MG ----------------------------------------- Corporate America Is Back in Business By Howard Gold Barron’s Online Nov 18
If you listened closely amid the cacophony of the election season, you might have heard the sound of the wheel turning.
In a series of moves that got little coverage in the news media, corporate America has begun to throw its weight around again and reverse or slow some of the reforms that grew out of the Enron, WorldCom and other big scandals that broke a couple of years ago.
Out of those scandals came the Sarbanes-Oxley Act, which President Bush signed into law in 2002. That act strengthened the oversight of auditors, mandated more independent boards of directors, increased penalties for corporate fraud and required chief executive and chief financial officers to certify their companies' financial statements.
While far from perfect, Sarbanes-Oxley nonetheless repaired investors' confidence enough to help end the post-bubble bear market and lay the groundwork for the 2003 stock market rally.
But corporate executives have long chafed under Sarbanes-Oxley's supposed restraints and the new climate in which these once-imperious chieftains actually have to listen to their shareholders.
Now, their lobbyists in Washington, D.C.'s Gucci Gulch have worn out their shoe leather to win a couple of key victories.
"I think we're well into the pushback stage," says Nell Minow, editor of The Corporate Library, a Portland, Me.-based independent research firm specializing in corporate governance.
First, there was the issue of stock options.
Remember them? They were the rocket fuel that propelled the corporate scandals of the late 1990s and early 2000s.
Top executives at Enron and the other usual suspects allegedly carried out various schemes to boost earnings and share prices, so they could reap huge profits by exercising the many options bestowed on them by generous boards.
That prompted corporate governance types and some analysts and investors to call for expensing options. About a third of the top 250 companies in the Standard & Poor's 500 now book options as an expense.
The Financial Accounting Standards Board (FASB), which sets accounting practices for the nation's publicly traded companies, had ruled that all companies must do that starting in January.
But the tech titans fought back. Old Technology giants like Cisco Systems, Intel and Oracle, whose earnings would take a big hit if they had to suddenly expense their ample options grants, set their lobbying group TechNet loose in Washington, D.C.
The result: A rare display of bipartisanship in which more than 50 senators lobbied Securities and Exchange Commission Chairman William H. Donaldson to stop FASB from putting the options rule into effect.
Those defenders of the people included not only pro-business Republicans but also liberal lion Edward M. Kennedy (D.-Mass.) and the Democrats' lady in waiting, Hillary Rodham Clinton of New York.
Naturally FASB caved, agreeing to a six-month delay in the implementation of the rule. That should give powerful opponents of the change plenty of time to kill it.
"It's just unconscionable," says Minow.
It's also eerily reminiscent of the 1990s, when Congressional pressure defanged FASB on this very issue. Weak accounting standards, of course, paved the way for Enron and the other scandals that followed (see Fighting the Tape, "Who Lost Enron? Part II," January 31, 2002).
But there's more. Last month Harvey J. Goldschmid, one of two Democratic commissioners on the SEC, publicly criticized the commission for backing off a proposal that would let shareholders more easily nominate corporate directors through company proxy voting.
Again, lobbying groups like the Business Roundtable and the U.S. Chamber of Commerce worked feverishly to defeat this measure, and they eventually got Chairman Donaldson to give in.
That move " 'made it a safer world for a small minority of lazy, inefficient, grossly overpaid and wrongheaded CEOs,' " Goldschmid fumed in a speech reported by The New York Times. " 'The worst instincts of the CEO community have triumphed.' "
Now there's a debate in the SEC about whether some of the corporate fines the Commission imposed on the likes of Qwest Communications International (some $250 million) were too onerous. And CEOs are grumbling yet again about the cost and time they have to spend complying with the Sarbanes-Oxley rules.
But they should have plenty of pocket change to do that with.
In one of the biggest bonanzas in recent history, Congress last month gave U.S.-based corporations a one-year windfall on hundreds of billions of dollars in profits they park overseas to avoid U.S. taxes.
These companies will pay only 5.25% on any earnings they repatriate during their year of eligibility, as opposed to the 35% they usually pay.
How much money are we talking about? Maybe $2 billion for Honeywell, $5 billion for Oracle and $11 billion for Schering Plough, The Wall Street Journal reported.
It's not as if they need the money: Companies in the S&P 500 had a record $590 billion in cash and liquid investments as of September, according to S&P--more than double the $261 billion they held in 1999.
So, what will they do with the extra dough? Pay down debt, repurchase shares, even finance acquisitions.
But precious few will hire more workers in the U.S., the Journal concluded (see "Tax Windfall May Not Boost Hiring Despite Claims," October 13).
Oh, and what was the name of that bill, by the way? The American Jobs Creation Act of 2004.
I couldn't make this stuff up if I tried.