Washington is closing in on a sweeping reform of how corporate America is governed.
Scarcely 48 hours after President Bush lectured Wall Street on his get-tough plan, the Senate is poised to vote on its own version of reform which on many points goes further than Mr. Bush's. Democrats have led the Senate drive, although support from Republicans has surged in the past few days.
The bill establishes an independent oversight board with powers to discipline and set standards for auditors. New rules cover everything from how often auditors must be rotated (every five years) to when documents can be shredded without risking jail time.
In a bid to curb conflicts of interest, the bill also restricts auditors from advising clients how to pay their taxes or design their financial-services system. Stock analysts could no longer publish research reports on customers that their firms also underwrite.
If the bill becomes law, corporate insiders lose some perks: No longer could top executives sell company stock during periods when employees cannot. Nor can they accept company loans without disclosing them. Those at the top also face more stringent regulations: Under the terms of this bill, CEOs and CFOs must personally certify that their company's financial reports are fair and accurate. If the accounts turn out not to be accurate and the company also violates securities laws they risk forfeit of profits and bonuses. If key amendments are added to this bill, they could also face a felony conviction and 10 years in prison.
In all, it's a much more intrusive solution to the problem of corporate governance than appeared likely even a few weeks ago. In fact, late last year, after the first disclosures of financial wrongdoing at Enron, it looked as if Congress would not get much beyond sensational hearings and finger-pointing.
But a recent surge of disclosures of wrongdoing at companies like WorldCom has dramatically increased the pressure on lawmakers to move quickly to restore confidence in troubled markets.
Within hours of the announcement that WorldCom hid $3.8 billion in expenses, Senate Democratic leaders moved a bill sponsored by Sen. Paul Sarbanes (D) of Maryland to the top of the Senate agenda, trumping 13 pending appropriations bills and a new law on prescription drugs.
Despite strong initial opposition to this bill from Sen. Phil Gramm of Texas, the ranking Republican on the Senate banking committee, many GOP senators are rallying to this bill, which passed the committee on a surprising 17-to-4 vote June 18. While some GOP amendments have been characterized by Democrats as "poison pills" designed to scuttle the bill, others aim to make it stronger.
For example, an amendment proposed by Sen. Richard Shelby (R) of Alabama would make it easier for investors to sue accountants, lawyers, or bankers who "aid or abet" in securities fraud.
With some two-thirds of the American public now invested in the stock market, the issue of corporate deception on financial statements has been too strong for partisans on either side of the aisle to ignore. "It is clear that there is a mind in the Congress, if not in the country ... that we need to do something, even if it is wrong," said Senator Gramm during this week's debate.
Meanwhile, Democrats in the House launched new efforts this week to revive their own version of a strong corporate-accountability bill, which was rejected on a party-line vote April 24.
The GOP bill that did pass the House by a vote of 334-to-90 has more limited objectives than its Senate counterpart. It aims to improve the accuracy and reliability of corporate financial disclosures, and gives the Securities and Exchange Commission broad discretion in how to do it.
Since the WorldCom disclosures, many House Republicans have signaled they are prepared to support a stronger bill more along the lines of the Senate proposal.
Business groups who lobbied hard in the 1980s and '90s to reduce government oversight and regulation say they welcome moves in Congress to restore public confidence in the market, such as more severe punishments for senior executives who abuse their powers.
But some worry that the law coming out of the Senate could also open the door to "abusive" lawsuits that could undermine an economic recovery. "The Sarbanes bill will hand American corporations back to the trial lawyers for summary execution," says Thomas Donohue, president of the US Chamber of Commerce.
What concerns critics like Mr. Donohue is not so much the bill that came out of the banking committee, but rather the amendments that could be added this week. Still, Senator Sarbanes responded to the Donohue comment by saying, "Anyone who thinks this bill helps trial lawyers hasn't carefully read the bill."
One of the toughest issues in the debate over this bill is how far it will go to reverse a 1995 law that limited the ability of stockholders to bring lawsuits against companies and their accountants for securities fraud. That law was a top priority of accounting firms like Arthur Andersen as well as high-tech companies, including MCI (now WorldCom), which lobbied hard to get the bill through Congress. It was also backed by Republicans, and many Democrats like Sen. Christopher Dodd of Connecticut, who is the No. 2 Democrat on the Senate banking committee.
Consumer advocates say that the 1995 law helped pave the way for Enron and WorldCom by undermining investor protections and redress through the courts.
"We strongly support extending the statute of limitations in securities cases. It's one of our top priorities," says David Butler, a spokesman for the Consumers Union, which yesterday backed an amendment by Sens. Patrick Leahy (D) of Vermont and John McCain (R) of Arizona to extend the length of time that investors could sue companies for securities fraud.
Trial lawyers are also lobbying quietly in support of amendments that will restore some of the legal rights that were taken away by the 1995 law.
"That  law gave special-interest protection to corporations, their accountants, and their lawyers at the expense of shareholders," says Carlton Carl, a spokesman for the Association of Trial Lawyers of America. "That's why we've seen as much corporate irresponsibility as we have witnessed for the past six to eight months, and are likely to see far into the future unless the law changes."