Corporate Compliance Plan
Professor: Joseph Witek
February 1 2010Corporate Compliance Plan Riordan Manufacturing recognizes that being a global plastic producer involves significant legal and ethical responsibilities to its consumers, business partners, employees, shareholders and the general public. Riordans current task is to develop a corporate compliance plan that can be applied uniformly across all of its operational sites. This plan will allow Riordan and its??™ employees to conduct themselves in a manner that will allow Riordan to fulfill its obligations in observing the laws and public policies affecting its business. In accordance with the Model Business Corporation Act, Riordan Manufacturing will abide by the principles of corporate law within the states where Riordan Manufacturing plants are established. Given the industry they operate in, Riordan must especially remain compliant with the Clean Air and Water Act by responding immediately to any violations and monitor progress to insure no future violations.
The company seeks to ensure that all aspects of Riordans operation comply not only with applicable laws, but also with Riordans own perception of what kind of organization it is. Most of Riordans operations are within the US, but the company does have a joint venture in China. As such, Riordan is subject to rules of international operation, and it also is subject to several laws that also apply to operations only within the US.
For the Compliance Plan to be effective, it must have the cooperation of all employees. Their adherence to its spirit, as well as its specific provisions is absolutely critical in managing the legal liabilities of Riordan??™s officers and directors. Management at Riordan must demonstrate leadership, integrity and be a role model to employees so as to promote an environment that is fully compliant and has a zero tolerance for breaches. Corporate Governance and Compliance The term “corporate governance” commonly is viewed as referring to financial accountability, but it has a broader meaning. This definition of corporate governance is stated as ???the framework of rules and practices by which a board of directors ensures accountability, fairness, and transparency in the firms relationship with its all stakeholders (financiers, customers, management, employees, government, and the community) (Corporate Governance, n.d.).
Kacperczyk (2007) states that “catering to non-shareholding stakeholders contributes to the long-term value of the firm ??¦ and ??¦ managers will be more likely to attend to those stakeholders when relieved from short-termism???, requirements that disallow building for the long term. Fransecky (2009) is more explicit. He explains that ???January 21, 2009 marks the 216th anniversary of Frances King Louis XVI being guillotined for, in effect, being a lousy chief executive officer,” and that if “Louis modern-day, private-sector counterparts dont quickly change their let them eat cake ways, many will share the same fate ??” figuratively, if not literally” (Fransecky, 2009). Alternative Dispute Resolution Alternative Dispute Resolution (ADR) provides a means by which the company can deal with disputes that arise either internally or outside the company. Rather than turning to courts and their long and expensive processes, ADR allows organizations to address disputes directly and to come to workable solutions for each party. “Costs of ADR are frequently one-tenth of the cost of litigating a dispute” (Jennings, 2006). ADR also protects privacy as public-record court proceedings cannot. Another advantage is that ADR allows for creative solutions typically not forthcoming through courtroom decisions.
Riordans approach to ADR will take the form outlined by Jennings (2006). “Internal means of employment dispute resolution” will include peer review; ombudspersons; and mediation within the company. External means will use mediation by an outsider; nonbinding arbitration; and final and binding arbitration. Enterprise and product Liability Riordan will need to guard against the issues of employment, supply liability, guarding the company against tort liability as well as charges of negligence.”Negligence is a general legal principle, but strict liability is a set of particular doctrines” (Keating, 2001). Among those are the tort, intentional tort and strict tort liability.
Riordan will use internal legal counsel or external legal consultants to review its policies and contracts relative to both employees and external clients or customers. As a supplier to other businesses rather than to end consumers, its greater liability issues lie with failing to comply with business contracts. The company will need to ensure that it can meet all obligations it makes to customers and that its products maintain quality levels that will not cause legal issues for its business customers. International Law Riordan already operates as a U.S corporation and is involved in a joint venture in China. It is therefore responsible for operating according to applicable laws of both the U.S and China. The company is also responsible for upholding several laws governing its international operations. The advantage of entering into a joint venture to enter a foreign country is the greater ease of navigating that countrys laws and regulations, but the venture partner must be of impeccable integrity. “Do background checks on all your foreign employees and agents. Obtain financial information and personal references for them” (Jennings, 2006).
As Riordan continues to mature as a multinational organization, its management realizes that it needs to ensure that it operates legally and ethically in each of its locations, and that operations are uniform in each location to the extent that reporting is useful not only for Riordans senior management but also for all of its valued stakeholders. The corporate compliance plan that Riordan will need to formulate for itself will include at a minimum: ??? A written code of ethics that employees are accountable for upholding; ??? Export policy in accordance with U.S. Export Administration Regulations; ??? Operation in accordance with the U.S. Treasury Departments Office of Foreign Asset Control (OFAC), which enforces compliance with “U.S. sanctions against embargoed countries” (The Components of a Corporate Compliance Policy, 2003; p. 3) such as Iran, Libya, North Korea, Cuba and several others; ??? Compliance with Americas Iran and Libya Sanctions Act (ILSA) that prohibits investment in either country in any amount. OFAC governs direct transactions with embargoed countries; ILSA also prohibits any indirect transactions with Iran or Libya as well; ??? Ensuring that Riordan does not either knowingly or unknowingly join any anti-Israel boycott. The anti-boycott law (15 CFR 760) “prohibits any agreement to refuse or actual refusal to do business with or in Israel or with blacklisted companies” (The Components of a Corporate Compliance Policy, 2003; p. 6); ??? Absolute, and unquestioned compliance with the Foreign Corrupt Practices Act of 1977 (FCPA) that prohibits offering, extending, accepting, requesting or agreeing to bribery in any form. “The FCPA prohibits bribery of foreign and international officials and regulates company accounting practices” (The Components of a Corporate Compliance Policy, 2003; p. 7); and ??? Effective internal controls, monitoring, audits, reporting and strict compliance with the Sarbanes-Oxley Act of 2002. Although Riordan most likely would not slide into dealing with embargoed countries or risk even appearing to violate the FCPA, its Chinese joint venture partner may not be so cognizant of the need to follow what it considers to be foreign laws that have little if anything to do with the partners business. Riordan will need to ensure that both its own US locations as well as its Chinese partner are following all of the laws and regulations governing US businesses, even in China. Tangible and Intellectual Property Any company, including Riordan, can find it far too easy to violate copyright law. Photocopying a trade journal article for internal use or using an excerpt of some published work on a website can place the company at cross purposes with the law. Trademarks offer special problems, particularly when there is a joint venture arrangement with a foreign company. In acquiring ownership of a trademark, it is not enough to have invented it or registered it first. To be the presumed owner of the trademark a company must also be the first to actually use the trademark in the sale of goods or services. So the overriding factor in trademark ownership lies with the party that can demonstrate first use of it. Settling these matters requires litigation or arbitration, or they can be averted through the use of well-constructed, complete contracts that contain explicit rather than ambiguous wording.
Riordan needs to register its trademark and include the symbol ?® on its website wherever the registered trademark appears. This provides widespread notice that this trademark has been registered and is in use. This applies to all other branding and advertising media that Riordan produce and distribute. Legal Forms of Business Riordan already operates as a corporation within the US and in joint venture with China. The laws of China determine the Chinese partners responsibilities there and the laws of the US also require that Riordan does not engage in activity that may be legal in China but is illegal in the US. In the US, only the corporate structure protects individuals from being personally liable for debts and other liabilities incurred by the business. It is a “business organization that is a separate entity with limited liability and full transferability” (Jennings, 2006). The corporation is chartered by the state in which it is located and it is considered to be an entity separate from those holding any form of ownership i.e., the corporations??™ shareholders. State charters require that the corporation maintain a board of directors and corporate officers and that the life of the corporation is separate from them in that it does dissolve when owners move along and new owners take over.
Advantages are that owners are protected from the liabilities that the corporation incurs, which makes it an attractive business form for business owners who otherwise would run the risk of being sued by customers, amassing large business debt, and who may have a lot of personal assets they need to protect. The greatest disadvantage is that the corporation is subject to greater regulation and may pay higher overall taxes, including possible double tax. Governance The Committee of Sponsoring Organizations of the Treadway Commission (COSO) discusses internal controls in its report, ???Enterprise Risk Management ??” Integrated Framework???. COSO describes internal controls as an ongoing process that establishes a reasonable chance for achieving objectives as they relate to accurate financial reporting, as well as compliance with laws and regulations. Governance also achieves effectiveness and efficiency of operations for which management is fully responsible. COSO has established a common internal control model against which companies and organizations may assess their control systems and is commonly known as the capability maturity model index (CMMI). There are five internal control components in the COSO framework that sit in a pyramid starting with control environment at the base, followed by risk assessment, control activities, information and communication and lastly, monitoring at the peak of the pyramid. Although management ultimately has control of all internal control components, it has less direct control of this base of the pyramid than any of the other four. The control environment is the responsibility of management, and it is the employees who manage and use it. It consists of soft controls such as ethics, integrity and commitment to excellence as well as more tangible factors such as organizational structure and job description.
The second layer of the COSO pyramid is risk assessment, in which management seeks to identify and mitigate the leading risks facing the companys financial reporting. Control Activities constitute the next layer of the pyramid and are the means by which management ensure their directives and policies are carried out. They can be similar among separate organizations, but the specific form that control activities take is dependent on the needs of each individual business. Riordan will need to list its business activities and categorize those that can generate information that can be monitored and controlled.
The information created by tracking business activities will be collected and archived within Riordans information systems, where programmers will provide the systems with the ability to generate reports accessible to those involved in ensuring Riordans corporate compliance and overall corporate governance. In the short term employees may need to create reports, but the long-term goal is that virtually all business activity will generate information that will be used in automated reporting to Riordans management, board and other stakeholders.
The overreaching goal is to create and maintain transparency, but neither does Riordan need to display all of its business information to anyone seeking it. Public reports will be general in nature yet meaningful, while Riordans senior managers will have full access to all levels of information generated from data captured through routine business processes.
Of course Riordan will use outside auditors to review its financial statements, but it will need monitoring activities that extend beyond financial reporting. The company will create and maintain a nonfinancial auditing body that will assess on a regular basis the companys compliance with local and international laws, as well as with Riordans written code of ethics and mission statement.Conclusion The purpose of this plan is to ensure that Riordan actually operates as it intends. Enron won awards for its written code of ethics (Jennings, 2006) but failed to operate within its constraints and according to its principles. The goal of Riordans corporate compliance plan will be to ensure that all aspects of Riordans business comply with the companys mission and ethics statements and in so doing, unquestioningly comply with all applicable laws and protect Riordan??™s officers and directors.ReferencesCorporate Governance. (n.d.). BusinessDictionary.com. Retrieved January 28, 2010 from http://www.businessdictionary.com/definition/corporate-governance.html.Kacperczyk, Aleksandra (2007, March). Interscience.Wiley.com Retrieved January 29, 2010 from http://www3.interscience.wiley.com/journal/121506159/abstractCRETRY=1&SRETRY=0Fransecky, Roger. (2009, January 21). The New Accountability in Governance: Its time for boards of directors and CEOs to seriously examine their governance practices ??” before an angry crowd of citizens calls for their heads. Business Week Online. Retrieved January 28 from http://www.businessweek.com/managing/content/jan2009/ca20090121_237958.htmJennings, M.M. (2006). Business: Its Legal, Ethical, and Global Environment, (7th ed)., (Thompson Learning Inc).Keating, Gregory C. (2001). The Theory of Enterprise Liability and Common Law Strict Liability. Vanderbilt Law Review, p. 1285. Retrieved January 28, 2010 from law.vanderbilt.edu/…/vanderbilt-law-review/…3…/download.aspxThe Components of a Corporate Compliance Policy. (2003). Haynes and Boone, LLP. Retrieved January 28, 2010 from http://haynesboone.com/FILES/tbl_s12PublicationsHotTopics/PublicationPDF60/648/08_01_2003_Feathers.pdf.
Corporate Compliance Plan