- The Washington Times - Thursday, July 11, 2002

This week's $64,000 question is whether Democrats will be able to make political hay out of the corporate accounting scandals.

Granted, $64,000 isn't much of a payoff in today's $10 trillion-a-year economy. But it's a relatively fair approximation of the dwindling stakes for Democratic leaders who are, after all, making their second election-year attempt to blame the White House and Republicans for the rash of auditing scandals that have shaken Wall Street.

Democratic leaders Dick Gephardt and Tom Daschle thought that public outrage over the Enron scandal would hand them full control of Congress this fall. But the administration threw everything but the kitchen sink at the Enron mess Justice Department prosecution of its auditors, a Labor Department probe into pension abuses, new rules to protect worker stock retirement accounts, tougher Securities and Exchange Commission regulations on auditing procedures and proposals from President Bush for an accounting oversight board.

The result: Mr. Bush nuked the Democrats' offensive and attention turned, as it should, to the crooks who cooked the books at Enron and the Arthur Anderson auditors who looked the other way and then shredded their accounting records.

Now Mr. Gephardt and Mr. Daschle are trying again with the WorldCom scandal. And this time Mr. Bush is throwing the full force of his bully pulpit powers against them.

His get-tough Wall Street address Tuesday, which business lobbyists were cheering even before he delivered it, hit the latest scandal even harder, calling for criminal penalties and real jail time for executives who file fraudulent earnings reports. There will be more money for the SEC and more investigators, too.

In a major turnaround, the president said he was leaning toward a pending bill by Sen. Paul Sarbanes, Maryland Democrat, to create a new independent oversight board for auditors of stock companies. But Mr. Bush, wary of excessive regulation, wants the primary jurisdiction for such matters to remain within the SEC.

Yet, there was also a strong and much-needed declaration of confidence in America's corporate class. Yes, there are some bad apples among the thousands of chief executive officers, chief financial officers, investment analysts and auditors, but most executives and their companies are honest and their books are sound, Mr. Bush said.

The Democrats have an ad out that attacks Mr. Bush for a late SEC filing to report shares he sold for $850,000 when he was a director of the Texas-based Harken Energy Corp. The late filing of Form 144 and questions over Harken's books which the SEC examined and took no action on were "fully vetted" by the regulatory agency, he said.

The Democrats raised this in 1994, in 2000 and are raising it again now, without much success. "I mean, this is recycled stuff. It's old-style politics," Mr. Bush said at a news conference Monday.

It is an old rule in politics that if you run an issue around the track three times and it does not get any traction, it isn't going anywhere. The Harken story is a nonstarter.

Then Daschle & Co. upped the ante by calling for the resignation of SEC Chairman Harvey Pitt, saying that had been too slow to react to the scandals and was too cozy with the auditing industry. Mr. Bush is sticking with his embattled SEC chief, who has been on the job for a year and was admittedly slow to get rolling, though he has since become much more aggressive in his investigations and his remedies.

A raft of new SEC rules are now in the 60-day public discussion phase and will soon take effect. Mr. Pitts' critics will quickly become a lot quieter.

Something else is going on that will help restore investor confidence. Wall Street, major brokerage firms and Fortune 500 companies are making major reforms of their own.

New rules proposed by the New York Stock Exchange and the Nasdaq Stock Market for companies that trade on their exchanges will plug many of the loopholes that have led to the latest abuses.

The size of stock option deals for executives will be curbed. All future stock-option plans must first be approved by a majority of stockholders. Board of directors audit committees will be required to hire the company's auditors and must approve any and all agreements with them for other consulting services. A majority of the corporation's board must be from outside the firm with no ties to the business or its management. The board must hold regular meetings without the CEO present to dictate its decisions.

Corporations are making their own reforms. They are making their financial reports more transparent and banning contracts with auditors for other services that lead to conflicts of interest.

These scandals are going to play themselves out. But the Democrats are going to be disappointed to learn that four months from now they are going to have little, if any, impact on the elections. Americans will vote first and foremost on the health of the economy that appears to be on track for a complete recovery.


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