RIORDIAN COMPLIANCE PLAN
Table of Contents
1 Company Background
1.1 Mission
1.2 Goals
2 Principles of Legal Management in Riordan
3 Legal Liabilities of Officers and Directors
4 Conflict Management
4.1 Alternative Dispute Resolution
4.2 Enterprise Liability
4.3 Product Liability
4.4 Tangible and Intellectual Property
4.5 Legal forms of Business and Governance
5 Prevention and Management Guidelines of Legal Aspects
6 Implementation of Risk Management
7 How to handle situations when laws are violated or in question
8 Conclusion
9 References
1 Company Background
The company is a global plastics manufacturer with its headquarters lodged in California. It employs approximately five hundred individuals in its respective plants located in different parts of the globe. From Albany to Hang Zhou, the thrust of the company subsists in its daily drive towards the realization of these goals.
1.1 Mission
The focus of the company is summarized in several major categories. The company believes that the company is a leader in the industry of plastics and that they are supposed to address the major challenges presented by their customers.
1.2 Goals
Riordan Manufacturing applies the most innovative manufacturing disciplines (Six Sigma) and applies the highest quality standards (ISO 9000) to maintain their standing in the market and keep a flexible stand in recognizing the industry trends. With regards to the customer relationships of the company, Riordan Manufacturing seeks to assist their customers in any way they can so as to add to their intention to be more of a solutions provider in the industry. In the same regard, the institution of high quality control as well as innovative and responsive business solutions seeks to establish a long term relationship between the company and the customers. With regards to their internal environment, the company seeks to focus more on their personnel by instituting a team-oriented environment. This is to maintain a clear path towards innovativeness for the company as a whole. Aside from training, the company provides the information needed and support required so as maintaining a culture that complements the intentions of the company and demands of the market. All in all, the company places high regard on financial and human capital to ensure that growth of Riordan Manufacturing is ensured.
2 Principles of Legal Management in Riordan
The regime applicable in the operations of Riordan Manufacturing is the Sarbanes-Oxley Act of 2002. (Smith and Walter, 80) This was ratified by the Bush Administration in 2002 and possibly the most significant change in legislative history with regards to the field of securities of public corporations. It clearly affects the liabilities and responsibilities of both officers and directors of public corporations. Though ratification of the said law is encouraged by the problems encountered in the securities of public corporations in the United States, the structure of the said law provides for a more global aspect of business. This regime is wholly implemented by the Securities and Exchange Commission and is given the power of rulemaking and authority to interpret the laws provided in the statute to accommodate both foreign and local capital market players in the United States. Specifically, the said regime provides for specific elements that require strict compliance. In this case, certifications on both the CEOs and CFOs are required. (Gup 2003, 339) In the same manner, the audit committee of the corporation has also been given an expanded role. Moreover, corporate governance, financial transparency, as well as disclosure have been regarded as important elements in the operations of the corporation.
3 Legal Liabilities of Officers and Directors
As a general rule, directors and officers have a fiduciary duty owed to the company and the shareholders. Directors and officers have a duty of care and a duty of loyalty to the company. This means that the directors have to consider their actions and decisions provided that they make sure that they acted in good faith and for the best interest of the company. Directors and officers are obligated to refrain from any form of self-dealing and usurpation of opportunities to gain unjust benefit. In instances where the company appears to be insolvent, the directors and the officers similarly have fiduciary duties to the creditors of the company.
Primary penalty for any officer or director of corporations that infringed the provisions of the Sarbanes-Oxley Act is seen in s802 of the statute. It states that
“Whoever knowingly alters, destroys, mutilates, conceals, covers up, falsifies, or makes a false entry in any record, document, or tangible object with the intent to impede, obstruct, or influence the investigation or proper administration of any matter within the jurisdiction of any department or agency of the United States or any case filed under title 11, or in relation to or contemplation of any such matter or case, shall be fined under this title, imprisoned not more than 20 years, or both.`Sec. 1520.”
4 Conflict Management
In order to effectively manage conflict, directors and officers of Riordan Manufacturing should be aware of the following elements.
4.1 Alternative Dispute Resolution
To save time and resources in resolving conflict, the company can use alternative dispute resolution (ADR) methods which basically are external of the authority of the judiciary. They have several choices. They could undergo negotiation, mediation, or arbitration. (Mackie 1991, 11) In the case of negotiation, the company willingly talk to each other without enmity and with the absence of a third person to eventually find resolution of the conflict. (Mackie 1991, 18) In mediation, a third party is needed to make the proceedings possible. As a result this mediator suggests a resolution, which the parties could either recognize or rebuff. (Mackie 1991, 11) In arbitration, a third person typically is the one who enforces a resolution. (Mackie 1991, 59) Normally, these arbitration methods are applied because of the inclusion of an arbitration clause in a contract.
4.2 Enterprise Liability
The COSO describes the control activities of the company as the actions that assist the company in implementing the rules and regulations that comply with the basic risk management initiatives instituted by Riordan Manufacturing. These activities include the approvals and authorizations of certain operating performance geared towards the achievement of the mission statement of the organization. In this regard, it shows that the officers and directors of the company are directly liable for this part of the Riordan’s operations. A relevant provision on the Sarbanes-Oxley Act is manifested in s303. This provision states that manipulation, coercion and fraudulent influencing of the activities related to the approvals and authorization, particularly the financial statements of the company, for the intention of materially misleading the public is rendered unlawful. This means that control activities such as segregation of assets should be free from any manipulation. More specifically, the financial statements as well as the financial information that consequently follows with reference to the control activities of the company in the required reports should be fair in presenting the financial conditions and the results of the operations which the company has carried out in the course of a particular fiscal year. Otherwise, the directors and officers shall be civilly and criminally liable as provided for by s3(b)(1) of the Sarbanes-Oxley Act. Even the in house counsel of the company has the responsibility in law to report any actions of the company contrary to public policy. This is explicitly stated in s307 of the Sarbanes-Oxley Act.
4.3 Product Liability
Product liability is covered by s402A of the Restatement of Torts. It deals with the responsibilities and liabilities of distributors and sellers regarding the harm done by their products. Companies are liable for manufacturing defects, design defects, and inadequate instructions or warning defects.
4.4 Tangible and Intellectual Property
There are certain statutes that provide Riordan protection of their vested rights on tangible and intellectual property. These includes the following
Copyright Act 1976
Provides the holder of copyrights exclusive use of their products and grants them authority to take legal action to those who infringe on their respective rights.
Lanham Act
This federal statute provides for the prohibition of certain activities involving trademarks such as infringement, dilution, and even false advertising.
Patent Act 1836
This piece of legislation covers the area of patents, particularly the application of patent, examination of holders and the hiring of professional patent examiners.
4.5 Legal forms of Business and Governance
The Sarbanes-Oxley Act demands from companies high standards of corporate governance. The following are instances that provide for corporate governance as provided by law.
Information Access Management
The law provides that companies, specifically directors and officers, have the right amount of information and make sure that these data are material. This is done by filtering these data. It also demands for the judicious submission of this information. Along with the creation of information structures and channels, the law requires the directors and officers to brief the board members regularly to maintain a level of transparency.
Create an Audit Committee
The law requires companies to establish an independent audit committee that will review the accounting and financial reporting of the firm. The provisions of the Sarbanes-Oxley Act specify the responsibilities of the committee.
5 Prevention and Management Guidelines of Legal Aspects
The Sarbanes-Oxley Act provides for companies like Riordan Manufacturing to implement a material event monitoring. The statute’s s409 provides the importance of information systems to comply with the provisions of the Act. In the case of Riordan Manufacturing, the IT systems essentially connect the four major locations of the company: the head quarters, Pontiac Office, the Albany Office, the San Jose Office, and the one in China.
However, the major element that directors and officers must adhere to is the disclosure procedures as provided by s406 and s407. The former provides for the creation of a code of ethics of senior financial officers that significantly affects or even waive the provisions of the Act. In the same manner, s407 points to the need of the company for board designation as well as the need for disclosure of the audit committee’s financial expert.
Monitoring on the other hand is covered by both the CEO and the CFO of the company. Under s302 and s906 of the Sarbanes-Oxley Act, the CEO and the CFO must present a certification that they have viewed the report and perused it with due diligence required. This means that they are held liable in the instance that any discrepancy arise from the investigations of the SEC.
6 Implementation of Risk Management
Risks are innately ubiquitous they can be seen in both external and internal environments. The employee handbook provides for the basic objectives on which Riordan Manufacturing seeks to realize. In this regard, it is these objectives that the risk assessments of the company are prescribed. The company must realize, along with its directors and officers, that it is required by law that the company conduct risk assessment. In s107 of the Sarbanes-Oxley Act, it defines risk assessment as the “process of analyzing both internal and external risks and threats to achieving an entity’s goals and objectives.” (Smith and Walter, 180) The company’s risk assessment should cover the changes in the operating environment, new technologies, the new information systems, personnel, activities, operations, and accounting pronouncements to name a few. The process is summarized into five steps. (p256) The first step is to determine the control objectives of the company. Second, the company has to establish the requirements and set a list of priorities to establish the subsequent course of action. This subsequent course of action is the identification of the risks provided for in the operations of the company. Connected to this step is the verification on the actual probability that these risks do take place. Upon establishing the risks that are apparent and the level of likelihood that the company may encounter these, then it is time to manage these risks. This is done by establishing a series of policies that promotes the overall flexibility of the company.
7 How to handle situations when laws are violated or in question
There are several defenses that could mitigate the liabilities of directors and officers when laws are violated or in question. These include:
Establishment of business judgment
The burden of proof is on the directors and in establishing that the act done was reasonable and within the authority provided to them by the corporation’s charter.
Defense of Due Diligence
This defense basically states that the directors and officers have exhausted all the means accessible to the company with reference to the violations they are being charged.
8 Conclusion
The ratification of the Sarbanes-Oxley Act provides for added liabilities and responsibilities of the officers and directors of public corporations like Riordan Manufacturing. It allows the state to prosecute any circumstances that constitute financial fraud in the company. Though it appears that the Act is essentially wanting as it is said to be a rushed legislation, it gives public corporations the chance to gain the trust of the public with the events that transpired in the days of Enron. Recent events as manifested in the declaration of bankruptcy of supposedly stable company’s in the financial sector makes the need for transparency and disclosure in the financial aspects of the firm indispensable.
The far-reaching and comprehensive reforms provided by the Sarbanes-Oxley Act merely calls for the greater responsibility of the senior management of public companies to take on due diligence in their operations. In the case of Riordan Manufacturing, a proactive role should be taken by the officers and directors in the operations of the company in relation to the reports provided to the public. Upon a deeper perusal of the said Act, the statute specifically provides for a strict interpretation of the law in favor of the investor and against the public corporation. However, the civil liabilities and criminal liabilities imposed upon the directors and officers are equally given recourse as the Act similarly provide for mitigating circumstances in instances where violations are explicitly held by public corporations. All in all, the application of the objectives and operations of the company incompliance with the provision of the Sarbanes-Oxley Act essentially offers a win-win situation for both the public and public corporations.
9 References
Gup, B. (2003) Too Big to Fail: Policies and Practices in Government Bailouts. Connecticut: Praeger.
Mackie, K. (1991) A Handbook of Dispute Resolution: ADR in Action. New York: Routledge.
Rylander, D. and Provost, T. (2006) “Improving the Odds: Combining Six Sigma and Online Market Research for Better Customer Service.” SAM Advanced Management Journal. 71(1), 13.
Sarbanes-Oxley Act of 2002. Available in: http://fl1.findlaw.com/news.findlaw.com/hdocs/docs/gwbush/sarbanesoxley072302.pdf [Accessed17 October 2008]
Smith, R., and Walter, I. (2005) Governing the Modern Corporation: Capital Markets, Corporate Control and Economic Performance. New York: Oxford University Press.
Steinberg, R. and Tanki, F. (1992) “What the Treadway Commission’s Internal Control Study Means to You.” Journal of Accountancy. 174(5), 29.
Tillman, R. and Indergaard, M. (2005) Pump and Dump: The Rancid Rules of the New Economy. New Jersey: Rutgers University Press.
Copyright Act 1976
Lanham Act
Patent Act 1836
Credit:ivythesis.typepad.com
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