For Directors, Political Climate Change Business After The Midterms

While Democrats will again control key congressional committees, a wholesale offensive against business is not in the cards. Still, Corporate America's complaints about high taxes and overregulation will no longer fall on so many sympathetic ears. There will be tougher posturing— if not legislation—against excess in executive compensation. Rep. Barney Frank of Massachusetts, who is in line to take over the House Financial Services Committee, is almost certain to pounce on the issue of executive compensation.

"He will reintroduce a law on executive compensation with a couple of significant points," predicts Mark Borges, principal of Mercer Human Resources, the compensation consulting firm headquartered in Boston. Frank has previously tried to introduce legislation that would put greater restrictions (including shareholder approval) on granting pay packages and could force companies to take back executive pay if mismanagement leads to financial restatements.

It will be harder to push major legislative changes in the hated Sarbanes-Oxley law (see story). Some help is expected on Dec. 13, when the SEC may propose modifications to Section 404 of SOX for small businesses.

Corporate governance reformers also are likely to be winners. Their efforts to push for majority-elected boards are likely to get a warmer political reception. Also at the Dec. 13 meeting, the SEC will debate how to respond to an appeals court decision that shareholders should be allowed to nominate directors—and companies must include those names in their proxies.

Aside from Barney Frank, many names from the past— specifically 1994, when the Republicans captured Congress— are likely to reappear. They include Rep. John Dingell of Michigan, who might once again head the Energy and Commerce Committee. During his last stint in that role, he was known for his toughness on energy companies and railroads after their industry had been deregulated. Other major old-new players include Rep. Henry Waxman, who's in line to head Government Reform, and Rep. David Obey of Wisconsin, who, as head of Appropriations, might put old-fashioned entitlements ahead of defense spending.

Ardent California liberal Nancy Pelosi will be the first-ever female Speaker of the House. But while the outspoken Pelosi rattles many corporate types, she's also known as a consensusbuilder. Since the Democrats didn't win a sweeping majority in the House, she'll have to be willing to compromise to a degree with the GOP and the Bush Administration.

The narrow win by Democrats in the Senate also puts some chairmanships in question. Mac Baucus of Montana is likely to replace Charles E. Grassley of Iowa as head of Senate Finance. Christopher Dodd of Connecticut may take over the Senate Banking or Housing and Urban Affairs Committee. Dodd has split with the Democrats on issues such as setting limits for class action lawsuits.

Although George Bush signaled his willingness to moderate his views by jettisoning Defense Secretary Donald Rumsfeld and meeting quickly with Pelosi, the noise level will soon increase. Big companies such as the extremely profitable petroleum giants are in for greater scrutiny. Ditto drugmakers, since plastering Big Pharma plays well with America's aging population.

Business has already gotten the message. Sensing the wind change, corporations started shifting their political contributions to Democratic candidates in an election that cost $2.8 billion, the most expensive ever.

So it is a greatly changed political landscape for boards, but not an unworkable one. Democrats seem to be taking a pro-business stance in signaling that they want to help the Big Three automakers, for example. And they clearly smell opportunity in 2008. That means they can't afford to be pegged as ideologues who hurt business and destroy jobs.