Corporate Oversight Bill Passed in Wake of Telecom Crisis
The corporate oversight bill Congress overwhelmingly passed Thursday is certain to result in more regulation in a beleaguered industry the federal government deregulated in 1996.
The legislation may help restore investor confidence in an industry whose reputation has been sullied during the past year and encourage the Federal Communications Commission (www.fcc.gov) to become more of watchdog, some observers say.
“As bad as telecom has been hit, I’d say anything that can restore investor confidence is generally a positive,” said Charles Hunter, general counsel at Hunter Communications Law Group who until recently represented the Association of Communications Enterprises (www.ascent.org). “The Congress obviously could have gone a lot further, and it’s a question of whether what they did will be enough to accomplish the result.”
President Bush said he would sign the bill that is designed to curb corporate fraud and protect investors. He commended the two chambers for the “overwhelming bipartisan passage of reforms to hold corporate America accountable,” in a statement released Thursday.
“This legislation will protect investors, crack down on fraud and wrongdoing, and provide tough oversight of the accounting industry. Leaders in Congress heeded the call to put the interests of investors and employees first.”
Among other provisions, the bill creates a regulatory board to oversee the accounting industry, creates new grounds for prosecuting corporate misdeeds, affords protections to corporate whistle-blowers, bars companies from extending unusual loans to executives and prohibits accounting firms from offering several types of consulting services to public companies they also audit.
Whatever the burdens associated with the bill may be, they are small in comparison to the overriding need to restore investor confidence, Hunter said.
Telecom companies and their former superstar CEOs have been toppled following the bursting of the Internet bubble and the subsequent carnage that forced hundreds of big telecom providers into bankruptcy.
Global Crossing Ltd. (www.globalcrossing.com), Qwest Communications International Inc. (www.qwest.com) and WorldCom Inc. (www.worldcom.com) are accused of leveraging broad accounting rules to manipulate their financial performance. Global Crossing and WorldCom have filed for protection under Chapter 11 of the bankruptcy laws.
In the meantime, WorldCom’s former chief executive Bernie Ebbers is under fire for borrowing hundreds of millions of dollars from the company’s coffers, and research analysts such as Salomon Smith Barney’s (www.smithbarney.com) Jack Grubman have lost their star power and credibility following allegations that Wall Street analysts awarded carriers with dubious business models favorable equity ratings in return for investment business.
With an overhaul of corporate legislation at hand, perhaps the Securities and Exchange Commission (www.sec.gov) will push the FCC to assume a bigger role in monitoring the financial condition of carriers, Hunter said. To date FCC Chairman Michael K. Powell and commissioners Kevin J. Martin and Kathleen Q Abernathy have opposed more involvement, he said.
The FCC has ratcheted back on accounting requirements over the last year for incumbent local exchange carriers, according to Lyn Cusack, a lawyer in the government group of Gallagher, Callahan & Gartrell (www.gcglaw.com). Regulations that gave the FCC authority to monitor a company’s books through automated reporting management systems only are written for the incumbents, Cusack said, but “I think the FCC should have a little bit more oversight with more than just the ILECs.”
The telecom sector is subject to more scrutiny with respect to accounting methods and other practices than any other sector, said Nels Ackerson, founder of The Ackerson Group (www.ackersonlaw.com), a law firm that has a number of class action suits pending against telecom companies for violating rights-of-way. But Ackerson said he is OK with all the regulations.
“I think that is justified because many of those companies went to extreme lengths to boost an appearance of success and prosperity when they have very little of either and misled a lot of people.”
