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A Pro-Business Pit Bull Sets Some Teeth On Edge

From AIG (AIG) CEO Maurice R. "Hank" Greenberg to former Qwest (Q) chieftain Joseph P. Nacchio, the tidal wave of scandal continues to swamp boardrooms across America. But Thomas J. Donohue, CEO of the U.S. Chamber of Commerce, isn't backing off a campaign against what he views as regulators run amok. Amid the allegations of corporate wrongdoing, the combative lobbyist continues to lash out against the enforcers, warning of a dire threat to U.S. business. "Government agencies have gone overboard" in implementing the Sarbanes-Oxley corporate governance law, Donohue says. "An accounting error should never be seen as a crime."

Donohue's top target for overzealous regulation and heavy-handed enforcement is Chairman William H. Donaldson's Securities & Exchange Commission. Plenty of business leaders privately support his goals, but some lobbyists cringe at Donohue's take-no-prisoners approach. They fear the Chamber is overreaching in ways that could set back the campaign to convince investors that Corporate America has cleaned up its act. "The business community now has zero credibility," frets a trade-group lobbyist afraid to publicly criticize Donohue. "For the best-known business organization to take on the SEC in this way doesn't help."

Among those leery of a war on the SEC is the Business Roundtable, which was quick to distance itself from the Chamber's opposition to a rule that bars companies from selectively disclosing key information to favored investors or analysts. On Mar. 2, then-CEO of AutoZone Inc. (AZO) Steve Odland, head of the Roundtable's corporate governance task force, sent a letter to the SEC'S five commissioners and its enforcement director lauding the rule, known as Reg FD, for "fair disclosure."

The Chamber is also suing the SEC over a requirement that 75% of a mutual fund's directors, including its chairman, be independent of the fund's investment adviser. A U.S. appeals court was scheduled to hear oral arguments in the case on Apr. 15. And the Chamber has filed a brief in support of Siebel Systems Inc. (SEBL), a software company the SEC has twice sued for alleged violations of Reg FD. The Chamber says the rule tramples First Amendment guarantees of free speech.

A Head-Scratcher

The Chamber's suit over the fund governance rule, which the SEC adopted last July in a 3-2 vote, has raised eyebrows because few of the group's 100,000 members are fund companies. According to the Chamber, the suit was launched at the behest of a few big fund-company members that are partially underwriting the challenge, but officials declined to name them. Fidelity Investments, which vigorously opposes the SEC rule, says it discussed its views with the Chamber but hasn't earmarked any of its Chamber membership dues to pay for it. Fidelity declined to comment about any separate contributions to help pay for the lawsuit.

SEC lawyers insist the mutual-fund rule is on firm legal ground, but some securities experts think the agency may have exceeded its authority. "It's a toss-up," says Diane E. Ambler, a partner at Kirkpatrick & Lockhart Nicholson Graham LLP. If the court sides with the Chamber, it may be too late to write a tighter rule: Two of the three SEC commissioners who voted for the current one could leave this summer. And a victory just might further embolden Tom Donohue.

The Securities & Exchange Commission's announcement, expected on Apr. 14, that Enforcement Director Stephen M. Cutler would soon step down is bound to give investor advocates the jitters.

Cutler, who joined the SEC in 1999 and became its top cop in 2001, has used hardball tactics and stiff penalties to bring hundreds of errant companies, executives, auditors, and other gatekeepers to account. The 43-year-old Yale Law School grad directed the SEC's cases against Enron, WorldCom, and Qwest (Q), as well as its landmark probe of trading abuses at the New York Stock Exchange. Prodded by the headline-grabbing investigations of New York State Attorney General Eliot Spitzer, Cutler molded his division into an elite squad that is forcing Corporate America and Wall Street to clean up dodgy finances and conflicts of interest. Joel Seligman, dean of Washington University School of Law, calls Cutler "one of the greatest directors of enforcement in the SEC's history."

The choice to succeed Cutler will send a signal about SEC Chairman Donaldson's commitment to strict policing of securities laws. A leading contender is Linda Chatman Thomsen, Cutler's deputy and fellow tough cop.

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