Watchdogs Fear Red-State Rollback

"We think there's a growing sense among businesses, lawmakers and others that the pendulum has swung too far," said David Hirschmann, a senior vice president at the U.S. Chamber of Commerce.

Even corporate watchdogs admit that they face an uphill battle to keep policymakers focused on the need for reform. "We need to remind members of Congress why these proposals were necessary," said Sally Greenberg, senior counsel for Consumers Union.

Further dimming the reform movement's prospects is increased scrutiny on the SEC's Donaldson. Conservatives have grown dissatisfied with Donaldson over his backing of increased regulation. A number of recent proposals, including the new rules governing hedge funds and mutual funds, were passed only because Donaldson sided with the agency's two Democratic commissioners.

The Bush administration and Congress are likely to frown on similar outcomes at the SEC, observers say. Indeed, Donaldson could be forced out unless he reaches out to his fellow Republican commissioners, which would likely entail fewer and less restrictive regulations going forward, they say.

"He's walking the plank to some extent," said a former congressional policymaker who is close to Republican lawmakers. Republicans' Election Day gains will "slow down the momentum Donaldson had hoped to build behind additional reforms," added the former policymaker, who asked not to be named.

Many believe Donaldson wants to push through the proxy access rule to secure his legacy, but doing so could shorten his stay on the commission and lead to his replacement by a more conservative chairman who might try to roll back the reform.

"We're very concerned about [the prospects for] shareholder access," said Ann Yerger, deputy director of the Council of Institutional Investors, which represents public, labor and corporate pension funds. "We're optimistic something will happen in the not-too-distant future, but the road seems a lot rockier" than before the election, Yerger added.