Businesses seek shield from litigation

WASHINGTON — Frustrated with laws and regulations that have made companies and accounting firms more open to lawsuits from investors and the government, corporate America — with the encouragement of the Bush administration — is preparing to fight back.

Now that corruption cases such as Enron and WorldCom are falling out of the news, two influential industry groups with close ties to administration officials are hoping to swing the regulatory pendulum in the opposite direction.

The groups are drafting proposals to provide broad protections to corporations and accounting firms from criminal cases brought by federal and state prosecutors and to provide a stronger shield against civil lawsuits from investors.

Although the details are being worked out, the groups' proposals aim to limit the liability of accounting firms for the work on behalf of clients, to force prosecutors to target individual wrongdoers rather than companies and to scale back shareholder lawsuits.

The groups also hope to reduce what they see as some burdens imposed by the Sarbanes-Oxley Act, landmark post-Enron legislation adopted in 2002. The law, which placed significant new auditing and governance requirements on companies, gave broad discretion for interpretation to the Securities and Exchange Commission (SEC).

To alleviate concerns the new Congress may not adopt the proposals — regardless of which party holds power in the legislative branch next year — many are being tailored so they could be adopted through rulemaking by the SEC and enforcement-policy changes at the Justice Department.

The proposals will begin to be laid out in public soon after Election Day, members of the groups said in recent interviews. One of the groups was formed by the U.S. Chamber of Commerce and until recently was headed by Robert Steel.

Steel, as the new Treasury undersecretary for domestic finance, is the senior official in the department who will be formulating Treasury's views on the issues being studied by the two groups.

The second group was formed by the Harvard Law professor Hal Scott; R. Glenn Hubbard, a former chairman of the Council of Economic Advisers for President Bush and John Thornton, a former president of Goldman Sachs, where he worked with Treasury Secretary Henry Paulson.

The latter group has become known around Washington, D.C., as the Paulson Committee because the relatively new Treasury secretary issued an encouraging statement when it was formed last month. Administration officials emphasized Friday that he was not playing a role in its deliberations.

Its members include Donald Evans, a former Commerce secretary and close Bush friend; Samuel DiPiazza Jr., chief executive of PricewaterhouseCoopers, the accounting giant; Robert Glauber, former chairman and chief executive of the National Association of Securities Dealers, the private group that oversees the securities industry; and the chief executives of DuPont, Office Depot and the CIT Group.

Jennifer Zuccarelli, a spokeswoman at the Treasury Department, said no decision had been made about which recommendations would be supported by the administration.

But another official and group members noted that Paulson had recently pressed the groups in private talks to complete their work so it could be rolled out quickly after the November elections to achieve greater political impact.

Moreover, group members said they expect many of the recommendations will be used as part of an administration effort to limit what they see as overzealous state prosecutions by such figures as New York Attorney General Elliot Spitzer and abusive class-action lawsuits by investors. The groups also are attempting to lower the costs associated with the Sarbanes-Oxley Act.

Their critics, however, see the effort as part of a plan to cater to the most well-heeled constituents of the administration and to insulate politically connected companies, including the accounting industry, from prosecution at the expense of investors.

In an interview last week with Bloomberg News, Paulson criticized the Sarbanes-Oxley law. While it had done some good, he said, it had contributed to "an atmosphere that has made it more burdensome for companies to operate."

Paulson also repeated a line from his first speech, given at Columbia Business School in August, where he said, "Often the pendulum swings too far and we need to go through a period of readjustment."

Some experts see Paulson's complaint as a step backward.

"This is an escalation of the culture war against regulation," said James Cox, a securities and corporate-law professor at Duke Law School. He said many of the groups' proposals, if adopted, "would be a dark day for investors."