Next Enron wave: a flood of new rules

Washington's response to the collapse of Enron Corp. is moving gradually into a new phase: the search for ways to fix perceived problems revealed by one of the most spectacular bankruptcies of the century.

President Bush's new plan for changing corporate rules, unveiled last week, is only one part of this movement. On Capitol Hill, legislators have introduced at least 30 bills that deal with one Enron-related subject or another, from retirement security to the relationship between accounting firms and their customers.

Quick, drastic change may be unlikely. For its part, Congress has a limited legislative calendar and an agenda crowded with non-Enron items this election year.

But if nothing else, the Enron debacle may have closed an era of deregulatory fervor. The Nasdaq '90s are over, and White House and Congress alike are now considering new restrictions for industries that in the recent past they were defending against further government intrusion.

"You can't depend on the kindness of accountants and stock analysts to protect the stock-buying public," says Glenn Harlan Reynolds, a law professor and government investigations expert at the University of Tennessee.

The first phase of Washington's Enron probe might be said to have focused on scene-setting. As with many congressional investigations, individuals thought to have been behind the events in question were dragged into televised hearings and subjected to lengthy inquiries about what they knew, and when they knew it.

Such high-profile action can produce useful information. Documents produced by congressional investigators to this point have revealed the extent to which Enron's accounting problems were well-known to many in the firm long before they became public knowledge, for instance.

But critics say that too often, such effort devolves into a search for villains. Attempting to pin down whether former company chief executive Jeffrey Skilling has lied may be a job for the courts, not Congress.

Congress "hasn't used their inquiries to understand the fundamentals involved in the collapse," says Jason Thomas of Citizens for a Sound Economy.

Of course, publicity alone can force change. Many US corporations are already moving to provide investors more financial information, in response to widespread criticism about Enron's creative accounting practices. General Electric, for one, has vowed to greatly expand its annual report.

And the first phase of broad investigations also typically establishes the political context for what changes in law and regulation the White House and Congress will propose. Thus the Bush administration, reading the wide public interest in the Enron morality play, stepped in with its own response last week.

The Bush plan would establish a new self-regulatory body to oversee auditors, and bar accounting firms from also providing management-consulting services to audit clients. Its biggest change, however, would increase the personal responsibility of top corporate officers. It would expand the government's ability to bar executives from ever again serving in publicly traded companies if they are found to commit fraud or other "abuses of power."

Unlike most of the Bush plan, this CEO provision would require congressional approval to become law. It's just one piece in a broad array of Enron-related bills now being considered.

Accounting firms will be a primary target. It appears likely some sort of new restrictions on auditors will pass this year. That's a sharp change in mood. Until recently, this industry was one Congress was racing to deregulate.

Thus Sen. Christopher Dodd (D) of Connecticut, a long time friend of the industry and one of its biggest campaign-contribution recipients, offered his own accounting regulation plan last week. He would ban firms from auditing and consulting with the same clients and double the Securities and Exchange Commission accounting staff.

"Enron has illustrated serious problems that require more than just wallpaper," said Dodd, chairman of the Senate Banking Committee's subcommittee on securities and investment, last week.

Retirement security is sure to be another big area of congressional interest. Lawmakers have already filed a number of bills intended to protect employee retirement plans, encourage diversified investments, and force greater information disclosure.

For instance, Sen. Charles Grassley (R) of Iowa, ranking minority member on the Senate Finance Committee, has introduced a bill that would allow workers who have been with a company three years to sell company-stock contributions to their plans. Current law allows firms to greatly restrict such sales - as many Enron workers found when their company crashed around them.

Passage of new retirement legislation will not be easy. Some industry groups have vowed to fight such change, however unpopular the stance might be.

That Congress now feels it necessary to consider such moves only shows the extent to which American business has outgrown its regulatory and legal framework, say some experts.