Wall St. and Business Wednesdays: Corporate Interests Try to Hold Off Change by Bruce Meyerson
Regulators and accountants are not exactly a devil-may-care bunch. But as they try to put the last significant touches on the most sweeping reforms to the rules governing public companies in 70 years, a growing chorus in the business community is trying to paint those efforts as rash and impulsive.
With the shame of scandal and disgraced peers now fading, these opposing voices have mustered enough confidence to speak up, pressing politicians and regulators with new vigor to back off on further changes.
Several bills now floating around Congress, backed by the briefly humbled technology industry, seek to derail a proposal that would force companies to subtract an expense for stock options from their reported profits.
At the same time, vested interests like the Business Roundtable, an association of 150 chief executives from major corporations, and the U.S. Chamber of Commerce are fighting a plan to give shareholders a limited right to nominate directors for the first time.
These defenders of corporate flexibility say it's time to take a step back. They suggest we wait and see whether all the new practices already adopted do the trick -- or as they fear, stifle free enterprise.
There are a few problems with that approach.
The remaining proposals -- one giving shareholders a limited right to nominate directors for the first time, another forcing companies to treat stock options as an expense -- target fundamental problems which were not addressed by the reforms already adopted.
And, just as the corporate establishment and other opponents of regulation have grown less shy about opposing new rules, there's a risk that the push for reform will lose the fresh sense of anger and urgency that gave politicians and regulators the conviction to act.
Finally, in terms of taking a longer look, it is highly unlikely that regulators could have been much slower or more deliberate in their efforts.
Thirty-eight public meetings in one year.
That's how many times the accounting industry's rule makers opened their doors for frank discussion before proposing to force corporations to subtract an expense for options from their profits. Members and staff from the Financial Accounting Standards Board have also held private meetings with hundreds of interested parties.
"The board's deliberations involved very extensive, very public due process before it reached a decision," said Joseph La Gambina, spokesman for the Financial Accounting Foundation, which oversees and funds the FASB.
"We've been at this for quite some time, and we've listened to a lot of folks."
Since the proposed rule is not slated to be finalized until later this year, the FASB will be holding additional public roundtables later this month in Connecticut and Silicon Valley -- home to many of the technology companies which make prolific use of expense-free options and vehemently oppose the change.
Likewise, the Securities and Exchange Commission has gone to extraordinary lengths to invite open discussion of its plan to allow shareholders an occasional small say in the non-democratic board nomination process.
Recognizing the significance of any potential change to the proxy voting process, the SEC took the unusual step a year ago of announcing its intention to examine the matter and invited public comment.
Then, while normally the next public act would have been to issue a proposal and invite public comment, the SEC published the staff report which would serve as a basis for the five commissioners to decide what to do. The proposed rule was issued in the fall with an invitation for public comment, and then a hearing was held in March, followed by yet another round of public comment.
"It was not a typical example of rule making. This is pretty out of the ordinary," said John Heine, an SEC spokesman.
There's always a chance that new regulations will not work as hoped. There's always room for more discussion and examination, and only time will tell whether the sweeping reforms already adopted are effective.
But it's silly to suggest that the SEC or the FASB have been anything less than diligent in their deliberations.
Then again, perhaps the best motivation for critics to delay further reform is to make reformers wait until the iron is no longer hot: Wait until there's no longer the level of fury which gives politicians and regulators the conviction to pursue real change.
Here's a counter proposal.
First, enact all the well-intentioned and thoughtfully conceived reforms now on the table. Then, in a few years, if the business establishment sees as big a problem as the recent epidemic of scandal, they'll have the same fury and determination needed to push through change as that which helped produce today's reforms.
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Wednesday, June 16, 2004