The Fallout for Bush and Congress

How the Enron disaster will color a string of policy debates

The financial debacle that is Enron Corp. (ENE ) shows no early signs of developing into a cancer-on-the-Presidency crisis like scandals of the past. Absent proof of White House favors for the ill-fated energy company, nobody in the Bush Administration seems likely to be bounced out of office or become a political scapegoat--at least not yet. Indeed, the President blithely dismisses potential political fallout from Enron--instead joking about terrorist pretzels and traipsing around the Heartland touting trade liberalization. And there's some reason for his optimism. "There has to be a smoking gun for this to become an issue" for Bush, says University of Texas political scientist Bruce Buchanan.

But while the Administration seems to have deflected much of the political heat from the 13 Enron inquiries already under way, the corporate scandal seems destined to leave a mark on Bush's Washington. Already, the issues raised by the biggest bankruptcy in American history have altered the 2002 policy debate, from campaign-finance reform to energy, and have caused a fundamental rethinking of the role of federal regulators.

One major reason for the seismic shift in capital attitudes is Enron's high profile in politics. The corporation and its executives contributed almost $5.8 million to political war chests since 1989, including $1.9 million in soft money to both parties. While 73% went to Republicans, including President Bush--whose campaign and inauguration committee received $424,000--Enron also donated to prominent Democrats, such as House Minority Leader Dick Gephardt (Mo.), Senate Energy Committee Chairman Jeff Bingaman (N.M.), and Senator Chuck Schumer (N.Y.).

From the days of the first President Bush, Enron was a case study in how to play the Washington game effectively. It got into the wholesale electricity business in part because it successfully pushed legislation in 1992 that allowed it to do so. It managed to keep regulators away from its far-flung trading business over the past decade and has always had a seat at the table when energy legislation was considered. In 1996, Enron donated $100,000 in soft money to the Democratic Party after the Clinton White House helped with troubled negotiations over a power plant in India.

Besides spreading money around, how did Enron accumulate such clout? CEO Kenneth L. Lay's capital connections date back to the Nixon Administration, when he was an adviser to the Federal Energy Regulatory Commission and an Interior Dept. official dealing with energy issues. Close personal relationships between Lay and both Presidents Bush helped, as did a compelling story line as an innovative company. Indeed, Democrats from Clinton to former Texas Governor Ann Richards sought out Lay for advice, counsel--and contributions. In the end, former friends on Capitol Hill felt betrayed and deceived by the alleged corporate misconduct that cost thousands of workers their jobs and many their retirement savings. The backlash could have profound consequences. Here's how:


While the Administration prepares to launch a year-long assault on federal regs that it believes are stifling economic growth, some lawmakers think the unshackling of industries is coming to an end. "We spent the last 10 years breaking down walls between businesses," says Representative Joe Barton (R-Tex.). "I think that's over." Even some longtime deregulation advocates are rethinking the role of federal watchdogs. "A whole lot of little people got hurt because someone wasn't watching out for them," says Representative Charles W. Stenholm (D-Tex.), a leading Democratic conservative.

Office of Management & Budget Director Mitch Daniels calls Enron "a very graphic example of what can happen when we don't have enough transparency in the marketplace. It may well eventually lead to further federal action." One probable reform: a change in accounting rules that, at a minimum, would forbid accountants who audit a company from contact with their consultant colleagues who advise the same company's managers about how to increase profits. Also likely are regs that restrict companies that use their stock to match employee contributions to 401(k) accounts. In fact, a cap may be placed on the percentage of company stock permitted in such accounts.


The harsh spotlight on Enron has exposed how big contributors buy access with generous donations. Supporters of the stalled McCain-Feingold campaign-finance-reform bill are hoping the scandal generates the momentum needed to ban soft money and broaden disclosure requirements. "Enron is a story about big dollars that influence public decisions," says Representative Christopher Shays (R-Conn.), a reform leader.

While the campaign-finance overhaul passed the Senate last year, it stalled in the GOP House. Reformers are hoping that the anti-Enron backlash will help them get the two additional signatures needed to force a showdown vote on the House floor. Still, even if Shays & Co. win in the House, reform opponents, led by House Majority Whip Tom DeLay (R-Tex.), will try to scuttle the proposal in a House-Senate conference committee. (DeLay has received $28,000 in Enron donations since 1988, placing him fourth among House members who got gifts from the company.) Nonetheless, the long-dormant bill seems to have new life. Because of Enron, "campaign-finance reform is back, alive and kicking," says Republican consultant Scott W. Reed.


The Administration has thus far avoided the ethics problems that dogged the Clintonites. But Enron's financial ties to the Bush team have refocused attention on potential conflicts of interest in the White House--even though there's no evidence that any official intervened when the company was in free fall. Among top Bush aides, chief economic adviser Lawrence B. Lindsey and U.S. Trade Rep Robert B. Zoellick served on an Enron advisory board, and new Republican National Committee Chairman Marc Racicot lobbied for Enron in 2001.

Most problematic for the White House is Enron's involvement in Vice-President Dick Cheney's energy task force last year. Cheney has acknowledged that he and aides met with Enron officials six times while they were formulating the Administration's energy policy. Democrats, hungry for an issue in the 2002 midterm elections, allege that Enron's close ties to the Bushies bought special access to the corridors of power. In fact, a Jan. 11-14 Gallup Poll finds that 46% of Americans believe the Administration did something illegal or unethical. So the pressure is on the White House to shed light on the inner workings of the secretive Cheney group. The General Accounting Office will soon file a lawsuit to force release of the minutes of the task force meetings, BusinessWeek has learned.


Lawmakers and lobbyists alike believe that a bipartisan compromise is near on legislation. But the attention on Enron could alter the equation on Capitol Hill. For one thing, it's now highly doubtful that the electricity deregulation sought by Enron--and previously backed by House Republicans and Senate Dems--will be included in the final package. And it's less likely that Congress will agree to Bush's proposal to drill in the Arctic National Wildlife Refuge. The Enron fallout "will have a negative impact on the Administration's push for [pro-production] energy legislation," concedes one business lobbyist with close ties to the White House.


Democrats are preparing to use the Enron scandal as a case study in how Republicans allow powerful corporations to run amok while workers suffer the consequences. Indeed, Gallup found that 63% of Americans believe that Big Business has too much influence over the Administration. But with dozens of Democrats also benefiting from Enron's largesse, that line may be difficult to sell. Certainly, the Enron debacle has fired up GOP populists who have long lamented the clout of Big Business. "Republicans need to deemphasize some of the corporate tax cuts and focus more on individual reductions," says Cato Institute economist Stephen Moore.

While the corporation-bashing rages, the White House remains in damage-control mode. "If the Administration will be disciplined and just answer the [committees'] questions, sooner or later, it goes away," says GOP operative Charles Black. That may be true as far as any whiff of scandal is concerned. But public policy will be formulated in the shadow of the Enron scandal for a long time to come.

By Richard S. Dunham, Lee Walczak, and Dan Carney, with Lorraine Woellert and Laura Cohn, in Washington

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