrictions on federal prosecutors handling cases against corporations. The next day, the Securities and Exchange Commission issued proposed new rules that would soften one of the key regulations enacted by Congress to prevent corporate fraud.

This deregulatory thrust would seem to be in conflict with plans by the new Democratic leaders in Congress to engage in tougher oversight of the private sector as well as the executive branch. It remains to be seen how tough that oversight will be, given that top Democrats have already endorsed some aspects of the corporate agenda. No matter who is in office, business always seems to be in power.

"No Boardroom... is above or beyond the law"

A major target of the new business offensive is the Sarbanes-Oxley Act, the law that was pushed through Congress in 2002 to enable the Republicans to claim that they were being tough on corporate misconduct in the wake of Enron, WorldCom and other business scandals. During that period, even corporate executives were preaching the gospel of stronger regulation. Paulson himself, then chief executive of Wall Street giant Goldman Sachs, gave a June 2002 speech at the National Press Club in which he offered his own ten-point plan.

Sarbanes-Oxley, which President Bush signed into law while declaring that "no boardroom in America is above or beyond the law," raised penalties for securities fraud, required top managers to tighten internal financial controls and personally certify the accuracy of financial statements, barred special company loans to executives, toughened regulation of auditing firms, and increased the budget of the Securities and Exchange Commission (SEC) by 66 percent, among other provisions.

The ink was barely dry on Bush's signature when his administration began issuing interpretations of the law that critics said were meant to weaken its impact. Soon thereafter, business lobbyists began shedding their reformist cloaks and warning of dire consequences -- such as rampant shareholder litigation -- that would supposedly result from Sarbanes-Oxley (known informally as SOX or SarbOx).

Outright opposition to SarbOx was slow in coming, in part because the SEC was slow in implementing the law. Months were lost amid a dispute over the choice of the head of an accounting industry oversight board -- a dispute that led to the resignation of SEC chairman Harvey Pitt.