Inside the bipartisan corporate crackdown

At first glance, it looks like open season on corporate crooks on Capitol Hill, with lawmakers on both sides of the aisle vying for the claim of biggest cop on the block.

Only a day after the Senate unanimously voted out a tough new bill on corporate accountability, the GOP-controlled House voted 391-28 to ratchet up penalties for corporate crimes. Most who voted for the hastily drafted bill hadn't even known that such a plan was in the works.

Now, the president is calling for both sides to agree on a final bill that he can sign into law before the August recess.

It's a sign that in these days of bear markets and vanishing pension funds, few politicians can appear soft on corporate crime, especially a few months before an election.

It also marks a sharp reversal from the boom days of the 1990s, when both parties appeared equally in earnest to court business, especially the high-growth companies at the heart of the current accounting scandals.

But behind the scenes, there's a more complex struggle going on. Neither party wants to alienate large sectors of the business community, which both create jobs and finance campaigns. Nor do lawmakers want to risk piling on so much regulation that the economic recovery is threatened.

On some of these concerns, majorities in both parties agree – ruling out certain reforms opposed by business. More broadly, though, Republicans face a political challenge as the party most closely tied to big business.

The momentum in this post-Enron era has moved away from core Republican ideals of deregulation and limited government.

"The legislative landscape has been dramatically transformed by the economic events of the last few months. For the first time in the Bush presidency, Democrats feel that they have the momentum," says Marshall Wittmann, a congressional analyst at the Hudson Institute.

On the strength of a bipartisan 97-0 vote, Senate Democrats are calling on Republicans to take their bill straight to the House floor for a vote – and calling on President Bush to support it.

Republicans, for their part, want to buy time. "We don't want to go so fast that we make mistakes," says a GOP aide.

After the Senate vote, Rep. Michael Oxley (R) of Ohio, chairman of the House Financial Services Committee, called for a "cooling-off" period during the August recess. House GOP leaders want to see more of their own work in the final bill, including accounting and pension reforms that passed on bipartisan votes last April and this week's stiffer penalties on corporate scofflaws.

"It would be a disservice to small investors to pass the Democrat bill without the tougher criminal penalties the House passed today," says House majority whip Tom DeLay (R) of Texas. The House bill provides for 20-year jail terms for corporate lawbreakers, double the Senate bill. It also proposes $25 million fines for corporations that file false financial statements. The other key reform, passed by both houses, opens the door for a new board to oversee the accounting industry.

Still, analysts say that any appearance of delay in moving a bill to the president's desk could work against Republicans, especially in an election year.

"If GOP House leaders slow this down and are the reason a bill isn't out by August, it's a huge problem for them.... This is not a time to be looking partisan," says Stanley Collender, a political analyst at Fleishman-Hillard, a Washington public-relations firm.

Meanwhile, business lobby groups like the Chamber of Commerce are telling anyone who will listen that the Senate bill will impose high costs on businesses and may further undermine public confidence in markets.

And in testimony on Capitol Hill this week, Federal Reserve chairman Alan Greenspan urged Congress against any moves that, by driving a wedge between corporate directors and CEOs, might "impair a corporation's effectiveness."

Behind the scenes, lawmakers in both parties have considered such concerns in crafting their legislation. In the end, senators did not mandate that corporations count executive stock options as expenses in their annual financial reports. The idea was opposed strongly by high-tech firms. And while the Senate extended the amount of time stockholders could sue a corporation or its accountants for securities fraud, it did not tear down the high hurdles to such suits that Congress set up in 1995.

"We dealt with some of the 1995 law by extending the statute of limitations, but we also had to measure the cost [to business] of frivolous and exaggerated lawsuits," says Sen. Jon Corzine (D) of New York, former head of investment bank Goldman Sachs.

If the Senate bill must be resolved with House ones, GOP negotiators will likely push even stronger protections for business. "That's not what we need to do," says House minority leader Richard Gephardt.

Still, the corporate world is already sensing a new climate.

"This is the No. 1 issue in the country right now. There's no way politicians can ignore it," says Jim Murray of the New York office of Pinkerton Consulting & Investigations. "After 9/11, we saw a big spike in calls to do physical assessments of security. Now, there's almost an equal concern among CEOs ... making sure that their financial house is in order."