SACRAMENTO — In an effort to prevent future Enron-style financial scandals, the Senate passed legislation Thursday that would require CEOs, directors and other corporate executives to report a company's suspected illegal activities or face fines of up to $100,000.
The proposal, introduced in the aftermath of the collapse of the Enron Corp. and the loss of millions in employee retirement funds, also would create a special whistle-blower hotline at the office of Atty. Gen. Bill Lockyer.
Supporters of the bill by Sen. Martha Escutia (D-Whittier) claimed it would impose strict new standards of public responsibility on players in the arena of big business. Opponents said it comes close to Nazi tactics and threatens to turn California into a police state full of "snitches" and "finks."
The bill passed the Senate on a 21-15 vote, the bare margin required to send it to the Assembly. Provisions imposing criminal penalties against errant business executives were stripped from an earlier version of the legislation.
The bill is opposed by business organizations, and it faces an uncertain future in the Assembly where business interests appear to wield more influence among the majority Democrats than they do in the Senate.
"We've got our work cut out for us," acknowledged Doug Heller, a senior lobbyist for the Foundation for Taxpayer and Consumer Rights, the Santa Monica-based group that sponsored the bill.
A spokesman said Gov. Gray Davis, who is courting the support of business and consumers as he campaigns for reelection, has no position on the proposal.
Escutia told colleagues that the financial scandals of Enron and other major companies such as Tyco and Adelphia demand that top officers be held responsible for illegal actions that damage innocent victims, including investors, employees, pensioners and the marketplace itself.
She said her legislation is aimed at preventing and abating future corporate misconduct "before truly disastrous consequences happen."
The bill would apply to corporate officers and directors of publicly held companies, to members of limited liability companies and to the financial managers of these enterprises.
It would be against the law for such officers to fail to report to the attorney general within 15 days any "actual knowledge" that illegal actions had occurred that would portray a false value of the company's soundness or that were intended to deceive government regulators.
At the highest executive level, violators would be subject to a civil fine of up to $100,000 per offense, while financial managers could be fined up to $50,000.
Sens. Steve Peace (D-El Cajon) and K. Maurice Johannessen (R-Redding) denounced the bill as a threat to democratic freedoms. Johannessen said it reminded him of Nazi tactics that led neighbors to report on each other in his native Norway during World War II.
"Be careful about this," he warned colleagues, "because you don't know if your neighbor is watching you."
Peace called the plan "frightening."
He said he does not believe it is "necessary to sacrifice our freedom and turn us all into snitches."