A Rollback of Enron-Era Reforms

Chris Huang from the AFL-CIO Office of Investment notes the recent backlash from Big Business trying to weaken post-Enron corporate reforms.

Even as the multibillion dollar accounting scandals of Enron and Worldcom slowly recede into the past, a new wave of corporate crime, such as backdating stock options, is unfolding. Yet Big Business is trying to roll back post-Enron reforms.

Responding to Big Business criticism that the post-Enron reforms make U.S. markets less competitive, the Securities and Exchange Commission (SEC) recently issued several deregulatory orders intended to lower costs to public companies. (Charles Niemeier, a board member of the Public Company Accounting Oversight Board, directly counters this view, stating that the U.S. share of world IPOs rose to about 15 percent from 2002 to 2005.)

The SEC proposed a loose interpretation of a provision of the Sarbanes-Oxley Act of 2002, which was originally enacted to increase corporate accountability, according to The New York Times.

The next day, according to The Times, the Justice Department placed new restraints on federal prosecutors conducting corporate investigations, helping companies defend themselves by

making it easier for corporations to say no, and not having to worry about the decision being held against them.

Never mind that corporations can access company assets, or shareholder money, to fight any litigation–funds that also can be used to pay for the millions in legal fees of employees caught up in an inquiry.

This could just be the beginning of a series of rollbacks. Last month, the Committee on Capital Markets Regulation called for a

sweeping overhaul of securities market rules, including greater protection of companies, their directors and employees, and their outside auditors from regulators, investigators and civil suits.

This committee is partly funded by a charity with connections to disgraced formed AIG CEO Hank Greenberg, who was ousted from the insurance giant after allegations of securities fraud and other violations of insurance and securities laws.

All this uproar from Big Business comes despite the stock options backdating scandal, which all but a few now acknowledge as outright theft. More than 130 companies are under federal investigation, and a study by Harvard professor Lucian Bebchuk on the opportunistic timing of option grants has estimated that more than 700 U.S. firms have manipulated stock option grants.

The same study found that about 850 CEOs received manipulated option grants that boosted their annual pay by at least 10 percent on average, according to The Wall Street Journal.

Researchers at the University of Michigan estimate the scandal may cost shareholders hundreds of millions of dollars.

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