CEOs cautious of overreaction to recent crisis on Wall Street

The chief executives of four of America’s largest corporations cautiously endorsed the federal government’s bailing out major companies while expressing concern that Congress and the next administration might go too far.

The actions taken by the Treasury Department and the Federal Reserve to salvage Bear Stearns, Fannie Mae and Freddie Mac, and AIG were prudent, but policymakers should take care not to respond to the credit, banking and housing crisis with overly burdensome new regulations, said McGraw-Hill Cos. Chairman, President and CEO Harold McGraw III, who also is chairman of the Business Roundtable.

{mosads}“Is regulation important? You bet. Is excessive regulation helpful? No. And we need to be, in this time, very thoughtful and considerate about how we want to see our market operate going forward,” McGraw said.

The Business Roundtable event took place just as Republican presidential nominee John McCain and Democratic presidential nominee Barack Obama both called for reforms in the regulation of financial markets, foreshadowing what could be a difficult environment for big business in the coming year.

Several of the CEOs who make up the Business Roundtable’s more than 130 members were due to meet with representatives of Sens. McCain (Ariz.) and Obama (Ill.) later Wednesday to discuss the group’s economic agenda in areas such as energy, trade, healthcare and education.

Joining McGraw at the event were Xerox Corp. Chairman and CEO Anne Mulcahy, Accenture Chairman and CEO William Green and Verizon Communications Chairman and CEO Ivan Seidenberg.

Business leaders, still mindful of what they view as overreaching by Congress and the Bush administration when they enacted the Sarbanes-Oxley legislation in the aftermath of the collapse of Enron and other companies, urged lawmakers and the presidential candidates to resist the urge to make sweeping changes in response to Wall Street’s current turmoil.

“We cannot overreact. We don’t want to look for too much solution,” McGraw said. “Where do you stop? How far can you go? This is not an endless game,” he said.

Mulcahy said the effects of the recent steps taken by federal authorities should be evaluated before new measures are adopted. “Part of this really is to make sure that we understand the implications of the actions that we’ve taken,” she said.

The rest of the world is watching, McGraw said, and they are looking to the U.S. “in terms of crisis management.”

“The most important thing here that we need to be doing right now is removing some of this uncertainty and some of this fear and restoring confidence, and that’s exactly what’s taking place,” McGraw said. He described the federal authorities’ recent moves as “a very measured response” to the escalating financial crisis.

In the longer term, McGraw said, Congress and the next president should carefully review the entire regulatory structure of the financial system.

“In the capital markets, we haven’t gone through a serious review of the regulatory environment for a long, long time, so we’re due,” he said.

“We have an opportunity to reinvent our financial system and to re-establish our global leadership. We ought to look at it that way,” Green said.

None of the CEOs directly addressed McCain’s or Obama’s statements on financial regulatory reform but they agreed their respective campaigns are not paying adequate attention to some issues vital to American business.

Though there has been debate on energy issues and healthcare reform, the candidates need to bring other issues to the fore, such as education, global competitiveness and foreign trade, McGraw said. “I certainly think that energy and healthcare have kind of hogged the oxygen,” McGraw said.

The candidates need to change the way politicians talk about trade, McGraw said. “It shouldn’t be a polarizing, partisan kind of issue,” he said.

On healthcare, Seidenberg criticized both candidates’ proposals, arguing that they would disrupt the model of employer-sponsored health insurance that provides benefits to the majority of people who have coverage.

“I think the healthcare plans that we’ve seen from both presidential campaigns both undo ERISA,” the federal law governing employer-sponsored health benefits, Seidenberg said. “Both campaigns have taken this idea of changing the system beyond where I think the Business Roundtable would take it,” he said. “We don’t think some massive overhaul is going to do anything better than what we have today.”

The Business Roundtable, however, has adopted a new health reform principle that goes beyond what McCain or Obama would do in one respect, Seidenberg said. The group now endorses a government mandate that individuals obtain some form of health coverage, and also supports some form of assistance for those who cannot afford to do so.

Obama argued forcefully during his primary campaign against Sen. Hillary Rodham Clinton (N.Y.) that the mandate in her plan was unnecessary and punitive. McCain also rejected mandates during his primary campaign, pointedly noting that his one-time rival, former Massachusetts Gov. Mitt Romney, signed such a mandate into law in his state.

Echoing Clinton, Seidenberg argued that the healthcare system cannot function efficiently and fairly unless everyone is enrolled in some type of plan. “Every American has some obligation to register in a plan. We need to make sure everybody participates,” he said. “That should be mandated by the government.”