Corporate Compliance Plan
June 22, 2011
Memo to: Riordan Officers and Directors
Re: Managing Legal Liability
This memo implements enterprise risk management such as prevention and management strategies for Riordan officers and directors (O/D) to implement in areas of legal risk based on the Committee of Sponsoring Organizations of the Treadway Commission??™s (COSO) recommendations. COSO in a voluntary private organization that helps businesses establish, ???more effective, efficient, and ethical business operations on a global basis.??? (COSO, 2008).Alternative Dispute Resolution (ADR)
Legal Principle: ADR is an alternative form of settling legal disputes that is less costly and time consuming than courtroom litigation. (Jennings, 2006). Binding arbitration, for example, is where the dispute cannot be escalated to a formal litigation. (Jennings, 2006).
Laws: Business torts include intentional, liability, and strict tort liability such as invasion of privacy, negligence??”when a party does not live up to the expected standard of care, or strict tort liability??”when there are few defenses to a direct violation of a federal law. (Jennings, 2006).
Liability: Riordan??™s O/D who will be held liable for the tort of negligence if, for example, a custom heart valve is defective causing harm or death to the patient. (UOP, 2008). Legal consequences may include fines or prison time. (Jennings, 2006).
Prevention: Proper quality and control; meet ISO 9000 standards in the research and development (R&D) department (UOP, 2008); ensure proper disposal of chemical substances and wastes (Jennings, 2006); proper training on factory equipment. (Jennings, 2006).
Detection: Proper management practices will aid in the detection of potential violations. These include: constant worker feedback, monitoring of products, checking of manufacturing equipment, customer services surveys, and maintaining good customer and employee relations.
Mitigation: Contracts should go through Litteral & Finkel for review (UOP, 2008); correct potential ADR issues; give problems proper attention; if a piece of machinery is defective, it should be fixed immediately; if an OHSA violation is reported, follow proper guidelines. (Jennings, 2006).
Rights of parties: Parties have the right to choose who will conduct the ADR and what venue. In binding ADR, further ligation is not an option. (Jennings, 2006).
Handling violations: Violations should be handled through binding arbitration through the American Arbitration Association (AAA). (Carper, 2008). Parties will be given 7 days to choose a preferred arbitrator. Parties may use lawyers. After the hearing, the arbitrator will reach a decision within 30 days. (Carper, 2008).
Call counsel: As soon as an issue arises, call the legal services of Litteral & Finkel. (UOP, 2008).Enterprise and product liability
Legal principle: An enterprise is liable for worker safety and product safety. (Jennings, 2006). Product liability claims can be brought against anyone who sells a product. (Jennings, 2006). Claims or actions are brought against personal injury, death caused by manufacture, design, formula, preparation, assembly, testing, warnings, instructions, marketing, packaging or labeling of products. (Jennings, 2006). Workers can also bring suits against the enterprise if they get injured on the job. (Jennings, 2006).
Laws: Under the Administrative Procedure Act (APA), regulatory agencies have rules and regulations that require compliance by congress such as the Clean Air Act, Civil Rights Act, and Occupational Health and Safety Act. (Jennings, 2006). Consumer Product Safety Commission (CPSC) laws protect consumers from, ???unreasonable risks or injury from consumer products.??? Implied Warranty of Fitness for a Particular Purpose (UCC ?§ 2??“315) protects consumers. (Jennings, 2006).
Prevention: Abide by laws and regulatory compliances; maintain and clean a safe working environment to lessen workplace mishaps and contamination of products; add disclaimers on products to warn against potential harm or dangers of products; meet the International Standard Organization??™s 9000 guidelines for Quality Assurance and Quality Management; comply with government regulatory agency compliance standards and guidelines. (Jennings, 2006).
Detection: Encourage workers to come forward with complaints of noncompliance and safety issues; implement an ???open door??? policy; report all safety and regulatory noncompliance issues to human resources. (Jennings, 2006).
Mitigation: Comply with laws on safety standards and requirements of government regulatory agencies in product quality and control. (Jennings, 2006).
Correction: Correct issues using guidelines of noncompliance regulations. (COSO, 2008).
Call council: As soon as a violation of noncompliance is reported. (Jennings, 2006).International law
Legal principle: In international business transactions, a dispute might not be allowed to be litigated in the court it was brought to because it may be geographically inconvenient or otherwise inappropriate to serve judgment. (Jennings, 2006). One example is when conflicts arise from different interpretations of the law in business contracts. (Jennings, 2006).
Laws: Laws vary in different countries. (Jennings, 2006). The United States and England follow Common Law. For example, when there is a tort of negligence, they follow the common law doctrine of negligence. Civil law or code law is followed in other European countries. (Jennings, 2006). Other countries follow Islamic law or a combination of civil and Islamic law. Under the Uniform Commercial Code (UCC), all contracts are considered to be in good faith. (Jennings, 2006).
Liability: The consequences of breeches of international law have severe and damaging effects for officers and directors including fines and imprisonment. (Jennings, 2006).
Prevention: Avoid ambiguous language in business contracts; make sure the contracts are clear, concise, easy to read and easy to understand; ensure that the contract includes a form of ADR, preferably binding mediation or arbitration. (Jennings, 2006).
Detection: Examine contracts extensively for unclear words or phrases. (Jennings, 2006). (UOP, 2008).
Mitigation: Be aware of legal rights and governance of laws in the host country of operations as well as treaties, tariffs, and organizations that affect international contracts; insure Riordan with the Overseas Private Investment Corporation (OPIC). (Jennings, 2006).
Rights of parties: Rights are dependent on the law governing the host country. Parties have the right to move to Forum Non Conveniens. (Jennings, 2006).
Handling violations: the International Chamber of Commerce (ICC) handles arbitration cases from parties in 123 countries. (Jennings, 2006). The Overseas Private Investment Corporation (OPIC) provides federal insurance for U.S. investments and insures for expropriation, inability to convert currency, and loss of profits from war. (Jennings, 2006). The United Nations Commission on International Trade Law (UNCITRAL) picks litigation venues and which country??™s law applies under the Model Law for Arbitration. (Jennings, 2006).
Call counsel: To inquire about foreign laws and potential areas of litigation. (Jennings, 2006). Tangible and intellectual property
Legal principle: Tangible and intellectual property is protected by property law, patents, trademarks, and copyrights so that the investments of companies like Riordan that invest large amounts of money into R&D can be recouped. (Jennings, 2006) (UOP, 2008). Patents, trademarks, and copyrights create an environment of global competition so that bigger, better, and more competitive designs will be explored in a competitive environment which benefits the consumer. (Jennings, 2006).
Laws: The law protects any tangible property owned by the company that can be seen and touched such as the building and land in which the business is located. Article 1, Section 8, Clause 8, of the U.S. Constitution concerning intellectual property protection of patents and copyrights protect against intangible property such as Riordan??™s patents for plastic bottles and fans. (Jennings, 2006). (UOP, 2008). Copyrights are protected by the Copyright Act [17 U.S.C. Sec. 410 (d)]. (Ferrera, Lichtenstein, Reder, et. al., 2004). Utility patents protect new and useful processes, machines, articles of manufacture, composition of matter, and other new and useful improvements, and last for 20 years. (Ferrera, Lichtenstein, Reder, et. al., 2004). Design patents laws protect new designs of manufactured materials, and last for 14 years. (Ferrera, Lichtenstein, Reder, et. al., 2004). Trademarks are protected by the Lanham Act of 1976. [(15 U.S.C., Sec. 1127 (2000)]. (Jennings, 2006).
Liability: Officers and directors are liable for personal property with documents of title such as land, property, and delivery trucks; personal property transferred by bill of sale such as inventory and goods for sale such as automobiles or car parts; leased equipment such as machinery and office equipment; bailments or temporary transfer of possession of personal property; and intellectual property such as copyrights, trademarks, and patents. (Jennings, 2006). (Ferrera, Lichtenstein, Reder, et. al., 2004). Violations can result in heavy fines. (Jennings, 2006). Civil suits and federal criminal penalties can also be brought against the company. (Jennings, 2006).
Prevention: Be aware of the property liability laws and provide solutions for vandalism, theft or damages to property; know how much air rights Riordan??™s properties have, how high the buildings can be built, or how much light ownership there is; know the laws surrounding rental bailments??”for example, when Riordan leases equipment, it is Riordan??™s duty to take care of that equipment; be wary of vague exculpatory clauses in bailments; be aware that putting disclaimers does not necessarily disclaim liability. (Jennings, 2006). (UOP, 2008).
Detection: To detect breeches of rights, checking systems should be put in place to ensure that other company??™s designs are not infringed; managers should know when a design can and cannot cross a boundary??”there are grey areas. (Are designs protectable, 1991). For example, any plastic bottle can have a screw cap but the shape of the cap might be patented. (UOP, 2008.
Mitigation: Register written material they want to protect at the U.S. Copyright Office; educate employees on the laws surrounding enterprise and product liability; consult the corporate lawyer on property laws, patents, trademarks, and copyrights. (Ferrera, Lichtenstein, Reder, et. al., 2004).
Correction: Issues must be given proper and full attention. If a design of a fan, for instance, looks too similar to another company??™s, immediate adjustments must be made to alter the design so as not to infringe on patented material. (Ferrera, Lichtenstein, Reder, et. al., 2004).
Rights of parties: Parties reserve the right to copyright, trademark, and patent their designs and can sue for infringement if violated. (Are designs protectable, 1991). Once the patent, copyright, or trademark has expired, it can be renewed or another one can be registered that is seen as newer and more improved. (Are designs protectable, 1991).
Handling violations: Bring property issues to the attention of Litteral & Finkel. (UOP, 2008).
Call counsel: Seek counsel promptly on all patent, trademark and design issues. (Jennings, 2006).Legal forms of business
Legal principle: Legal forms of businesses dictate the rights and liabilities of owners. Riordan is a corporation governed by federal and state laws for corporations.
Laws: The UPA or Uniform Commercial Code (UCC) governs legal forms of doing business. Corporations are treated as persons under the law, can hold title to property, can sue or be sued, are taxed separately, are funded by shareholders, and managed by a board of directors. Dissolution can only take place in a majority shareholder vote. Corporations are entitled to, ???unlimited duration, free transferability of interest, limited liability for shareholders/owners, continuity, and centralized management.??? According to the Model Business Corporation Act (MBCA), formal filing of articles of incorporation upon formation should include the corporation name, names of the incorporators, the share structure, and statutory agent.
Liability: CEOs are required to certify financial records or they will be held liable for false financial statement certification. (Jennings, 2006). Shareholders have personal liability if the company is watered or the corporate veil is lifted. (Jennings, 2006). For instance, creditors can raise the corporate veil and go after personal assets in inadequate compensation. (Jennings, 2006).
Prevention: Do not use the corporation as a personal resource; treat it as a separate entity so as to avoid the alter ego theory; to avoid inadequate capitalization, each owner must place the same amount of capital risk that will reasonably cover business expenses; follow the Sarbanes-Oxley key provisions and train everyone in the company on corporate ethics. (Jennings, 2006).
To detection: Employ an audit committee that has at least one financial expert under the Sarbanes-Oxley Act and ensure he or she has no financial ties to the company. (Jennings, 2006).
Mitigation: Have the director or CEO check that all financial statements are correct. (Jennings, 2006).
Correction: Correct financial statements and other documents with errors. (Jennings, 2006).
Rights of parties: Parties have the right to resolve the issue through ADR. (Jennings, 2006).
Handling violations: Bring violations to the attention of Litteral & Finkel (UOP, 2008) and manage sanctions professionally in a timely and efficient manner. (Jennings, 2006).
Call counsel: When an illegal form of doing business is discovered or suspected. (COSO 2008).Corporate governance
Legal principle: It is the moral obligation and social responsibility of Riordan to implement and set the tone of high ethical standards at the top. Accountants, lawyers, directors, and officers are, in particular, required to follow laws on governance and financial reporting. Businesses are also given certain guidelines to uphold an environmental tone of ethical responsibility.
Laws: The Sarbanes-Oxley; the Federal the Counterfeit Access Device and Computer Fraud and Abuse Act (CADCFA); Electronic Espionage Act (EEA); the Racketeer Influenced and Corrupt Organizations (RICO) Act; the USA Patriot Act. (Jennings, 2006). Other laws include federal statutes on business crimes such as the Securities Exchange Acts, the Sherman Act, the Internal Revenue Act, environmental statutes, the Occupational Safety and Health Act, and Consumer Product Safety. (Jennings, 2006).
Liability: Legal consequences for officers and directors can be severe and may include heavy fines, community service, or prison time. For example, Martha Stewart sold her ImClone shares the day because she was given a ???tip-off;??? she was sentenced to 5 month in prison.
Prevention: Use the code of ethics guidelines (UOP, 2008) and follow the Sentencing Commission??™s guidelines in setting the ethical tone. (COSO, 2008).
Detection: Detect unethical business decisions using the ???Blanchard and Peale??? model, ???Front-Page-of-the-Newspaper Test,??? or ???The Wall Street Journal Model???. (Jennings, 2006).
Mitigation: Include training in ethics (UOP, 2008); encourage anonymous and self-reporting. (Jennings, 2006).
Correction: Impose investigations and sanctions according to the violation. (Jennings, 2006).
Rights of parties: Parties have the right to privacy under the Fourth Amendment, the right to due process under the Fifth Amendment, the right to a speedy trial under the Sixth Amendment, and other rights as dictated by the criminal justice system. (Jennings, 2006).
Handling violations: Consult with O/D for sanctions. (UOP, 2008).
Call counsel: When dealing with a violation of the code of ethics or when faced with weighing legal risks. (COSO, 2008).Dangers of hazardous wastes
Legal principle: To avoid potential harm to others, it is Riordan??™s ethical duty and legal duty to ensure that our manufacturing facilities follow specific guidelines in the disposal of hazardous materials. (Jennings, 2006).
Laws: The Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA) requires enterprises to respond directly to releases or threatened releases of hazardous substances that may endanger public health or the environment. (Jennings, 2006).
Liability: A suit could be brought against Riordan if someone gets hurt from hazardous substances through negligence. (UOP, 2008).
Prevention: Ensure toxic substances are disposed of properly. (Jennings, 2006).
Detection: Have checking systems in place to detect the problem.
Mitigation: Follow Riordan??™s post project review process. (UOP, 2008).
Correction: Follow CERCA guidelines and work with them to resolve the issue. (Jennings, 2006).
Handling violations: Bring violations to the attention of Litteral & Finkel in a timely and efficient manner. (UOP, 2008). Parties have the right to resolve disputes through ADR. (Jennings, 2006).
Call counsel: When a violation is reported. (Jennings, 2006).
American Bar Association. (1999). One clause doesn??™t fit all. Retrieved June 17, 2011 from http://www.abanet.org/buslaw/blt/8-4clause.html
Are Designs Protectable. (1991, December). Design News, Retrieved June 19, 2011, from Business Source Complete database.
Carper, D., & La Rocco, J. (2011, June). What Parties Might Be Giving Up and Gaining When Deciding Not to Litigate: A Comparison of Litigation, Arbitration and Mediation. (cover story). Dispute Resolution Journal, 63(2), 48-60. Retrieved June 20, 2011, from Business Source Complete database.
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COSO. Committee of Sponsoring Organizations of the Treadway Commission. Retrieved June 21, 2011, from http://www.coso.org/.
Ferrera, G.R., Lichtenstein, S.D., Reder, M.E.K., Bird, R.C., & Schiano, W.T. (2011). Cyber Law: Text and Cases (2nd ed.). Mason, OH: Thomson
Legalzoom. Legalzoom design patents education center. Retrieved June 22, 2011 from http://www.legalzoom.com/design-patents-guide/compare-design-utility-patents.html
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