WASHINGTON, Sept. 20 (UPI) -- In the wake of the Enron and WorldCom scandals and the ensuing distrust of corporations, Congress scurried to respond to public outcry, passing the Sarbanes-Oxley Act of 2002. While agreeing with the need to punish obvious wrongdoing and enforce fraud laws, business interests at a U.S. Chamber of Commerce meeting recently lashed out at parts they considered to be misguided legislation.
Greg Zerzan, the senior counsel for Rep. Michael Oxley, R-Ohio, said the legislation was the product of an effort that began several months ago. Zerzan noted that the act contains sweeping changes in the areas of corporate governance, financial disclosure, auditor independence and corporate criminal liability. However, referring to provisions thrown in as both sides scrambled to pass the 130-page bill, he facetiously described S-O as a "victim of bipartisanship."
"If you quote me, I'll deny being here," said Zerzan at the meeting Wednesday, getting a laugh from the chamber's visiting crowd of CEOs, financiers, accountants and lawyers.
James Glassman, a resident fellow at the American Enterprise Institute, told the chamber that S-O will have four chief effects on industry. It will:
-- Raise compliance costs and other expenses
-- Deter innovation and risk-taking
-- Increase lawsuits
-- Distract CEOs and executives from other important tasks
"Facing a possibility of 20 years in jail and $5 million fines, executives are going to spend lots of time going over financial statements, and less time creating, innovating and leading," he said.
Glassman also noted that S-O may encourage investors to participate in the market.
Others at the meeting had similarly negative views on the recent legislation. "I'm an old man, and I've never seen a feeding frenzy like the one we've had on corporate accountability," said Thomas Donohue, president and chief executive officer of the U.S. Chamber of Commerce. Donohue is known for declaring that "business should stop apologizing for being the one institution in America that really works."
Above the podium, lights lit up the U.S. Chamber of Commerce seal, which bears the organization's name and the inscription, "The Spirit of Enterprise." The chamber is a business federation based in Washington representing 3 million businesses and organizations.
"Summary executions would have received 80 votes," quipped Donohue of the political firestorm of eagerness to respond to the scandals that resulted in the passing of S-O.
In a more serious vein, Donohue said: "There are damn important things that have to be done to strengthen the system ... There's a fundamental difference between people going out and breaking the law, and having a disagreement over whether the law was broken."
"When it comes to fraud and cheating, there's no question regarding people going out and doing (something purposefully wrong) that a second-year accounting student can't identify."
Donohue expressed annoyance that the lack of clarity in the bill and from the Securities and Exchange Commission would lead to a field day for trial lawyers. "We (the chamber) lobbied for more reasonable requirements to help prevent an explosion of class-action lawsuits ... we're gonna have (lawsuits), but it won't be as bad as it could've (been)."
Some expressed frustration with the government intrusion into the private sector.
"Something it's been politically incorrect to say here in Washington is that the vast majority of these companies have hard-working leaders with high standards of ethics," explained David McIntosh, a partner at Mayer, Brown, Rowe & Maw, a top international law firm. "And we need to remember that these are private companies. They may be traded publicly, but they are private. The companies' decisions should be made by the owners and the management."
"U.S. companies have thrived because they are private," agreed Donohue.
Though they considered some parts of the the bill to be intrusive and unnecessary, some businessmen expressed approval for other aspects. S-O requires corporations to employ independent auditors that are not linked to consultants used by the business. "This has opened and recreated the free market for accounting services," noted an audience member with whom the speakers agreed. Concurred Donohue, "Some parts were necessary. We support the overarching goals of S-O ... We need to see that not telling the truth does have serious consequences."
"The principles as old as biblical times -- don't lie, don't cheat, don't steal," are still behind some of business's troubles, and need to be enforced through the laws already on the books, said McIntosh.
Panelists expressed fear that the "embers" that remained from the "firestorm" of political action would flare up again, giving those who would use a fettered economy the excuse to say, "time to go back to the New Deal." S-O, said McIntosh, "did not mark the repudiation of letting people compete freely in a free market."
Panelists said that legislation impinging upon the freedom to compete and take risks was the worst possible outcome. "As long as there's evil in men's hearts, there will be future Enrons," said Donohue.
Donohue insisted upon the need for legislation that is "committed to the highest ethical standards in business, but at the same time will not discourage risk. If we take away the ability to fail, we eliminate creation and enterprise."