CPAs on Capitol Hill: a behind-the-scenes look at the passage of securities litigation reform.

Last December, the House and the Senate voted for the first time to override a veto by President Clinton and pass the Private Securities Litigation Reform Act of 1995. The margin of victory in the House--29 more votes than needed to override a presidential veto--combined with the 68-30 margin in the Senate, came after the President had vetoed the legislation at the 11th hour after indicating to Congress for months that he supported it.

Senator Christopher J. Dodd (D-Conn.), perhaps the bill's most active supporter in the Senate and chair of the Democratic National Committee, visited with members in the House chamber less than 24 hours after the presidential veto to mobilize support for an override. But the senator was not alone in the fight to keep securities litigation reform from failing. Other members of Congress were asking their colleagues for support on the House floor, in the cloak room and in their offices. Many of these members had received calls earlier that morning from representatives of the accounting profession and other key players in the battle to end frivolous securities lawsuits, such as the high-tech corporate community and securities underwriters. In fact, many of the members of Congress who voted to support securities litigation reform had not heard of the issue until it was brought to their attention at the grassroots level, years before it was drafted into legislation, by representatives of the CPA profession.

Cultivating relationships

The initial effort in the House to draft securities litigation reform legislation was led by Billy Tauzin (R-La.). Tauzin was the principle author of the original House bill (HR 417) and he successfully fought for the first hearing before a House subcommittee in 1994. He learned about the issue at a party in Baton Rouge from his long-time friend, Jake L. Netterville, former chair of the American Institute of CPAs and managing director of Postlethwaite & Netterville in Baton Rouge. "I asked Billy for five minutes of his time and I told him what the profession needed," said Netterville. "He told me he felt drafting reform was the right thing to do and he offered to take the lead." A similar effort in the Senate was led by Senator Terry Sanford (D-N.C.) and Pete V. Domenici (R-N. Mex.). Sanford was later defeated and Senator Dodd took the helm.

At the same time Congress was drafting its legislation, the chief executive officers of the nation's largest accounting firms formed the Accountants Coalition to mobilize partners and clients to advocate reform to their representatives. The AICPA and state societies had already established a solid base of support in the local congressional districts by sponsoring key persons who could inform their members in Congress of their needs. "To get members of Congress to support an issue, you have to present it so that it has political appeal," said J. Thomas Higginbotham, AICPA vice-president of congressional and political affairs. "We determined early that we could not make this an accountant's fight--we had to include the business community."

An allied front

"The most important strategic decision by the accounting profession was to involve private sector business organizations, such as the trade groups that represented high-tech companies," said Representative Tauzin. "We would not have gotten the two-thirds override vote without the support of liberal democrats who were attracted to the relief the bill promised high-tech companies."

Larry S. Kamanitz, partner of Grant Thornton in Baltimore, has been politically active in the Democratic Party since he was in college. Kamanitz was mainly responsible for getting Senator Barbara A. Mikulski (D-Md.) to sponsor the bill. "This was a case of making the senator aware of the issues," said Kamanitz. "She needed to know that this legislation encompassed more than just the accounting profession." Kamanitz said that one of Maryland's largest growth industries is the biotech industry, in which a company's stock can fluctuate dramatically. He said Mikulski was concerned that the frivolous lawsuits filed after a sudden drop in share price were costing Maryland jobs. "I talked to my constituents and learned that these lawsuits were hurting the growing biotechnology industry as well as accountants," said Mikulski. "Less money was being invested in new jobs and consumers were not protected because Maryland companies were tied up in court with expensive litigation." She also said many accounting firms in her state were unwilling to perform audits for the biotech industry in fear of ancillary, but damaging lawsuits.

After the president vetoed the bill, Kamanitz called Senator Mikulski to ensure she would vote to override. "The senator was encouraged to change her vote by Senator Paul S. Sarbanes (D-Md.) and Ralph Nader, who represented the Center for Study of Responsive Law," said Kamanitz. "But the senator held firm."

In another effort to broaden the spectrum of constituents with a vested interest in the success of securities litigation reform, proponents of change created the Coalition to Eliminate Abusive Securities Suits (CEASS). Most of the companies that joined CEASS did not lobby the bill, nor did they donate resources. They simply added their names to the coalition so key persons could inform members of Congress that there were many companies in their states actively interested in reform. "CEASS had over 1,300 members from all industry groups distributed all over the United States," said Higginbotham. "It was another broad-based business coalition that added muscle to our fight."

The accounting profession armed its key persons with background information about the issues and arguments their representatives would need to pass the bill. The AICPA, state CPA societies and the Accountants Coalition provided key persons with examples of local interest so when the representatives returned home they could talk intelligently about the issue. Key persons were also asked to testify to help negotiate the legislation through Congress.

Working back home

Many of the successful relationships with state and federal legislators had been developed long before the securities bill was drafted. Key persons were meeting regularly with legislators in their home state to discuss professional and other issues. For Gila J. Bronner, chair of The Bronner Group in Chicago, and chair of the AICPA key person coordinating committee, cultivating good relationships with members of Congress often meant reaching out to them while they were running for office. "I met with all the candidates and let them know what the AICPA and state societies could do for them," said Bronner. "When Bobby Rush was running for the House, I told him I wanted to meet with him to discuss how CPAs could be of help." After his election, representative Rush told Bronner he needed the profession's help for work he was doing with earned income tax credit legislation. "The profession came through and a solid foundation was built," said Bronner.

When Bronner asked Rush for his support of securities litigation reform, he agreed to be a co-sponsor and to talk to other members of the Democratic Party, as well as members of the Black Caucus. "Bobby spoke to other members of the Illinois delegation that were not yet committed to the legislation," said Bronner. Rush enlisted the support of then newly elected representative Jesse Jackson, Jr. (D-Ill.). "One of Jackson's first votes in Congress was to override the president's veto," said Bronner. "His father, Jesse Jackson Sr., was opposed to securities litigation reform."

CPAs command attention on the Hill

Bronner credits her political acumen to her extensive experience with national and state democratic party organizations and the American Israel Public Affairs Committee, one of the nation's most influential political action committees. But she is quick to attribute this political win to the strong influence of the accounting profession both on Capitol Hill and in state legislatures. "Now, when I visit members on the Hill and tell them I am a CPA, they let me know they supported us on securities litigation reform," said Bronner. She believes CPAs were singularly responsible for a large number of key votes on this bill. "CPAs are taking more of a political interest," said Bronner. "Perhaps it has to do with the wins they are now experiencing at the state level, such as with tort reform and the 150-hour education requirement."

Both Senator Dodd and Representative Tauzin also attributed much of the bill's success to the efforts of the accounting profession. Last summer, Dodd told the AICPA board of directors that the reason so many senators agreed to sponsor the legislation was because AICPA members had "gone out of their way to talk about this issue." Marvin Fast, a senior staff aide to the senator, said the accounting profession did an outstanding job communicating to Congress the fairness and equity issue of the bill's proportionate liability provision. "This experience enhanced my impression of a committed and politically savvy organization."

Tauzin said it was common for people to lose both energy and momentum when working on a six-year effort like this one. "The remarkable thing about the accounting profession was that they never faulted," said Tauzin. "They were the most stable and effective force I have seen behind an issue."

"We worked hard to get this done," said Netterville, who throughout the political process told people not to get discouraged because it could take a long time. "This is a good lesson for us, and we cannot give up on ending the workload compression problem or changing the tax law."

Maintaining the momentum

The passage of securities litigation reform is a success story based on cultivating relationships. Individual members of the profession worked with members of Congress, and the accounting profession worked in partnership with other private sector business organizations, government agencies and investor groups to create a large, unified front. "We were a force to be reckoned with," said Bronner. "This override is a tribute to our effective force in Washington and it highlights the importance of grass-roots-level political involvement."

As the scene shifts to the state legislature level, it remains to be seen if the profession can keep its members engaged after such a big success. Many states have adopted proportionate liability legislation, reducing significantly the profession's exposure to frivolous lawsuits, but battles continue to be fought in the state courts. The AICPA continues to urge its members to be politically involved in their local tort reform efforts, and it will be necessary for accounting firms and other business organizations to revisit litigation reform at the local level to maintain the unified front.

Key People

The American Institute of CPAs key person program is a cooperative effort with the state CPA societies to identify and maintain a cadre of CPAs who have a close relationship with members of Congress and who will communicate with them on issues of importance to the accounting profession. In a sense, each key person is an advocate who must be able to relay AICPA positions clearly.

Key people are kept up to date on current issues through the faxed news memo Capitol Account and the Digest of Washington Issues, a quarterly publication that briefly describes each area of import to the profession and the Institute's position on the issues. When timely contact and feedback are needed, Federal Legislative Action Alerts are sent to key person contacts.

For more information on the program, contact John Sharbaugh, AICPA, 1455 Pennsylvania Avenue, NW, Washington, D.C. 20004-1081, phone no. 202-434-9257.