Corporate compliance plan
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Corporate compliance plan Document Transcript

  • 1. Running head: CORPORATE COMPLIANCE PLAN 1 Corporate Compliance Plan Fredrick Harris Law/531 January 15, 2011 Professor Teresa Knox
  • 2. CORPORATE COMPLIANCE PLAN 2 Corporate Compliance Plan Riordan Manufacturing is an international plastic manufacturing firm that specializes inplastic container parts for automobiles, beverage drinks, and fan parts with projected revenue inexcess of $46 million dollars annually. Riordan Manufacturing is wholly own by RiordanIndustries thatis based in strategic locations throughout the US and China with expansion andrecent acquisitions. In the meantime, Riordan Manufacturing has proposed in moving their Chinaoperation from Hang Zhou province to Shanghai within the next five years. However, beforeRiordan Industries can make this move there are two areas that have to be done first prior toleaving; 1. Is this move allowable that were established in the negotiations contract that are in compliance with the local laws 2. Does this move support terminating the local employees without using an Alternative Dispute Resolution (ADR)Riordan Manufacturing have to settle claims from the local nationals of terminating theiremployment with breach of contract and needs to settle without going to court. The alternativemethod is an Alternative Dispute Resolution to appease all the local nationals and settle forth.The technique is “Only by appraising both their own and the other party’s substantive andrelationship priorities can negotiators effectively choose a negotiation strategy” (Lewicki,Saunders, Minton, & Barry, 2003, p. 123). The negotiation bargaining strategy is referred to as awin-win negotiation, mutual gains bargaining, and interest based bargaining. This ADRnegotiation strategy for Riordan Manufacturing simplifies that both parties “tend to believe thatmutual agreements are reached by being inventive, collaborative, and persistent in searching forsubstantial joint gains and the creation of value, relative to no-agreement possibilities”(Lewicki,
  • 3. CORPORATE COMPLIANCE PLAN 3Saunders, Minton, & Barry, 2003, p. 124).The relocation to Shanghai, China will clearly causesome conflicts with the outgoing workers and welcoming to the incoming employees ofShanghai. Those employees who cannot make the transfer will eventually become disgruntledemployees and cause strife and uneasiness before the manufacturing plant close. Theinternational law firm of Litteral & Finkel should work closely with Lowell Bradford, the chieflegal counsel of Riordan in maintaining discipline and acting accordingly to those who invitevandalism and retaliation acts.Enterprise Liability Enterprise liability with Riordan Manufacturing with their local vendors and supplierscan disrupt future operations and plans with their decision to move and close down production.Riordan abrupt decision to cease operation will affecttheir contractual obligation that is withseveral vendors and suppliers. The old contracts that were written with agreements andoperations have to be re-written to avoid losses and not to lose suppliers for future benefits andshipments. The re-written of new contracts need to have clarity of purpose, time, specificationand must address the changes the company is undergoing. The new development with Riordanand local vendors and suppliers can avoid risks, minimize liabilities and yet continue theirbusiness relationship despite these new changes. Moving the manufacturing plant to a newlocation does not resolve Riordan of its duties to contract out of liability due to change. BecauseRiordan Manufacturing is such a large company and deals with so many complexities in itsoperations, the need for renewal of contracts is necessary for protection of workers andconsumers. The renewal of contracts helps to avoid and diminish the need for misinterpretationon both side as well as handling complex exchange relationship and ethical problems toovercome inequities that could be viewed upon local nationals.
  • 4. CORPORATE COMPLIANCE PLAN 4Product Liability Product liability is the philosophy of law that “governs the body of legal rules in civillawsuits for losses and harms resulting from a defendants furnishing of defective goods” (Mallor,Barnes, Bowers, & Langvardt, 2007, p. 432). Riordan Manufacturing starting up new operationin Shanghai, China, and integrating new suppliers and vendors into their operation can createnew legal problems for the company in itself.Switching suppliers and hiring new inexperienceemployees can cause Riordan Manufacturing not to meet federal regulation standards andinternational standards with their products. The chief legal counsel should ensure all of Riordanproducts are in full compliance with standards and regulations concerning all their products thatare sold and manufactured to avoid tort liability and strict liability lawsuits. These standardsshould be of good practice and faith and consist of the following three fundamentals: design a product for which there is no reasonable safer alternative design manufacture the product as it was designed and without manufacturing defects. I incorporate appropriate warnings and instructions to avoid risks that could not be eliminated through reasonable alternative design. As soon as Riordan introduces new suppliers into their operation, they should hire anindependent testing company to ensure all products are in compliance before products are sold toconsumers and to ensure safety awareness is paramount among their employees. All testingresults should be equal to or surpassed of the industry standards along with federal andinternational inspection standards. Federal regulations should be used as a basis for minimumstandards and when regulations are not warranted where products are sold; those products shouldalso meet the minimum federal standards to avoid tort liability. In protection of the company and
  • 5. CORPORATE COMPLIANCE PLAN 5board of directors, Riordan should identify and appoint a production manager to oversee allprocedures, preliminaries of product design, and product to witness credible production in designand manufacturing. This processensures shortcoming and oversight are corrected, and procedurereviews are proactive within the company chain of concern. The most important role of theproduction manager is that he is the tip of the sphere to contact government officials in casedefects or recall violations. This method helps to maintain good relations with local governmentofficials and maintain credibility with outside agencies and media. The last fundamental ofproduction that Riordan Manufacturing should invest in with the new plant is making certain thatall new suppliers and vendors meet regulatory compliances and conduct a backgroundinvestigation to ensure all new suppliers and vendors can meet those expectations.International Law International law is important both to nations and businesses and has many uniquefeatures. 1. “There is no single legislative source of international law. 2. There is no single world court that is responsible for interpreting international law. 3. There is no world executive branch that can enforce international law” (Cheeseman, 2010, p. 849). International law regulates the govern affairs between individuals and businesses inforeign affairs and is important for Riordan Manufacturing because the company is closing oneplant and relocating to a new one. The international legal firm of Litteral & Finkel, whichrepresent Riordan Manufacturing, has to ensure the Chinese government will accept approval ofthe new proposal and plans because China is a country with complex laws governing foreign
  • 6. CORPORATE COMPLIANCE PLAN 6businesses. Some of the legal procedures that have to be in place are trade restriction and tariffs,environmental and manufacturing regulations, and taxes. International law has three primarysources that composeof its existence: International treaties, custom, and general principles oflaw. Any violations of Chinese law that occur either by Riordan Manufacturing or its employeeshas to be handled by their international law firm of Litteral & Finkel.Tangible and Intellectual Property Intellectual property for Riordan Manufacturing needs to be secured and protected priorto the company move to their new plant to avoid the possibility of stolen equipment andtangibles such as the case in the United States v. William (Coca-Cola employee tries to sell tradesecrets). Their property rights includes their plastic manufacturing documents, copyrights to theirbeverage bottles, trademark secrets to automobile parts, and patents on their fan parts. Anyequipment that is leased to vendors and suppliers for equitable distribution in manufacturingparts needs to be return under contractual agreementand inventoried. Riordan Manufacturing alsohas intellectual rights to “employees whose work cover inventions, programs, formulas, softwareor applications, and intangible ideas which the company profits from” (US Department ofJustice, 2004).Legal Forms of Business Riordan Manufacturing next major decision in relocating to Shanghai, China is toidentifywhat type of legal form of business they will institute or manage in their development. Movingfrom the Hang Zhou province to Shanghai will definitely bring new risks such as customer needsselection, technological challenges and financial growth with higher taxes, managerialdevelopment, and employee-team working environment complexities. When a business orcompany venture into forminga legal form of business there are several types to choose from, the
  • 7. CORPORATE COMPLIANCE PLAN 7most common are;Sole Proprietorship, General Partnership, Limited Liability LimitedPartnership(LLLP), Limited Liability Company (LLC), C-Corporation and S-Corporation. Business ownersneed to pick the structure that best meets their needs and financial situation. Depending on thetype of business established and the risk and liabilities the product will provide, determineswhich form is best. However, once the company is formed, the next step is to shield yourpersonal assets from business debts and claims and provide the company with personal liabilityprotection. The best choice for Riordan Manufacturing is to convert to a C-corporation becauseof their overseas business location. Fig. One As a C-corporation company Riordan Manufacturing will be an independent legal and taxentity, which is separate from the owners who has control and managerial duties. The mainprinciple to being a corporation is the owners do not use their personal tax returns to pay tax oncorporate profit, the corporation pays these. Also asa corporation, Riordan would be reorganizedwith ownership “shares of stock that are assignable and freely transferable by sale, pledge, orgift” (Cheeseman, 2010, p. 558). The important function of a corporation is the company cannot
  • 8. CORPORATE COMPLIANCE PLAN 8be put in prison; the penalty is usually a fine, loss of license, or sanction. The latter portion of acorporation is the company is managed and run by a board of directors elected by theshareholders as a method of governance in day to day operations.Governance Corporations and businesses need protection in today’s economy from misuse, scandals,Ponzi schemes, embezzlement, and fraud from investors and shareholders regardless whetherthey are individuals, governments, or banks. Assurances have been put in place by the U.S.Congress to eliminate some of these risks and implement control by enacting and passing theSarbanes-Oxley Act of 2002 (SOX). This act requires improvements in corporate governancerules, eliminate conflicts of interest, instill confidence in investors and when “publicly tradedcompanies issues their annual financial reports, they also must issue reports on their internalcontrol systems”(Cherrington, Dunn, & Hollander, 2005, p. 432). Internal control systems areactivities performed to minimize or eliminate risks with policies and procedures. These controlsactivities consist of five interrelated components of the COSO framework that are; controlenvironment, risk assessment, control activities, information and communication, andmonitoring. According to the Committee of Sponsoring Organizations of the Treadway Commission(COSCO) two important documents used in the development of current enterprise riskmanagement (ERM) and control philosophies aretime of consumption and cost.The key factor toidentifying and controlling risk to help prevent operational losses is applyingthe benefits incontrolling the risk that outweigh the cost of the control while balancing efficiency andeffectiveness. The example below clarifies the relationship between higher the opportunitiesbecome, greater the risk in potential losses.
  • 9. CORPORATE COMPLIANCE PLAN 9Fig. Two Riordan Manufacturing best compliance with the Sarbanes-Oxley Act of 2002 should beto ensure that strong internal and external control measures are put in place to represent ethicalfinancial reporting and implement independent auditor’s committee participation to the SecurityExchange Committee (SEC), board of directors, and other regulators for assurances. The boardsof directors are elected by shareholders and are responsible for formulating policy decision forthe corporation and the panel of board members can consist of one or more individuals whosenumber of initial directors is correspondent to the articles of incorporation. The board ofdirectors usually represent an inside and outside director where the inside director is an officer ofthe corporation and the outside director sits on the corporation board. The directors and officersof a corporation are held to certain fiduciary duties, which are obedience, duty of care, andloyalty owned to their shareholders anytime decisions are made on behalf of the company.Riordan implementation of enterprise risk management along with corporate governanceguidelines to establish a business framework is their foundation for future success in China.
  • 10. CORPORATE COMPLIANCE PLAN 10 ReferencesBarnes, A., Bowers, T., Langvardt, A., & Mallor, J. (2007). Business Law: The Ethical, Global, and E-Commerce Environment (13th ed.). New York, New York: McGraw-HillBarry, B., Lewicki, R., Minton, J. & Saunders, D. (2003). Negotiation: Readings, Exercises, and Cases (4th ed.). New York, New York: McGraw-Hill.Cheeseman, H. (2010). Business Law: Legal Environment, Online Commerce, Business Ethics, and International Issues (7th ed.). Upper Saddle River, New Jersey: Prentice Hall.Cherrington, J., Dunn, C., & Hollander, A. (2005). Enterprise Information System (3rd ed.). New York, New York: McGraw-Hill.