Well, it seems the most recent scandals have made a WorldCom of difference. Any politician with an instinct for self-preservation (and what other kind is there?) can no longer be seen as standing against corporate reform. So the "genius of capitalism" crowd has adopted a new strategy: publicly embrace reform while working diligently behind the scenes to undermine it.
It's a time-honored Washington ploy -- the strategic retreat stage of a three-part campaign that starts with brash resistance, moves on to insincere support, then culminates in back-channel efforts to kneecap whatever meager reforms manage to survive the legislative process. Call it How To Succeed in Killing Reform While Looking Like a Reformer.
For a textbook example of how this game works, one need look no further than the efforts of the Business Roundtable, a powerful lobbying group made up of the CEOs of 150 of the largest corporations in America. The Roundtable's griddle must be overheating from all the waffling they've been doing lately.
As recently as mid-May, the CEOs were still in Stage 1: full-throated resistance to change (known to students of the campaign finance reform wars as the McConnell Way). Standing shoulder-to-shoulder with such anti-corporate reform stalwarts as Sen. Phil Gramm, Rep. Michael Oxley and, yes, President Bush, these slightly rusty Knights of the Roundtable helped lead the charge against a thorough hosing out of the corporate stables in general and Sen. Paul Sarbanes' accounting bill in particular.
In a letter sent to the members of Sarbanes' Banking Committee -- part of yet another massive lobbying effort organized by the astonishingly militant accounting industry -- the Business Roundtable expressed concern that the bill would "inhibit the ability of U.S. public corporations to compete, create jobs and generate economic growth." Note to the 17,000 employees who are the collateral damage of the accounting-triggered explosion at WorldCom: Be sure to send your résumés to the Business Roundtable. They're looking out for you!
Instead of strict new laws, the chief executives came out in favor of -- surprise, surprise -- industry self-regulation, "strongly encouraging" all American companies to adhere to the Roundtable's freshly minted "Principles of Corporate Governance." These "guiding principles" included such stern pronouncements as "The corporation has a responsibility to deal with its employees in a fair and equitable manner," and "It is the responsibility of the independent accounting firm to ensure that it is in fact independent."
Wow. Strong stuff.
The Roundtable also called on these firms to carry out their work "in accordance with Generally Accepted Auditing Standards." Generally accepted by whom, Arthur Andersen? Or maybe Merck, which is claiming that its $12 billion earnings pad is in line with generally accepted accounting practices. And the terrifying thing is, they're probably right. The problem is, the accounting industry is obviously able to generally accept conduct that our country can't generally afford.
Which brings us to WorldCom -- and Adelphia, and Xerox, and Tyco, and Merck and Martha and whoever's next. The onslaught of embarrassing corporate publicity forced the Business Roundtable to shift to Stage 2, also known as the old "hug and mug." In this P.R.-savvy ploy, you reverse your rhetoric, but your goal remains the same -- gutting any prospect for meaningful reform. So you hit the Sunday morning talk show circuit, as Roundtable chairman John Dillon did this past weekend, and tout your support of the very bill you were, only weeks before, working so hard to kill. The idea is to hop on the reform bandwagon, collect the P.R. points, then wait for the wheels to come off said bandwagon. This gambit is particularly effective when your interviewer courteously neglects to probe you on your "Come to Jesus" transformation. Nice work, Cokie.
And who is holding President Bush's feet to the fire over his foxhole conversion? After all, Bush is as adept at the abrupt face-saving about-face as anyone. In his schoolmarmish lecture to Wall Street, he called for arming the SEC with 100 new enforcement officers -- just months after proposing cutting back the SEC's fraud investigators.
This second stage also involves an all-out effort to blur the distinctions between real and phony reformers and between real, concrete reform and the vague principle of reform in general. Lots of smoke. Lots of mirrors.
Toward this end, the Roundtable took out a full-page ad in the New York Times on Monday, proclaiming, "Enough is enough" and trumpeting its so-broad-its-meaningless support for "the proposals for reform put forward by The President, Members of Congress, and the leading stock exchanges." Exactly which members of Congress might those be, guys? And which proposals? The ones offered by Sen. Sarbanes or the feeble fixes put forth by Rep. Oxley? Or doesn't it really matter, just so long as you dress yourselves up as "reformers"?
Of course, if there is one thing politicians understand it's punishment at the polls. And with a tidal wave of public outrage as powerful as the one currently heading their way, there is a good chance that some version of reform will actually make it out of Congress and go to the president for his signature. In which case, you can expect the anti-regulation zealots to quickly shift to Stage 3: Accept and Reload.
This phase features the tireless search for underhanded ways to circumvent whatever regulations Congress ends up imposing. You quietly propose new rules allowing exceptions for almost everyone covered by the original bill. Or you strangle the funding of the oversight agency so they have no power to enforce the new law. Or, another Washington favorite, you pack the regulatory agency with people dedicated to undermining the law they're sworn to uphold (paging Secretary Gale Norton).
Just look at what happened with campaign finance reform: After years of bloody congressional battles, supporters were finally able to pass a bill banning soft money donations. The president reluctantly signed the bill into law and it looked to be a done deal. But never underestimate the resourcefulness of those looking to maintain the status quo: Last month, the administration's friends at the Federal Election Commission took a carving knife to the new regulations, slicing open loopholes through which millions in soft money can continue to pour into political party coffers. As they say on K Street: "It ain't over till the fat cats sing."
And you can bet they'll be in full chorus when it comes to undermining corporate reform. The devil is in the details -- and so is the stabbing in the back of true reform. For instance, be on the lookout for reformers-come-lately throwing out the bone of allowing shareholders to vote on CEO stock options as a way to avoid the real reform of honestly accounting for stock options as an expense. The truth is that management almost always has enough proxy power to control the outcome of any such vote.
As for the president's proposal to make CEOs liable for their company's earnings statements, unless this means making them criminally liable, you can rest assured that future CEO contracts will include indemnification against civil penalties. And what about the 60 percent of Fortune 500 companies that are incorporated in Delaware -- will that state's notoriously CEO-friendly laws offer boardroom miscreants the ability to skirt their "corporate responsibility"? See what I mean about the details?
The enemies of reform will be spending millions of dollars -- and every waking hour -- making sure there are enough loopholes in the small print to keep the pigs gorging at the trough. The only thing that will make it possible for the handful of real reformers to keep the corporate swine at bay is public outrage. It's up to us to keep demanding that the stirrings of reform are not stillborn.
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