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(7/20/02) - WASHINGTON, July 17 — For all the talk of corporate scandal, one leading proposal for change — tightening the rules on stock options — was brushed aside in Congress this week, thanks in part to a powerful business lobbying coalition that has long fought to protect these rich pay packages.

Long before the current wave of scandals, business interests have successfully protected stock options from attack in Congress. But last September, an umbrella group calling itself the Stock Option Coalition was formed from high-technology companies, executives of Fortune 500 companies, venture capitalists, biotechnology companies and the Nasdaq market — all sending out platoons of lobbyists, conducting sophisticated e-mail campaigns and reminding Congress of their hefty campaign contributions.

The coalition is not the only business group lobbying Congress right now as the final, and most critical, decisions are being made on broad legislation to deal with corporate behavior. But their actions show how lobbying groups are effective not only in what goes into legislation, but what stays out. With both parties in a mood to punish corporate wrongdoers, especially before the midterm elections, this is the last chance for business lobbyists to have a say in the final outcome.

"We have made it clear to Congress that they should do nothing to restrict stock options," said Richard White, a former Republican lawmaker and chief executive of TechNet, a bipartisan lobbying group representing 235 high-technology and biotechnology companies. `'It's been a full-fledged effort for us."

So far, the group has been successful in deflecting popular sentiment and the weight of some powerful financial figures, among them the Federal Reserve chairman, Alan Greenspan, and Warren E. Buffett, the billionaire investor.

In Congressional testimony this week, Mr. Greenspan singled out stock options as one of the "avenues to express greed." He has also said that stock options should be considered a business expense and deducted from corporate revenue.

For the moment, the legislation before Congress to overhaul securities and accounting laws makes no mention of stock options. To those who believe that stock options tempt executives to bend the rules for personal gain, this is a gaping oversight. To members of the lobbying coalition, who believe that the widespread use of stock options enhances entrepreneurship and advances economic growth, it is a victory.

It is also a victory that drives others to distraction. Last Sunday, while being interviewed on "Meet the Press," Senator John McCain, the Arizona Republican who has long advocated limiting stock options, complained loudly that "it's a bipartisan fix that's in."

He continued, saying, "The swarm of lobbyists that came onto Capitol Hill said this is their highest priority, this is going to destroy Western civilization as we know it."

Senator McCain was not far off the mark in describing the intensity of the lobbying campaign. Leading the parade were two prominent venture capitalists, John Doerr and Floyd Kvamme, two Silicon Valley legends. Joining them were Alan Patricof, a well-known New York venture capitalist, and executives and lobbyists from Cisco Systems, Intel, Dell Computer, AOL Time Warner and Sun Microsystems. In addition, 126 biotechnology chief executives wrote an open letter to Congress on this issue.

These companies are also enlisting rank-and-file employees in a Web-based grass-roots effort, as well.

Using the high-technology skills that made these companies famous, an employee can simply put his or her e-mail address on the TechNet Web site and a "Dear Lawmaker" letter will automatically be sent to Congress in less than a minute. "If my company does well, I hope one day to use my stock options to buy a home or put my children through college," reads the form letter.

Mark Hesen, president of the National Venture Capital Association in Washington, said: "We have 14,000 emerging growth companies in our database. We've got venture capitalists all over the country who have been active."

To add extra firepower, the group recruited the Business Roundtable, which represents the chief executives of the nation's largest companies, along with Nasdaq — the stock market of choice for most high-technology companies — as well as lobbying groups representing corporate financial officers.

For them, hundreds of millions of dollars are at stake — including millions in the personal net worth of many high-technology executives. For many start-up companies, stock options are a popular way of providing employee compensation — not only for executives, but for rank-and-file workers as well. With cash flow tight at many emerging companies, stock options — and the lure of riches yet to come — are a way to attract top talent.

"For a lot of these chief executives, we are talking about their personal pay," said an aide to a senator who supports the restrictions. `'You can be talking about $100 million in stock options for some of these guys. That makes them willing to direct lobbyists to protect their own personal pay."

A recent study by the Standard & Poor's rating agency showed high-technology companies were the biggest users of stock options. The leader was Microsoft with $2.3 billion outstanding followed by Cisco ($1.7 billion), AOL Time Warner ($1.4 billion), I.B.M. ($1.2 billion) and Intel ($1 billion). If forced to deduct stock options as a corporate expense, these companies — and others — argue that their profits would automatically fall in an already weak economic environment.

"We started working this issue last fall," said Grace Hinchman, a Washington lobbyist for Financial Executives International, a trade group of chief financial officers. "And we won't go away. We realized what was happening back when. We saw the writing on the wall and figured we had to get organized."

High-technology's effectiveness on this issue reflects a coming of age for an industry that first burst onto the political scene in 1996 — even then defending option-rich pay packages was one of its major issues.

With a flair for organizing, a cutting-edge image and a bipartisan appeal, high-technology caught the imagination of many in Congress. Having an open wallet and a willingness to write big campaign checks did not hurt, either — then or now. In the 2000 election, for instance, high-technology companies donated $40 million to both parties, on par with other leading business segments and trade unions.

"The high-tech industry came late, they came in big and they gave so much money in the last election," said Larry Makinson, a senior executive at the Center for Responsive Politics, which tracks campaign contributions. "When you write $40 million worth of checks, you accumulate a lot of i.o.u.'s and can bump ahead of everyone else in line. That is what they are doing."

Of that amount, $20.7 million went to Democrats and $18.5 million to Republicans. For Democrats, Silicon Valley remains one segment of corporate America where they have made successful inroads. While the high-technology bust may have tarnished some of the luster of this group, its political tactics remain as aggressive as ever.

"This time, they are post-dot-com meltdown," said Patrick McGurn, a vice president at Institutional Shareholder Services, a Washington proxy advisory service. "They still have a lot of money to throw around in Washington, but they do not have the cachet of being the engines of the new economy. So that means they have to rely on lots of arm-twisting and dollars to make the difference this time."

To wage the fight, the group, in a Power Point presentation, asked for $10,000 donations from concerned companies. It called for a "mailstorm from coast to coast and internationally."

The president of the Information Technology Industry Council, Rhett Dawson, meanwhile, has written to Senator Tom Daschle, the Democratic majority leader, with not-so-veiled hints of the consequences for those opposing the coalition's views. On top of that, Mr. Doerr, the venture capitalist and a leading Democratic donor, also called Mr. Daschle, who helped kill the stock options restrictions in the Senate.

In lobbying Senator Daschle, Mr. Dawson said, "At the end of the 107th Congress, key votes will be compiled and analyzed to assign a `score' to every Member of Congress." The score, the letter said, will be used in determining who will get the high-technology industry's political support.

In testimony today before the Senate Commerce Committee, Army Secretary Thomas White stated that he has not been contacted by the Federal Energy Regulatory Commission (FERC) about his possible involvement in the manipulation of California's deregulated energy market while he headed Enron Energy Services. He also confirmed that he has not been contacted by the Securities and Exchange Commission (SEC) about whether he profited from the sale of Enron stock because of insider information.

Given these statements by Mr. White, it does not appear that these regulatory agencies, both headed by appointees of President Bush, are serious about determining whether the Army secretary committed any wrongdoing during his tenure at Enron. We, as many others, are concerned about the diligence with which these agencies are pursuing those corporate leaders whose actions have been called into question during the evolving corporate crime wave.

If the SEC launches an insider trading investigation of Martha Stewart based on the fact that she made one or two phone calls to an insider at ImClone and then sold her 4,000 shares of stock, it seems obvious that if Mr. White had 77 conversations with Enron employees and sold $12 million in stock prior to the company's collapse, someone should look into it.

In addition, documents have been made public that raise serious questions about whether Enron Energy Services, the Enron unit headed by White between 1998 and 2001, was involved in schemes, with nicknames such as "Fat Boy" and "Get Shorty," to manipulate California's deregulated energy markets during an electricity crisis that cost consumers and the state treasury billions of dollars and drove the state's largest electricity utility into bankruptcy. FERC records show that despite White's testimony that his Enron division was a retail seller of electricity, Enron Energy Services was registered as a wholesale energy trader and did conduct trades with other Enron units that served to drive up prices.

President Bush should call for, and Attorney General John Ashcroft should appoint, a special counsel to investigate whether White participated in or knew about possibly illegal market manipulation and whether he benefited from stock sales based on insider knowledge or committed any other crimes.

WASHINGTON (AP) -- The leader of President Bush's new task force on corporate crime was a director of a credit card company that paid more than $400 million to settle charges of consumer and securities fraud.

Larry Thompson, the deputy attorney general, served on the board of the company, Providian Financial Corp., from June 1997 until he was confirmed by the Senate in May 2001, according to Securities and Exchange Commission documents.

During that period, state, local and federal agencies investigated Providian for gouging its customers, who filed class-action lawsuits against the company. Providian paid more than $400 million in 2000 to settle the investigations and lawsuits.

During the first two weeks in 1999 after the government investigations were disclosed, the company's shares plunged from $62.06 to as low as $39.22.

In March, Providian agreed to pay $38 million to settle a class-action lawsuit filed by shareholders alleging the company inflated its profits through its price-gouging practices.

The settlement covered investors who bought the company's stock between Jan. 21, 1999 and June 4, 1999, when Thompson was a company director.

The Washington Post, which first reported Thompson's connection with the credit card company, said he held 89,651 shares of Providian on March 21. Those shares were valued at more than $4.7 million on the day he took office as deputy attorney general.

Thompson was not questioned about his role at Providian during his Senate confirmation hearings.

Providian's officers and directors, including Thompson, are defendants in a class-action lawsuit brought by company employees who claim they urged large holdings of Providian stock in 401(k) retirement plans while they were employing questionable accounting methods and cashing in on their own shares.

Justice Department spokesman Mark Corallo said Thompson was proud of his service on Providian's board.

``He only became aware of the (fraud) issues when regulators began to make inquiries,'' Corallo told the Post. ``He then personally took the lead in making the company doing the right thing.''

Bush established the white-collar crime task force Tuesday amid mounting corporate scandals. He gave Thompson until July 19 to convene its first meeting. But in a surprise move, he held the first session on Friday at the White House.

At the meeting, Thompson pledged to go after corporate criminals ``with vigor and an aggressive manner.''

(7/12/02) - For President Bush, Harken Energy is like one of the villains in horror movies. No matter how many times he buries the miscreant, it keeps rising from the grave to haunt him.

In every campaign he's been involved in, reporters and political opponents have raised the now-familiar story of Bush's dealings with the Texas energy exploration company. And in every campaign, Bush has managed to fend off the questions and put them to rest.

But in his latest campaign -- the current initiative to alter the behavior of corporate insiders and restore investor confidence -- the Harken story may prove to be a real horror show.

Bush's ineffectual speech on corporate responsibility fell remarkably flat on Main Street, on Wall Street and in Washington. Perhaps he wasn't tough enough, and he surely didn't provide action to back up the rhetoric. But I believe the speech failed because Bush simply lacks credibility on the issues of executive and insider behavior -- in part because of his personal experience on the Harken board all those years ago, and in part because of the way he has dealt with it in recent weeks.

Let's stipulate up front that Bush was not guilty of insider trading. Let's further stipulate that if he had lost the election and remained governor of Texas, nobody would be talking about Harken today.

Some History

The back story: In 1986, Bush joined the board of Harken Energy when he and his partners sold their faltering oil exploration firm, Spectrum 7, to Harken for about $2 million in stock. Spectrum 7 was a dog, but Harken's leaders felt they would benefit from having the son of the sitting vice president as an ally and board member. "His name was George Bush," said Harken's founder, Phil Kendrick, when discussing the deal. "That was worth the money they paid him." Bush served on the board until 1993, when he left to prepare to run for governor of Texas.

While on the board, Bush engaged in all sorts of behavior that he condemned in his speech Tuesday and that he has criticized in recent months. To wit, Bush has called for more rapid disclosure of executive and insider stock sales. In 1990, however, he dumped most of his stake two months before the company announced an earnings restatement and failed to report the sale to the Securities and Exchange Commission for 34 weeks. There's no evidence to suggest that Bush was guilty of insider trading -- just sloppiness. He was cashing in all his other stock at around the same time because he needed to pay off the $600,000 bank loan he took to fund his 1989 investment in the Texas Rangers. And he was cleared by the SEC.

On Tuesday, Bush called for companies to ban the practice of making loans to executives. Another nice idea, though too late for WorldCom's shareholders, who could certainly make good use of that $400 million they lent to Bernard Ebbers. On Wednesday, however, it was reported that Bush took loans from the shareholders of Harken in 1986 and 1989 at below-market interest rates. And if you look through Harken's 10-Ks, it is clear that Bush never really paid them back.

Bush has called for board members to exercise greater oversight over compensation and audit activities, to ensure that companies no longer hide debt off the balance sheet. But as a member of Harken's audit committee, he signed off on a deal that unjustly inflated earnings. Harken lent money to a partnership composed of company insiders, which used the funds to buy a Harken subsidiary called Aloha Petroleum at an inflated price, creating a multimillion-dollar instant "profit." When it learned of this deal, the SEC forced Harken to restate its earnings, and that caused the stock to plummet in 1990.

The Current Reality

Bush's get-tough, no-excuses rhetoric has also been consistently undermined by his reactions to the disclosures about Harken. He continues to insist on treating it as a political story. And while Democratic attack dogs are certainly growling, he fails to grasp that something larger is at work here.

Rather than admit that he was lax and that, as a director, he should've taken pains to ensure that the proper forms were filed with the SEC -- these were major transactions for him, after all -- he has cast blame elsewhere. First, he offered the equivalent of the "dog ate my homework" excuse: He said the SEC lost the paperwork. Later, Bush spokesman Ari Fleischer blamed Bush's lawyers. (When all else fails, blame your lawyers.) "I still haven't figured it out completely," Bush said at a press conference last week.

As for the loans, Bush and his spokespeople said they were appropriate because they were accepted practice at the time, and, in any case, he didn't profit from them. Again, that misses the point. If giving shareholders' money to executives to buy stock is not a sound practice today -- especially when the rich people taking the loans don't have to repay back them -- it wasn't a sound practice in the late 1980s. In fact, Harken didn't even come close to collecting the loans it made to Bush and other officers, and the shareholders ended up eating them.

Bush also stumbled when discussing the Aloha transaction. Asked if he recalled discussing the deal as a member of the audit committee, Bush said, "You need to look back on the directors' minutes." And when asked why the audit committee didn't see that this Enronesque transaction would fail to pass regulatory muster, Bush responded, "In the corporate world, sometimes things aren't exactly black and white when it comes to accounting procedures."

In short, Bush's responses sound familiar. The instinctive defensive crouch, the relentless passing of the buck, the denials -- this is exactly the sort of reaction we've seen from every CEO, director and official called to task about dealings at failed companies. The most infuriating aspect of the Enron-Tyco-Global Crossing-WorldCom-Andersen-etc. scandals is the utter lack of contrition, the refusal of anyone to take responsibility.

Layer the Harken story on top of some of Bush's other reactions to the unfolding corporate scandals, and you begin to see why the speech was such a downer. While calling for zero tolerance for unethical behavior, Bush has inexplicably maintained his support for Army Secretary Thomas White. White formerly ran Enron's Energy Services division, which artificially inflated its earnings to the tune of hundreds of millions of dollars.

What's more, Bush has stubbornly stood by SEC Chairman Harvey Pitt, whose past work forces him to navigate more shoals than a Mississippi River barge pilot. This loyalty, which in other times might seem admirable, now seems more pigheaded.

Think how much more effective Bush's speech would have been if he had dealt honestly with his experience on the Harken board and used it as an object lesson. If he had expressed regret that investors fared poorly in a company on whose board he served. If he had conveyed an inkling that this experience has given him some particular insight into the importance of insider conduct, of the need to follow both the spirit and the letter of the law, of the need for directors to be more vigilant and of the need for executives to take responsibility for their actions, to admit when they have failed or done wrong, and not to blame somebody else.

That would have been a speech worth listening to.

Friday, 12 July, 2002 - LOS ANGELES - In this recently released Arthur Andersen Promotional Video a bevy of corporate heavy hitters including then Halliburton CEO Dick Cheney are featured singing the praises of the scandal ridden accounting behemoth. Arthur Andersen was convicted recently of obstruction of justice for shredding documents in the Enron investigation.

Towards the end of the video Dick Cheney states; "I get good advice, if you will, from their people, based upon how we are doing business and how we are operating, over and above the normal, by-the-books auditing arrangement."

Click Here to View the Video - It may take a while to load –

(7/10/02) - President Bush's tongue-lashing of big business marks a swing of the American political pendulum away from a quarter-century of bipartisan deference to capitalists.

"We will use the full weight of the law to expose and root out corruption," Mr. Bush said yesterday to several hundred business leaders at the Regent Wall Street Hotel, once home to the New York Merchants Exchange. "My administration will do everything in our power to end the days of cooking the books and shading the truth and breaking our laws."

During his election campaign two years ago, Mr. Bush wooed many of those same executives by promising an administration that would further scale back Washington's interference in their affairs. But that effort has been hurt by the continuing stream of corporate scandals -- and the fact that the most notorious have exploded in sectors deregulated in the 1990s: Enron Corp. and its competitors in electricity and energy trading and WorldCom Inc., Global Crossing Ltd., and Qwest Communications International Inc. in telecommunications. The public eagerness to beat up on business has intensified with the stock market's slide.

Now, the former-oil-executive-turned-politician who filled his cabinet with CEOs is calling for harsher penalties for white-collar criminals. Yesterday, he proposed doubling prison time for mail and wire fraud to 10 years as well as extending prison time for document shredding of the sort committed by Enron's auditor, Arthur Andersen LLP. He asked the SEC to freeze more payments to executives at companies under investigation. And he asked corporate boards to curb loans to executives of the type received by WorldCom Inc. CEO Bernard J. Ebbers -- and by Mr. Bush himself, who borrowed at least $180,000 from Harken Energy Corp. in the late 1980s when he served the company as a director and consultant. Questions about his finances during his tenure have come back to haunt him in recent days.

"The business pages of American newspapers should not read like a scandal sheet," Mr. Bush said.

Mr. Bush's speech drew little applause from his audience. It also failed to cheer investors, who apparently concluded his plans wouldn't do much -- at least in the short term -- to fix what is ailing the stock market. Stocks began the day trading higher but sank steadily in the hours after Mr. Bush's speech. The Dow Jones Industrial Average fell 178.81 points, or nearly 2%, to close at 9096.09.

The rhetoric of Mr. Bush's remarks was far more dramatic than the substance, which went little beyond prior White House proposals and existing law, and fell far short of what critics are demanding. But the president's new, harsher tone likely raises the bar for how Washington ultimately addresses the issue this year. It was the most recent example of a changing attitude in Washington about the balance of power between the federal government and American corporations.

Mr. Bush's choice to head the Securities and Exchange Commission, former Wall Street lawyer Harvey Pitt, last year pledged a "kinder and gentler place for accountants." These days, Mr. Pitt says, "criminal charges may be too good for the people who brought about this mess," and he boasts about the number of fraud cases the commission has launched and the severity of penalties it has imposed.

The Justice Department, which until recently focused mainly on the war on terrorism, is joining the fray, prosecuting Arthur Andersen and heading what Mr. Bush described as a new interagency "financial-crimes SWAT team, overseeing the investigation of corporate abusers and bringing them to account." Congress is moving ahead with its own investigations into corporate wrongdoing, with the Republican-led House Commerce Committee Monday demanding records from 13 leading companies accused of accounting shenanigans, from Adelphia Communications Corp. to Xerox Corp.

More change is coming. Laws are evolving in ways that until recently seemed inconceivable. A few weeks ago, the White House was leery of any major legislative response to the corporate scandals. Now, Mr. Bush says he "shares the goals" of Senate Democrats and is "confident we can get a good piece of legislation out of Congress." Under pending legislation likely to pass, the accounting industry -- until last year one of the country's most politically powerful -- will get a new, more-independent oversight board; the only issues are the details. The SEC is heading for a big budget increase. And the penalties for corporate fraud will be harsher.

Political indignation against big business seems to be spilling out in various directions, even where fraud isn't an issue. With tax avoidance also becoming a hot topic, a bipartisan coalition in the House Appropriations Committee voted overwhelmingly yesterday to deny future federal contracts to American multinationals that shave their tax bills by incorporating in offshore tax havens such as Bermuda. And the Internal Revenue Service yesterday took the unprecedented step of suing two leading accounting firms -- KPMG LLP and BDO Seidman LLP -- demanding access to records for what officials believe to be extensive promotion of improper tax shelters. The firms said the transactions were legitimate.

In sum, the early 21st century may be turning into one of those periods in American history -- such as the populist and progressive eras at the turn of the last century, and the New Deal of the 1930s -- where exposure of corporate excesses during a period of loose regulation creates a political consensus for new government control over business.

Now, as then, the changes are sold to conservatives and business leaders as the only way to instill confidence in, and preserve the viability of, free markets. "At this moment, America's greatest economic need is higher ethical standards, standards enforced by strict laws," Mr. Bush said.

The political stakes are high: Not only does Mr. Bush want to keep Americans in the market, he wants to persuade them to put their Social Security funds there as well. "More than 80 million Americans own stock, and many of them are new to the market," Mr. Bush noted yesterday. "Buying stock gives them opportunity to build wealth over the long term, and this is the very kind of responsible investment we must promote in America," he added.

News about corporate sleaze is weighing heavily on U.S. markets. The Dow Jones industrials are now languishing around 20% below their January 2000 peak of 11723 -- even though there's evidence the economy is pulling out of recession.

If stocks don't revive, they could push the economy back into a slump. The dollar is weakening against the euro and the Japanese yen as foreign investors turn wary about investing in American companies. At a summit of world leaders in Calgary, Alberta, in late June, Mr. Bush felt moved by the WorldCom scandal to defend the viability of American capitalism to Russian President Vladimir Putin and other heads of state.

Book-cooking has eroded "the trust and the confidence that is absolutely vital to the functioning of our capital markets," Rep. Patrick Toomey, a Republican from Pennsylvania, said at the opening of House hearings on WorldCom Monday. "We need to keep an open mind about other measures that may be necessary" beyond the modest steps already endorsed by the House.

The question now is how far the pendulum will swing from big business to big government. Despite the sharp change in tone, few politicians are proposing rolling back the deregulation that began with Jimmy Carter's moves in the late 1970s to promote competition among airlines, trucking and natural gas.

For President Bush and many Republicans, the tough talk these days is designed in part to stave off sweeping new legislation. "There are some in this Congress who would use this opportunity to undermine our capitalistic system and our free-market system," Alabama Republican Rep. Spencer Bachus intoned at a recent WorldCom hearing. "We can't allow that to happen."

With that in mind, Mr. Bush's speech yesterday -- beyond its strong rhetoric -- was a modest call for federal actions, relying mainly on more enforcement of current laws, and leaning on companies and stock exchanges and other self-regulating organizations to take stronger action. Treasury Secretary Paul O'Neill today will unveil a new joint venture with the U.S. Chamber of Commerce to improve corporate ethics.

Indeed, even in the areas where Mr. Bush claims to be beefing up enforcement, he appears more hesitant than Congress. He proposes boosting the SEC budget for the fiscal year beginning Oct. 1 by $129 million, or 29%, over the fiscal 2002 budget of $438 million. But that pales in comparison with the $338 million, or 77%, increase backed by both parties in Congress. "The president spoke loudly but offered a very, very small stick," said Senate Majority Leader Tom Daschle.

A senior administration official, briefing reporters after the speech, said the White House opposed the even-harsher criminal penalties moving through the Senate and refused to say if Mr. Bush would sign a bill that included those provisions. The White House strategy appears driven, in part, by the recognition that whatever Mr. Bush proposes will simply set the floor for how far the government acts, with Congress all but certain to push even further.

In his speech yesterday, Mr. Bush set a clear divide, refusing to have government rewrite the market's basic rules. Many Democrats, and some Republicans, are eager to do that. "The President must recognize that punishment of wrongdoers alone is not enough," said New York Rep. John LaFalce, ranking Democrat on the House Financial Services Committee.

Senate Democrats, for example, want to legislate detailed rules blocking accounting firms from doing consulting for clients, arguing that the practice created conflicts of interests allowing for shoddy bookkeeping in recent years. That makes the White House uncomfortable. Shortly before Mr. Bush's speech, his Office of Management and Budget issued a statement attacking portions of the Senate Democratic bill that would impose new limits on accounting firms, saying the proposal "rigidly defines accounting services boundaries by statute without reference to . . . a rapidly changing marketplace."

Just how far the new rules go will depend on how badly financial markets and the economy perform over the next few months. Franklin Roosevelt's reforms, including the creation of the SEC, weren't enacted until 1933, four years after the stock market crashed and the economy was mired in the Great Depression. The U.S. today is nowhere near that state, and if the economy rebounds smartly by the fall -- the consensus scenario of many analysts -- the momentum for far-reaching changes will quickly dissipate. The benefits of laissez-faire will still be seen to have outweighed the costs.

Even before the latest corporate crime wave, Mr. Bush's effort to shrink the federal government was disrupted by the terrorist attacks of Sept. 11. In response, government spending on rebuilding, homeland security and defense soared. After agreeing to federalize more than 20,000 airport workers under a new Transportation Security Administration, Mr. Bush then proposed creating a new cabinet Department of Homeland Security -- a major government expansion now consuming committee rooms on Capitol Hill that aren't focused on corporate skullduggery.

To the extent the post-Sept. 11 policies affected business, they were largely business-friendly. Airlines were bailed out, and the president proposed -- though Congress has yet to approve -- government-backed insurance for damage done by terrorists.

When Enron collapsed last fall, Washington -- preoccupied with terrorism, anthrax and Afghanistan -- reacted slowly, and the administration abstained from harsh attacks on a company that had long been friendly to the Bush dynasty. Its initial response was mainly to boast that it hadn't done anything at all to rescue Enron. "Companies come and go," Mr. O'Neill famously said in January, summing up what he considered the lessons of Enron.

Enron, in the White House view, wasn't a symptom of broad corruption; it was one particularly unscrupulous firm. In his State of the Union address, Mr. Bush included just one sentence in the second half of the speech about holding executives "to the highest standards of conduct."

After a flurry of hearings and legislative proposals, Congressional activity on corporate reforms slowed through the spring. The House passed a modest bill in April, while a stronger measure got bogged down in the Senate. Before WorldCom erupted, it appeared possible that Congress would pass no new corporate laws this year.

That would have been fine with Mr. Bush. As aides deliberated through January and February about how to respond the Enron, they rejected the most radical ideas -- pitched by Mr. O'Neill -- about ratcheting up the heat on miscreant chief executives. In March, Mr. Bush unveiled his first attempt to respond to the issue, a 10-point plan that relied almost entirely on stricter SEC enforcement of existing laws.

And the SEC, under intense pressure, has become much more aggressive than critics predicted when Mr. Pitt took office nearly a year ago. Through the first three months of this year, the SEC opened 64 financial-reporting cases, up from 30 during the same period a year earlier. In the past four months, the SEC has sought to strip four executives from ill-gotten compensation, equal to all of last year. Since last fall, it has sought to bar 54 officers and directors from holding office in public companies.

At the same time, Mr. Pitt has stretched his existing authority using creative interpretations of SEC laws, like pressing fraud charges against Edison Schools Inc. for fudging its books even though it complied with generally accepted accounting principles. And he is expanding disclosure requirements, adding at least 13 new "significant events" that will require companies to disclose information to shareholders within 48 hours of discovery.

For Mr. Bush and his aides, the pendulum's swing largely stops there, with the stricter enforcement and more disclosure. Though Mr. Bush yesterday called on the Democrat-led Senate "to act quickly and responsibly so I can sign a good bill into law," aides suggest they're hoping to water down whatever passes there.

(7/10/02) - WASHINGTON — It must be frustrating for the George Bushes.

They go through all the motions of proclaiming that they're self-made Texas bidnessmen.

They become president by acting more red-blooded than blue-blooded.

They whup small, backward countries that brutalize their own people and get dizzying approval ratings.

And then, after everything they've done, after all the laurels and plaudits, that darn economy gets its knickers in a twist.

And they are hounded by the same old question they have designed their lives to avoid: Can a Bush — born on third base but thinking he hit a triple — ever really understand the problems of the guys in the bleachers?

Despite the efforts of W. and Karl Rove to use Poppy's one-term presidency as a reverse playbook, to instead aim for the populist two-term touch of Ronald Reagan, the junior Bush now finds himself combating the same accusations of elitism that cost his father re-election.

By November 1991, with the demise of the blue-collar bard Lee Atwater and the decline of the economy, the rich white guys running the first Bush administration were openly admitting they were in a fog of privilege.

"Bush's idea of solving a domestic problem is to fire the maid and yell at the butler," chortled the Democratic senator Tom Harkin of Iowa.

The Democrats are going to town again on Bush obliviousness. America is repulsed by corporate gluttony and accounting racketeering. And the younger Bush must prove that his connection to the common man goes deeper than a peanut butter and jelly sandwich.

The 180-degree turn from "Kenny Boy" to "Book Kenny" is going to be tricky.

How can Mr. Bush crack the whip on Big Business when he's a wholly owned subsidiary of it? His dynastic ties to business gave him his career in oil and baseball, provided the record-breaking $100 million that made him president, and spawned his C.E.O. administration.

How can Mr. Bush lecture companies on setting a moral tone, getting tough on accounting practices and ending "malfee-ance," as he calls it, when there are pesky questions about his own windfall at Harken Energy? (His $848,560 stock cash-in made Hillary, the Cattle Queen of commodities trading, look like a piker for only taking home $100,000.)

The president's speech on Wall Street yesterday was a Karl Rove production, making all the right noises, with the reassuring blue "Corporate Responsibility" backdrop. But TV viewers who looked lower on the screen could see the Dow arrow sliding down steadily, off 178 points for the day.

Mr. Rove pushed W. out to the White House press room on Monday so he would not seem to be evading corporate responsibility for himself while preaching it for others.

But the president was acting petulant. When a reporter asked why he did not attend the N.A.A.C.P. meeting in Houston this week, Mr. Bush impatiently brushed off the question, noting that Colin Powell and Condi Rice work for him. So, once you give the estimable Colin Powell a job, you don't need to reach out to the rest of the black community?

Like his father before him, the president resents being challenged — on his judgment or on his trustworthiness. He just wants the country to take it on faith that he and Dick Cheney, who got filthy rich at Halliburton, and Army Secretary Thomas White, who got filthy rich at Enron, are "good actors," as he puts it.

Poppy, at some level, always knew and subtly acknowledged that his Texas up-from-bootstraps story line was a pose. He never gave up the summers in Kennebunkport, the preppy threads, the patrician posture, the upward tilt of his chin.

Junior, with his pseudo-James-Dean-in-"Giant" lectern slouch, believes he's the real thing, coated in Midland dust. He sees himself as self-made and anti-elitist. But given his slacker start, he ended up relying even more on family connections for business and political success than his father did.

He bought a dusty ranch in Crawford to show he's not a New England preppy. But he got the money for the 1,600-acre spread by having the famous name of a New England preppy.

He talks the populist talk, while walking the elitist walk.

(7/7/02) - WASHINGTON — As President Bush considers tougher penalties for corporate executives caught in financial wrongdoing, business leaders fear that a major threat to their fiscal well-being may be the man they helped put in the Oval Office.

Corporate America is girding for something of a one-two punch this week from Congress and the White House. On Monday, current and former WorldCom executives are scheduled to appear before a house committee investigating allegations the company covered up its losses, and the Senate turns its attention this week to legislation that would tighten oversight of the accounting industry.

On Tuesday, Bush travels to Wall Street to unveil a plan designed to rebuild confidence in corporate America and, by extension, in financial markets shaken first by terrorist attacks and then by repeated accounts of misdeeds by some of the nation's largest companies.

Administration officials said Sunday that Bush is considering recommendations of jail time for corporate executives who knowingly alter company financial statements.

"The speech is going to focus on strict enforcement and strong punishment," White House spokesman Ari Fleischer said.

The speech is expected to be Bush's response to weeks of intense criticism from Democrats and a growing segment of the voting public to do something to guard against financial scandals such as those at Enron and WorldCom.

Bush's growing anger over the scandals has industry leaders worried about how far this normally business-friendly president's proposals will go.

"We hope for balanced reform that punishes wrongdoers to the fullest extent of the law, that reforms and moves on, and not one that stifles capitalism," said one business leader involved in the debate over how the White House should respond to the scandals, but who requested anonymity.

Bush, mindful of his ties to corporate America, will walk a careful line and target his message to the few "bad apples" of the business world responsible for misdeeds, Fleischer said. Even while Bush talks tough, he will "stress the need for confidence in the economy," Fleischer said.

Bush was reviewing and editing his speech between fishing excursions and golf games at the family compound in Kennebunkport, Maine, during a weekend celebration of his 56th birthday.

Meanwhile, a nervous corporate America has signaled to the White House a willingness to clean its own house. Business leaders hope to fend off some of the more restrictive changes being talked about in Washington, including 10-year prison sentences for executives of publicly traded companies caught in "schemes or artifice," or making it possible to apply federal racketeering statutes to directors overseeing companies found to use questionable business practices.

With encouragement from everyone from the New York Stock Exchange to their Washington lobbyists, many boards of directors are embracing the call for greater independent and assertive oversight as well as some of the more moderate government reform proposals, such as rewriting certain accounting rules and financial disclosure requirements, industry officials said.

Both the NYSE and the Nasdaq have unveiled plans to crack down on corporate conflicts of interest.

"Clearly, many reforms are afoot," the National Association of Corporate Directors warned its members in a recent newsletter alert. "The best way directors can prepare for them, and even perhaps pre-empt them, is to look beyond the `sound and fury' to seek positive, lasting change. Directors can and should support valid reforms while opposing burdensome or unfair ones."

Business leaders and ethicists insist the series of financial scandals — starting with the fall of Enron, the Houston-based energy trading giant that hid losses with intricate interlocking partnerships, and followed by revelations that sank the fortunes of such corporate behemoths as Tyco, Global Crossing, ImClone and WorldCom — are isolated problems caused by a few bad actors. The majority of business executives work within the law and would only be unfairly punished if the federal authorities started dictating new standards for corporate governance, they maintain.

"Enron scared the hell out of them, and it should have. That's a good thing," said Stuart Gilman, president of the Ethics Resource Center, which consults with government agencies and corporations about organizational behavior.

"But the intention of the government will be to go in and tweak the system," Gilman said. "And the problem is that when the government is in a situation where it should use a flyswatter, it ends up using a sledgehammer."

While Bush was polishing his speech, lawmakers stepped up pressure on the president. In appearances Sunday on television news talk show, they demanded that the president send a tough message to Wall Street that the string of accounting scandals will not go unpunished.

"As soon as one or more of these major corporate figures is indicted and convicted for the thievery that occurred at the expense of the American investor, I think confidence will gradually come back," said Rep. Billy Tauzin (R-La.), the chairman of the House Energy and Commerce Committee that is investigating bankruptcies at Enron and other companies.

"But as long as these people can walk away with five, six, seven hundred million dollars of stock options on top of their massive compensations," Tauzin said on NBC's "Meet the Press," "having brought a company to bankruptcy, having destroyed the lives of its workers and the pension holders and everybody else who invested in that company, without going to a real jail — not a country club jail, a real jail — I think American investors are going to be suspicious."

Sen. Paul Sarbanes (D-Md.), chairman of the Senate Banking Committee who is sponsoring the corporate accounting reform measure expected to pass with Republican support, said criminal sanctions were not enough.

"All the focus is on making the bad actors pay a price, but what also ought to happen is we ought to improve the system to prevent these things from happening," Sarbanes said on ABC's "This Week."

Meanwhile, current and former WorldCom executives are scheduled to appear Monday before the House Financial Services Committee hearing into the telecommunications giant's alleged accounting cover-up of $1.22 billion in losses.

Few presidential administrations have been as closely identified with corporate America as George W. Bush's. Bush is the first president with an MBA degree, and he worked in the oil industry and in the business side of Major League Baseball before entering politics. Vice President Dick Cheney also has deep roots in the oil industry. Army Secretary Thomas White worked at Enron before joining the administration.

Those connections have served business interests well in the Bush administration's first 18 months with the passage of legislation from tariffs on steel imports to billions of dollars' worth of new subsidies for agribusiness. But Democrats are now trying to convert that pro-business posture to a liability, charging Bush and Cheney with once practicing the same business tactics they now decry as wrong.

Bush is being dogged by questions about his sale of $848,560 worth of stock in Harken Energy Corp. in 1990. Filings on that sale to the Securities and Exchange Commission were 34 weeks late. The transaction was investigated, but Bush, whose father was president at the time, was cleared of wrongdoing.

Cheney faces criticism that while he was chairman of Halliburton Co., an energy services giant, it adopted accounting practices now being investigated by the SEC.

Given the potential damage those links can cause Bush, executives and business lobbyists worry that the president will feel compelled to go far beyond a 10-point plan he detailed in March to reform corporate governance. That plan, which rejected the use of stiffer penalties against corporations and executives, instead called for more detailed and prompt financial disclosure and for a new regulatory board to oversee accounting practices.

White House anxiety over the fallout from the corporate scandals has been evident as officials talked tough about the need for the government to crack down on improper business practices.

Bush immediately denounced last month's news of improper accounting practices at WorldCom, the country's No. 2 long-distance telephone service company, as "outrageous." He said, "Executives who commit fraud will face financial penalties and, when they are guilty of criminal wrongdoing, they will face jail time," and hammered away at the company in speech after speech for a week.

As the stock exchange averages tumble, anxiety over unemployment increases and workers worry about the state of their retirement funds, the Democratic Party's leadership has suggested that Republicans are responsible for a deregulated business environment that allows financial game-playing.

"It's time to reform and strengthen the system," said Senate Majority Leader Tom Daschle, D-S.D., who on Sunday said Bush's chairman of the Securities and Exchange Commission, Harvey Pitt, had a "cozy, permissive relationship" with the people he is supposed to regulate and should be replaced.

"Unfortunately, the desire for reform is not to be found in the approaches taken by the White House, the House and the SEC," Daschle said. "This game of corporate dominoes we're watching is a wake-up call. It's time to abandon this laissez-faire attitude and take action."

Thomas Dunfee, a professor of legal studies at the Wharton School of Business, said Bush may be the best positioned politician to curb the excesses plaguing corporate America.

"For someone who is seen as very pro-business to signal that this is enough, that would have an impact," Dunfee said. "The social pressures are important."