Riordan Manufacturing is a global producer of plastics with projected revenues of 46 million dollars and is a subsidiary of Riordan Industries. The manufacturing company has achieved significant growth since its inception in 1991, with over 550 employees and is now a contender in the international plastics market. With the manufacturing and sale focus on plastic beverage bottles and custom plastic parts, the major customers of Riordan are manufacturers of appliance, aircraft and automotive parts, beverage and bottle makers, and the Department of Defense. Research and development is managed from the corporate headquarters located in San Jose, California, plastic beverage containers are produced at the Albany, Georgia plant, custom plastic parts are produced at the plant in Pontiac, Michigan, and plastic fan parts produced at the facilities in Hangzhou, China (University of Phoenix, 2010).
Riordan??™s commitment is that every employee abides to the highest moral and ethical standards of business. The officers and directors are responsible to promote a positive example of sound ethical business principles in their judgment and behavior and apply these standards in executing their duties. The objective of developing and implementing this corporate compliance plan is to instill workforce awareness, understanding, and compliance with all germane policies, regulations, procedures, and laws to the operation of Riordan Manufacturing.ANALYSIS OF ISSUES
Of the issues that Riordan faces, from employment structure, pay and global relocation, the area that requires the most attention for contingency management is the transfer of the business establishment in China. Riordan made recent strategic changes in order to remain competitive in the fast-paced global business environment and elected to move their operation in China from the Hangzhou site to a location in Shanghai over the ensuing five years (University of Phoenix, 2010). This change demands multiple strategic legal adjustments in the operation of Riordan Industries and more specifically in Riordan Manufacturing.
In order to minimize risk within the organization, it is imperative that management correctly apply the legal principles of business. Each legal issue or concern must be quickly, but carefully, evaluated and diagnosed before a correct solution can be applied. Business managers, and the leadership above them, call for a governance plan that will effectively and efficiently help them make these challenging decisions. This plan analyses the legal challenges confronting Riordan Manufacturing in the context of product liability, enterprise liability, alternative dispute resolution (ADR), international law, tangible and intellectual property, legal forms of business, and governance while offering solutions to enhance the quality of corporate decision-making and minimizing the impact of litigation to the company.
PRODUCT COMPLIANCE & LIABILITY
With Riordan changing suppliers because of relation and from the inexperience of the new workers, product liability can occur. Within the markets where Riordan products are sold and manufactured, management should insure that all products are in complete compliance with every part of product liability regulations. Industry standards should be researched, reviewed and implemented by Riordan even when regulations do not specifically require them as failure to attain industry standards can exacerbate tort liability (SAP AG, 2011).
Using international and federal regulations as the baseline for the industry standard, Riordan should contract an independent testing company to assess the company??™s manufacturing methods at all plants to avoid tort liability involving regulation non-compliance. Additionally, the directors and officers of Riordan should appoint an internal risk manager, who operates all activities under the guidance and consultation of the Chief Legal Counsel. The risk manager will ensure that the integrity of the independent tests so that the results are both reliable and credible. Internal audits and best business practice reviews should be conducted and standard operating procedures initiated and developed at all levels of the manufacturing process.
Proactive measures must be taken by the risk manager to correct all shortcomings in compliance practices and the necessary resources must be allocated to take the required protective action. Providing a violation transpires, the risk manager must then take the appropriate measures to notify the government and regulatory agency of the contingent country and follow up with a corrective action plan. This action will strengthen credibility and build a rapport with international and domestic regulatory agencies and can assist with damage control should the company be reported externally for non-compliance. Riordan can then affirm a solid record of self-monitoring.CONTRACT LIABILITY
Because of the decision to relocate the plant in China, Riordan will need to re-evaluate and rewrite supplier and vender contracts in order to mitigate the enterprise liability risk of the relocation plan. An agreement between two or more parties with specific terms in which consideration is held, where there is a promise to do something in return for worthy gain (Oman, 2007). Since contract laws are essential to most business dealings, it is one of the most significant areas of legal concern for Riordan. Clear and concise representation of requirements, ideas and desires are needed in order to eradicate any contractual misunderstandings.
While taking into consideration language and cultural obstacles, Riordan must provide superior management of contract agreements or risk losing vendor and supplier sponsors that could result in irrevocable damages to the company. Successfully managing contacts must be a defined cooperative endeavor between contract sponsors and Riordan while clearly specifying the interest of both sides within the scope of the contract. In order to preserve and enhance their business relationship, Riordan has an obligation to its contractors to minimize risk and avoid enterprise liability when revising contracts. ALTERNATIVE DISPUTE RESOLUTION
The surfacing of workplace conflict because of the location change in China is highly probable due to the displacement stress imposed on the employees of Hangzhou. Riordan must first comply with all local employment laws before and when they lay-off any Hangzhou employees. Next, an alternative dispute resolution framework must be in place to assist with likely disagreements that stem from the lay-offs.
An Alternate Dispute Resolution [or ADR], which includes such processes as mediation (the most common method), negotiation, arbitration, conciliation, and facilitation, is a cost effective and informal dispute resolution tool that allows the individuals in disagreement, to discuss and develop their own solutions. In most instances, the relationship between parties is maintained because of the flexibility to develop creative solutions that are generally not possible in court or during formal litigation (US Bureau of Land Mgmt, 2010).
Therefore, Riordan needs to structure an ADR process that complies with local laws and resolves any labor conflicts that occur from the relocation plan. Riordan??™s Chief Legal Counsel, Lowell Bradford should coordinate with Litteral & Finkel, the international law firm the company has on retainer to set the ADR structure in place.INTERNATIONAL LAW
In Riordan??™s case, the area of international law is particularly important due to the new strategic direction of the company with regard to the manufacturing facility in China involving a complex set of governing laws for business and manufacturing. To facilitate the complexities of Chinese business law, Riordan has retained the services of the global law firm of Litteral & Finkel who practices in all areas of international regulation and business law to include tax policy, ecological and industrial law, employment regulation, tariffs and trade limitation, and political solidity (McArdle & Sheppard, 2011). Riordan must rely on Litteral & Finkel to legally manage all potential infractions of the law that may transpire in China as a result of measures taken by Riordan or their employees. INTELLECUTAL & TANGIBLE PROPERTY
Any intangible industrial or trade secrets, processes, ideas, inventions, programs, formulas, data, copyrights, patents, trademarks, applications or software, or business methods that the Riordan workforce develops under the scope of employment is called intellectual property and has commercial value (US Department of Justice, 2004). This aggregate can be a considerable amount of the company??™s value.
Particular attention needs to be paid to intellectual property of patents. Recent legal demands from conglomerates as Cisco Systems, Apple and Microsoft are compelling companies to prove that their innovative claims were not just an obvious normal occurrence that they simply noticed and patented. As a result, existing holders of patents may be required by the courts to demonstrate the exclusive patentable matter of the claim before it can be considered exclusive (Bell, 2011).
Riordan should indemnify their existing patents, licenses and policies by re-evaluating or re-auditing their portfolio to protect against outside claim of property right violations and to reduce the risk of intellectual property liability. Any patent, license or policy needing revision should reflect the industry??™s current practices and be appropriately and accurately modified (Bell, 2011).
The officers and directors of Riordan must ensure that all tangible property, that has been purchased and invoiced, is maintained by a current inventory and that loan of said equipment is fully documented to avoid the possibility of the property fraudulently removed from the company during the relocation in China. Lack of transparency and accountability of assets can trigger intentional tort by the borrower and cause devastation in the accounting and reporting processes (Snyder, 1992). Consequently, Riordan must claim restitution for all property that is misappropriated against the company.LEGAL FORMS OF BUSINESS
The officers and directors of Riordan should take this overseas relocation initiative in China as an opportunity to evaluate their current legal form of business operation and make a systematic approach to help the company optimize processes within the law to achieve more efficient and beneficial results if called for. There may be economic advantages in changing the current legal form of business for the site in China as the employment law, VAT, tax laws, import and export regulations, foreign stock exchange structure, and the liability of operating in a new foreign location may be different, even within the same country, and can impact the eventual success of the organization (Rowbotham, 2009).
A team consisting of the risk manager, the Chief Legal Counsel, a representative of Litteral & Feckle, along with representation from the officers and directors should be appointed to evaluate the current legal form or business in the China operation and investigate current legal issues in the new location of Shanghai. A timeline with schedule deadlines and milestones will be agreed upon and a report presented to the officers and directors before phasing out the location at the Hangzhou site begins and initiating business at the new location in Shanghai.GOVERNANCE
Investors need to know that their venture capital will be protected and that there is a systematic set of processes in place that will protect them and their investment from undue risk. A certain amount of assurance is needed to attract and maintain sponsorship for a company and that the investment will be used as it was intended with some reasonable prospect of share return (Gregory, 2001). Effective corporate governance involves an ethical-driven set of corporate practices outlined for the company that are essential to assure a good business relationship is maintained between Riordan and their body of shareholders.
Therefore, the main focus of corporate governance is risk mitigation and enterprise risk management [ERM]. This framework includes a Committee of Sponsoring Organizations??™ [COSO] ERM guidelines and to affiliate ERM with Riordan??™s corporate governance. A comprehensive risk mitigation plan can then be developed that includes suitable preventive solutions ensuring productive corporate governance.
The risk mitigation approach instituted by COSO will assist Riordan??™s executives in understanding and managing the possible external and internal risks imposed the China relocation. By using the ERM model, Riordan can seamlessly and promptly transform the operation in Hangzhou to Shanghai by promptly predicting, identifying, prioritizing, and responding to enterprise risks (COSO, 2008)
In addition to the external risks involved with the relocation in China, Riordan must examine their internal procedures and policies to insure reputable and ethical practices transpire in accounting and financial reporting of the business. The Sarbanes-Oxley Act was initiated to insure legitimate and genuine financial and accounting reporting practices are maintained. COSO??™s principles outline the ethical procedures and principles that public companies, regulators and independent auditors must follow to comply with the provisions set in the Sarbanes-Oxley Act. Riordan should commence a solid internal controls initiative that enforces ethical financial accounting and reporting practices (COSO, 2008).
The four components that comprise ERM and corporate governance are the synergetic composition of the shareholders, the vigilant structure of the board of directors, the commitment of the officers and directors, and the comprehensive resolve of the corporate compliance plan. Although the board of directors conducts business on behalf of the shareholders and share in the responsibility of corporate governance, they cannot assume the obligation to execute corporate compliance and risk management as that is the duty of the officers and directors of Riordan (Kaye & Graham, 2006). Riordan should distinctly identify and define the roles of corporate governance within the company and the officers and directors should be engaged with establishing and overseeing the performance of these functions. CONCLUSION
Only when a company is committed to discipline and excellence will corporate governance thrive and a superior corporate contingency plan exists. The officers and directors are directly charged with serving the interest of the company through their words and deeds. Sound corporate governance is simply good business and is the direct responsibility of the officers and directors. There may be an investment of energy, time and resources, but this is necessary to produce a successful plan that will provide tangible and intangible returns well beyond that of the small investment made.
The success of Riordans China relocation project, along with continued success of the company, hinges on the application of sound business principles and management. This corporate contingency plan prudently outlines the legal structure required to minimize the main risks while maximizing business opportunities when relocating the facility in China. This guidance is not intended to be all inclusive and further areas of risk management and process improvement might serendipity arise when the risk manager and appointed teams investigate risk mitigation within in the context of product liability, enterprise liability, alternative dispute resolution (ADR), international law, tangible and intellectual property, legal forms of business, and governance.