Watchdogs Fear Red-State Rollback

The voters have spoken, and many corporate watchdogs are worried about what policymakers in Washington heard.

The re-election of President Bush and the strengthening of the Republicans' majority in Congress have put pro-business politicians firmly in charge. That could spell the end of the post-Enron movement to reform corporate governance via new laws and regulations, many observers believe.

"The reforms are over. It's going to be problematic as to what you're able to hang on to," said Lynn Turner, the former chief accountant of the Securities and Exchange Commission and the director of research for proxy adviser Glass Lewis.

Specifically, Republicans' gains could imperil both the effort to force companies to expense stock options and the proposal to give shareholders greater access to corporate proxy ballots, Turner and other capitol observers say. It could even lead to the ouster of William Donaldson, the reform-minded SEC chairman, and the rolling back of some of the provisions of the landmark Sarbanes-Oxley Act, some believe.

But even before the election, the reform movement appeared to be losing steam. The proposal by accounting regulators to require all companies to recognize the cost of options on their income statements has already drawn serious opposition in Washington, including a vote over the summer in the House of Representatives that would override the new proposal.

Similarly, business groups have balked at the new proxy access proposal. The uproar over the proposed rule, which would allow shareholders to place director nominees on company issued proxy ballots if certain conditions are met, forced SEC Chairman Donaldson to back off from his initial support.

Business interests in general have become more vocal in their opposition to further reforms and have begun to call for a re-examination of some of the recently passed rules. NYSE CEO John Thain, for instance, has complained that the new rules have encouraged companies to go private or to avoid the U.S. markets. And many small and medium-sized public companies have complained about the costs of complying with the new rules.