A new hostility toward business

After decades of support for big business, Washington shifts tone, though it's more rhetorical than regulatory.

President Bush's public excoriation of top executives is but one example of Washington's new climate of hostility toward big business – an attitude that developed suddenly this summer and may well intensify in the months ahead.

Perhaps the nation's political structure is frustrated after discovering that a tech-driven New Economy hasn't made the business cycle obsolete, after all. Certainly lawmakers of all partisan persuasions are aghast after months of accounting scandals, and worried about effects on the economy as a whole.

But as Bush's speech to Wall Street executives this week showed, so far Washington's rhetoric has been tougher than its proposals for change. As yet the nation's capital is a long way from launching into a New Deal-like new era of corporate regulation.

"This has been virtually an earthquake of a political change.... Whether it's a permanent change is another question," says Stanley Collender, managing director of the Federal Budget Consulting Group at Fleishman-Hillard Inc.

Only a few weeks ago, the wave of anger at corporations generated by Enron's spectacular bankruptcy had dissipated somewhat, at least in Washington.

Televised congressional hearings had provided embarrassing shots of executives invoking their Fifth Amendment rights against self-incrimination, shedding little light on what, if anything, lawmakers could have done to prevent the whole mess.

Bills aimed at toughening oversight of the accounting profession seemed to be headed nowhere. Conviction of Arthur Andersen by a federal jury seemed to show that the established legal and regulatory system was an adequate bulwark against future problems.

Then the flow of scandal began. From WorldCom to Xerox, income restatements began piling up like Tampa Bay Devil Ray losses. Bills began moving again in Congress. The political climate became such that even the first MBA president felt compelled to respond.

The political danger for the White House in appearing insensitive to corporate malfeasance are obvious.

Only 17 percent of respondents in a recent survey by Republican pollster Bill McInturff felt that US companies were straightforward and honest with their employees and customers. Only 21 percent believed business has ethical practices.

A slight plurality of 39 percent still trusted Republicans as the party best able to deal with corporate scandals. But that's not much of a margin for a party long established in voter minds as better at economic management than Democrats. And as a former corporate leader, Bush himself is vulnerable to falling polls by association.

"It could be a potential problem for the Republican party," says Mr. McInturff.

But this doesn't mean that the GOP is competing with Democrats to see who can be tougher on corner-office crooks. There are important philosophical differences in the developing response to corporate scandal in the White House and among Democrats in Congress.

Bush's speech emphasized moral suasion: Corporate executives should realize that they have a stewardship relationship with their firms, and act ethically. Changes in law – such as proposed tougher sentences for fraud – should nudge them toward better moral behavior.

"Apparently, there are a bunch of CEOs who didn't see their responsibility that way, and we've now got to, through legislation or regulation, take away any ambiguity about who's responsible for what goes on in an organization," said Secretary of the Treasury Paul O'Neill at a Monitor breakfast Wednesday.

But Democrats want to go beyond accountability, and change some of the basic rules of the capitalist game.

Thus Senate Democrats want to block accounting firms from doing consulting for clients, for instance. Such a too-cozy relationship arguably led Arthur Andersen to ignore some of Enron's accounting flights of fancy. Sensing a political opportunity, Democrats have been gleefully bashing Bush's prescriptions as too little, too late.

"The president spoke loudly, but he offered a very, very small stick," said Senate majority leader Tom Daschle (D) of South Dakota on Tuesday.

But whether the current environment represents a shift in Washington's culture on the scale of the New Deal – which resulted in the creation of the modern Securities and Exchange Commission – remains to be seen.

With a mid-term election only months away, both parties are trying to inoculate themselves against charges that they've sat on their hands, says Greg Casey, CEO of Washington's Business Industry Political Action Committee (BIPAC).

"The situation ... requires a public policy response," he says, "and it requires politicians to position themselves as having had a response.