Those Mystifying Guidelines

Executives struggle with the paper chase in never-never land

"The program-year rate of price change is the sales-weighted average of the percentage changes of a company's product prices measured from the last calendar or fiscal quarter completed prior to October 2, 1978, through the same quarter of 1979."

Anyone who is an expert at deciphering gobbledygook might lend a hand to C. Milton Allen, senior vice president of Houston's Panhandle Eastern Pipe Line Co. For the past two months, he and 15 aides have been waging a bleary-eyed battle to make sense out of not just that mumbo-jumbo masterpiece but plenty of others like it. The language is from the pricing regulations drawn up by the Council on Wage and Price Stability (COWPS) to enforce Jimmy Carter's Stage II guidelines. The rules were supposed to put some muscle into the White House's campaign against inflation, but they have become a source of bafflement for lawyers, accountants and businessmen everywhere.

Under the plan, labor and management would cooperate through a system of voluntary restraints in which both sides would make sacrifices. With some exceptions, price rises would be held to less than the average of the past two years, while wages and most benefits would go up no more than 7% annually. All companies, no matter how large or small, would be expected to follow the guidelines. Firms with sales of $250 million or more annually would have to file reports to COWPS showing that their price rises were being kept within the prescribed limits. Offenders would first be warned privately by COWPS. If that did not work, they would be publicly denounced--in extreme cases by Alfred Kahn, who is Carter's chief spear carrier against inflation.

Carter's inflation fighters did score early success in persuading unions to restrain wage demands, but last week the AFL-CIO announced plans to challenge the program in court. The federation argues that the National Labor Relations Act requires employers to bargain "in good faith" with unions, and claims that doing so is impossible if companies know they can lose federal contracts by agreeing to excessive wage increases.

The hardest struggle has been to police prices. In the U.S.'s trillion-dollar economy, no single formula could be fair to every company. COWPS' 45-page booklet of basic regulations is so loaded with well-intentioned but confusing caveats, qualifications and exceptions that not even lawyers seem able to understand it. Meanwhile, fresh legalese spews forth almost daily from COWPS in an effort to clarify, amplify or refine earlier regulations and procedures.

This has placed a staggering burden on COWPS' 130-member staff. Though it is growing by 10 to 15 a week, the staff has a budget for only 230 employees, vs. the more than 4,500 that administered wage-price controls during the Nixon years.

Even a cast of thousands seems barely adequate. Every day more than 1,200 phone calls come in from corporate comptrollers and finance officers anxious to learn what the regulations actually mean. Tidal waves of paper work arrive in the mail from companies disgorging themselves of pricing data in an effort to prove compliance or plead for exemptions, or just beat back the bureaucrats with a statistical deluge. Example: when Carter complained that Hershey Foods was raising the price of its candy bars by a nickel (to 25-c-) in November, Hershey fought back by barraging COWPS Director Barry Bosworth with data on such minutiae as how many times a year the company prints candy wrappers. The answer: once.

More data may soon be pouring in. Responding to a personal telephone plea by Carter to help COWPS monitor price rises around the country, AFL-CIO President George Meany last week urged union members to jot down the cost of goods in stores. Labor will gather the data and mail them to Washington. That, of course, will simply overload the already groaning machinery.

It is doubtful that COWPS can even keep track of, let alone digest, the data that it is already collecting. Early in February it published a list of 207 of the nation's largest corporations that had replied favorably to President Carter's appeal to cooperate. This promptly brought protests from officers of 200 more companies, who said that their firms had also pledged to help. The companies charged that bureaucratic oversight, which in some cases resulted from actually losing the compliance letters, created the false impression that the firms did not intend to play ball at all.

Whether or not his staff catches up with the paper chase, Bosworth is encouraged by the reception that businessmen are at least publicly giving the program. Says he: "They come in saying they want to be in compliance and asking how to do it. They're grudgingly going along. Philosophically, they don't like the guidelines, but they want to comply."

Tough as it is, compliance is easier for giant corporations than for companies that have sales of $250 million to $500 million. These middle-size companies often lack the in-house legal and accounting expertise, let alone Washington law firm contacts, necessary to figure out COWPS' demands or to protest if they seem excessive. Says Bosworth: "We're getting cooperation from large corporations but not from the small ones. The smaller firms look at the regulations and sometimes say, 'My God, I can't even read them.' "

Even so, executives seem willing to give Stage II a chance. They fear a groundswell of support for mandatory controls if Carter's voluntary approach fails. Says Justin Dart, chairman of Dart Industries of Los Angeles (Tupperware, Duracell batteries): "I have a lot of doubt about whether the guidelines will work, but no doubt at all about doing everything we can to make them work."

One difficulty is that many firms failed to keep track of all the prices they have charged over the past two years. Now they have to go back and try to gather every price on every product. Edmund Pratt Jr., chairman of Pfizer Inc., the pharmaceuticals maker, says that it has taken his staff "many, many hours" to dig up such data and that the expense to the company was "very, very high."

Managers in high-technology industries complain that the guidelines may boomerang because limits on wage increases could cause some companies to lose efficiency and thus force them to raise prices. The dilemma is severe in the microelectronics industry, where rapidly rising salaries have attracted top engineers, pushed up productivity dramatically, and enabled companies to slash prices year after year. Data General Corp. has already filed for exemptions, and Digital Equipment Inc., another leading electronics firm, is also complaining about the impact the guidelines could have on it.

The guidelines are riddled with uncertainties. It is unclear whether companies can raise prices to cover increased costs brought on by Government regulations, such as Washington's antipollution and stiffer mileage standards for the auto industry. What to do about rising prices of raw materials is equally vague. Companies are supposed to be able to pass them along, but under the guidelines materials suppliers should keep the prices from going up in the first place. In theory that is fine, but prices for many of the most essential commodities--oil, aluminum, copper--are partly or wholly set by foreign producers and cartels, like OPEC, that care nothing at all for the niceties of Stage II.

Some executives worry about the possibility of stockholder suits. Says George Kneeland, chairman of St. Regis Paper Co.: "Within legal limits, companies are in business to maximize profits. But if the guidelines are simply voluntary and not actual law, why should a company comply with a program that limits profits? You're in never-never land."

In an effort to get executives back on a firmer footing, COWPS is drafting what amounts to a translation of the pricing regulations into plain English. This, Bosworth hopes, will help smaller corporations to comprehend and comply. There will also be much more public pillorying of greedy companies and unions in the coming weeks. Explains Bosworth: "These firms are spending millions of dollars on p.r. that could be wiped out if the finger is pointed at them. They don't want the image of being unpatriotic."

In winning compliance with the guidelines, public criticism may be more effective than the threat of cutting off Government contracts. It is, of course, true that many powerful corporations depend on federal projects. Says Norman Roberts, a Litton Industries vice president: "You're damned right I take the warnings seriously. I have to. It's a very crucial part of our sales." But there is a real question about whether or not an attempt to withhold a contract could be made to stick. The precedents are unclear, and lawyers for the General Accounting Office, which watches over contract awards, have testified that denying a contract to the lowest bidder would be illegal.

Ultimately, the best hope for beating inflation is not to browbeat industry and unions but to deal with the inflationary plague that is spread by the Government. Certainly wage and price restraint is important, and Stage II is better than outright controls. But excessive Government spending, towering deficits and ever multiplying regulations are also fundamental causes of the price spiral. Says Pfizer's Pratt: "We have told the President, as most companies have, that we will abide by the guidelines. But what the Government itself is doing is a big part of the problem." In short, the nation would benefit tremendously if Washington were to adopt and obey some price guidelines of its own.

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