SAN JOSE, California--In a surprising policy reversal, President Clinton told a group of Silicon Valley executives that he opposes a proposed California measure that would expand investors' rights to sue companies over financial projections.
Clinton's promise almost coincided with the announcement that Republican presidential hopeful Bob Dole is also pledged to oppose the initiative.
The proposition would allow California shareholders to personally sue directors, officers, and other employees normally shielded from suits when a corporation doesn't meet projected earnings or stock prices fall. It would also allow shareholders to collect punitive damages.
Securities litigation has become a critical issue for high-technology companies, politically as well as economically, and now both candidates are trying to help secure the Silicon Valley vote by taking a stand on California securities litigation initiative known as Proposition 211.
Clinton's opposition to Proposition 211 is an apparent attempt to win back support of high-technology companies angry at him for vetoing federal securities reform last year. The White House was expected to make a formal announcement on the California measure today, but had not by the end of the business day.
Several Silicon Valley executives, claiming that unfounded lawsuits have cost the industry hundreds of millions of dollars, told CNET that they had felt abandoned by Clinton after the veto--and many who participated in an extraordinary show of support for the Democratic candidate in 1992 are rethinking their allegiance to the man they helped get elected.
Apparently, at least some executives are willing to forgive Clinton's earlier veto--which many considered nothing short of outright betrayal--if he'll support them on the new California measure. In direct contrast to comments made at that time, some executives are now excusing the president's veto as a valid reaction to technical objections to the bill. The veto was overridden by Congress.
A group of hi-tech investors and executives, known formally as Taxpayers Against Frivolous Lawsuits (TAFL), is leading the fight against the California measure. The group met with Clinton before a scheduled speech at John Muir Middle School here, in the heart of Silicon Valley. Although Clinton didn't mention Proposition 211 in his speech, the executives said he assured them of his support for their stance.
The group also made public a letter from Dole today promising to oppose the initiative. The letter, dated August 6, said that Dole would fight against 211 on grounds that it is "an obvious attempt to circumvent the federal securities litigation reform bill" which "will help restore balance and fairness to an area of the law that has been taken over and tragically abused by a small number of trial lawyers."
Although Dole also opposes 211?and actually came out first against the legislation--Clinton appears to have shored up flagging support among the same group during a pre-speech discussion with TAFL supporters. Some members of the group came away impressed with Clinton.
"The president was concerned. He was well aware of the issue. He was very well informed and also very much opposed to 211," said Regis McKenna, chairman of the high-tech public relations firm that bears his name.
Another executive attending the meeting, John Doerr, helped influence Clinton's decision. "What these securities lawyers are doing is nothing short of economic terrorism," said Doerr, a partner in venture capital firm of Kleiner, Perkins, Caufield, & Byers. "It undoes all the federal reforms. It's just wrong."
The group Citizens for Retirement Protection and Security is TAFL's opposite number and supports the measure. "There's a reason these people get sued and its not because their stocks are volatile," said Sean Crowley, a spokesperson for the group, disputing claims that there are too many frivolous lawsuits.
He added there is a particular problem with high-tech firms violating SEC reporting regulations. Because of the difficulty in securing financial backing for operations in an admittedly "dog-eat-dog" world, Crowley says that executives are often tempted to promise products that they know they can't deliver.
Clinton was in Silicon Valley on an unofficial campaign stop where he avoided addressing recent points of contention between the White House and Silicon Valley powers. He praised technology companies, such as IBM, for participating in civic-minded projects that benefit education, including the much-publicized NetDay '96, an initiative to get public schools online that he and Vice President Al Gore spearheaded this spring.
The president also hit on some favorite Silicon Valley themes, including universal access to the Internet, but steered clear of his recent call for more electronic wiretap authority for the government, including more power to eavesdrop on data passed over the Internet.
Unlike securities litigation, Clinton showed no sign of compromise on that issue.