Week 6 Paper 531 Law

Running head: CORPORATE COMPLIANCE PLAN 1

Corporate Compliance Plan

Team B:

Trevor Adams

Leonard Hamelitz

Jennifer Truong

Angielia White

LAW 531

August 8, 2011

Michael V. Pundeff, B.A., M.A., J.D.

CORPORATE COMPLIANCE PLAN 2

Corporate Compliance Plan

Riordan Manufacturing Inc. is a global plastics manufacturer with facilities in San Jose,

California; Albany, Georgia; Pontiac, Michigan; and Hangzhou, China. The projected annual

earnings for Riordan is $46 million. In order to achieve the projected earnings and financial

profitability, the Board of Directors will need to focus on Riordan’s Corporate Compliance Plan.

The Corporate Compliance Plan manages the legal liability of officers and directors of

Riordan. The plan will focus on four legal issues: enterprise liability, real and intellectual

property, compliance with regulatory requirements, and international law. Within the four legal

issues Riordon may have enterprise risk to manage from the possible eight interrelated

components:

• Internal Environment – The internal environment encompasses the tone of an

organization, and sets the basis for how risk is viewed and addressed by an entity’s

people, including risk management philosophy and risk appetite, integrity and ethical

values, and the environment in which they operate.

• Objective Setting – Objectives must exist before management can identify potential

events affecting their achievement. Enterprise risk management ensures that

management has in place a process to set objectives and that the chosen objectives

support and align with the entity’s mission and are consistent with its risk appetite.

• Event Identification – Internal and external events affecting achievement of an

entity’s objectives must be identified, distinguishing between risks and opportunities.

Opportunities are channeled back to management’s strategy or objective-setting

processes.


• Risk Assessment – Risks are analyzed, considering likelihood and impact, as a basis

for determining how they should be managed. Risks are assessed on an inherent and a

residual basis.

• Risk Response – Management selects risk responses – avoiding, accepting, reducing,

or sharing risk – developing a set of actions to align risks with the entity’s risk

tolerances and risk appetite.

• Control Activities – Policies and procedures are established and implemented to help

ensure the risk responses are effectively carried out.

• Information and Communication – Relevant information is identified, captured, and

communicated in a form and timeframe that enable people to carry out their

responsibilities. Effective communication also occurs in a broader sense, flowing

down, across, and up the entity.

• Monitoring – The entirety of enterprise risk management is monitored and

modifications made as necessary. Monitoring is accomplished through ongoing

management activities, separate evaluations, or both (University of Phoenix, 2004).

Enterprise Liability

Internal Enviroment. Litteral & Finkel is a large international law firm providing

“Riordan Manufacturing with legal services in the areas of tax law, real estate transactions,

employment law, immigration matters, civil litigation, workers compensation, labor law, and

customs regulations” (University of Phoenix, 2006). The owner of Riordan Manufacturing, Dr.

Riordan, initially partnered with Litteral & Finkel because his cousin was a partner of the law

firm. After the death of Dr. Riordan’s cousin, Riordan Manufacturing has maintained the

partnership between the two companies. All legal issues are addressed to Litteral & Finkel and


are paid a monthly retainer. Riordan Manufacturing pays legal fees in excess of the retainer and

all monthly unused retainer funds are not carried forward.

Objective Setting. Riordan’s Board of Directors and Officers have a fiduciary

responsibility of making decisions and taking action on behalf of the corporation. The directors

and officers need to meet duty of care, which consist of “their duties (1) in good faith, (2) with

the care that an ordinary prudent person in a like position would use under similar

circumstances, and (3) in a manner they reasonably believe to be in the best interests of the

corporation” (Cheeseman, 2010).

Event Identification. The internal and external events are the relationship of Dr. Riordin

and his cousin as a partner, and also the use and payment of a retainer. The relationship and

payments are identified as possible risks or perhaps opportunities for Riordan Manufacturing.

Risk Assessment. The relationship of the Dr. Riordin and his cousin could pose a

conflict of interest. A breach of a directors or officers duty of care is “normally caused by

negligence, often involves a director’s or an officer’s failure to (1) make a reasonable

investigation of a corporate matter, (2) attend board meetings on a regular basis, (3) properly

supervise a subordinate who causes a loss to the corporation through embezzlement and such, or

(4) keep adequately informed about corporate affairs” (Cheeseman, 2010).

The use of a retainer is normal in a field where services are paid up front usually with a

form of a discount or unlimited services for the month. For Riordan Manufacturing to pay a

retainer plus excess charges above the retainer and any unused retainer funds are not carried

forwards appears to be a misuse of service retainer. A possible enterprise risk is if the officer, Dr.

Riordin profiting from the misuse of the retainer. According to Cheeseman, “if a director or an


officer breaches his or her duty of loyalty and makes a secret profit on a transaction, the

corporation can sue the director or officer to recover the secret profit” (2010).

Risk Response. Directors, officers, or even other staff members will need to avoid

conflict of interests, making a secret profit, or other possible enterprise risks.

Control Activities. Riordin Manufacturing has a Corporate Governance Policy in place

to establish policies and procedures. The current policy lacks the implementation of avoiding

risk. The policy will need to be updated to include avoiding conflict of interest, avoiding to make

a secret profit, and other possible enterprise risks.

Information and Communication. Updating the Corporate Governance Policy is one of

the ways of communicating the information to directors and officers. Another is for all directors,

and officers to sign a contract discussing their fiduciary responsibility and duty of care as well

control activities of avoiding risk. The policy and contracts will be a way of identifying and

communicating directors and officers to enable them to carry out their responsibilities.

Monitoring. Having strong internal controls will help monitor the possible enterprise

risk. A team should be provided to monitor internal controls on a global level. Riordan

Manufacturing will need a large team to deal with their enterprise risk through the international

dealings and laws.

Real and Intellectual Property. Riordan Manufacturing requires that all of their

employees follow their policy on Business Ethics and Conduct. It states that “as an organization,

Riordan will comply with all applicable laws and regulations, and we expect our directors,

officers and employees to conduct business in accordance with the letter, spirit and intent of all

relevant laws and to refrain from any illegal, dishonest or unethical conduct” (University of

Phoenix, 2006). It is the job of management to ensure that Riordan and its employees are abiding


by the laws and regulations. ISO 14001 standards do not dictate absolute environmental

performance requirements but acts as an assistant to organizations to develop their own

environmental management system. Riordan Manufacturing will comply with all standards set

forth by ISO 14001 standards to ensure that the organization does not cause negative effects on

the environment, to ensure that all applicable laws and regulations are being followed, and to

continue to improve on both.

It is also the job of management to ensure that Riordan Manufacturing is in compliance

with all building codes in the locations of each building. These laws are set in place to ensure

that health, safety, and the welfare of the public are protected in regards to the construction and

occupancy of the buildings structures.

Management is required to check and ensure the quality and safety of all the products that

are manufactured in each location. This includes protection of intellectual property. Each

location has different products, designs, data, and customer lists. Management is responsible for

the safety and security of all product information at the different locations. Should any problems

arise, Mr. Bradford is to be contacted immediately.

Prevention. The following training and development guidelines are set forth for all

Riordan employees:

The following mandatory training for all employees within 90 days of hire:

•New employee orientation (1 day) — offered once per month

•Six Sigma — for all production, shipping and quality employees

Supervisors are also expected to attend the following workshops within 12 months of

becoming a supervisor:

•Interviewing guidelines


•Preventing EEO claims and sexual harassment in the workplace

•Performance reviews (University of Phoenix, 2006)

In addition to the current training process, employees will be trained in environmental

protection and safety. It is imperative that the trainers specify disposal procedures for all

chemicals and wastes. That will ensure compliance with government laws and regulations. As

part of the contract that was signed by each employee, it is grounds for termination if any

employee is caught violating any laws governing intellectual property. This information is talked

about again during the training process.

Compliance with Regulatory Requirements

Riordan Manufacturing is in need of a corporate compliance plan that minimizes risk of

litigation in a number of areas. Riordan Manufacturing is led by Ethical standards and practices

which allows employees to meet expectations and goals. The company integrity and ethics are

essential and crucial values and these values are the foundation of its success. Each of the

following sections contain preventative and management strategies the company can implement

to minimize risk. Along with these strategies, the plan presents specific regulation requirements

of each subject as well the procedures should a violation occur.

Internal Environment

Riordan is a profit corporation, as opposed to a sole proprietorship, partnership, or limited

liability company. As a corporation, Riordan’s shareholders, officers, and directors have limited

liability. However, these groups are not immune from all risk, and can be personally liable for

civil and criminal wrongdoings related to Riordan’s corporate obligations. The CEO is

responsible for ensuring that all employees are knowledgeable of internal and external practice’s

that are acceptable standards and procedures within the work environment.


Objective Setting

Managing Riordan’s risk for officers and directors requires a clear set of bylaws that

establish internal rules and govern corporate procedures. In addition, the bylaws define the rules

and limits of authority for the officers and directors. For effective risk management, Riordan’s

boards of directors need to establish an compliance and risk management committee to ensure

adherence to their corporate procedures and to the governments regulatory requirements.

Event Identification

A large portion of management’s responsibility is to identify and facilitate direction for

uncertain risks to business operations globally. Enterprise risk management (ERM) is the

approach assisting management in identifying and managing uncertainties and in attaining

positive risk intents. ERM efforts are on developing a strategy to introduce cognizantinternal risk

control throughout the organization. This structure is an effort by the COSO to effect

responsibility on executives and directors through informed organizational procedures and

processes that assist these individuals in reporting organizational management metrics

(Applegate, 1999).

Control Activities

The Model Business Corporation Act (MBCA) provides a liberal set of corporate laws

that most states have adopted for corporate governance in this financial environment. The

business judgment rule and the corporate opportunity doctrine are two laws that apply to officer

and director liability. The business judgment rule requires officers and directors demonstrate

that they make decisions only after careful consideration and receive reliable expert

consultations. Officers and directors of Riordan must also adhere to the Corporate Opportunity

Doctrine, which prohibits officers and directors from personally taking advantage of an


opportunity that could benefit the corporation without first presenting it to the corporation

(Stimmel, Stimmel, and Smith, 2004)

Information and Communication

Regarding risk associated with business ethics, Riordan’s risk management committee

must develop a culture that values ethical decisions over meeting internal or external goals.

Pressures of meeting far-reaching and unattainable goals can lead to costly and unethical

decisions. The compliance committee will be responsible for monitoring internal and external

corporate goals to ensure they are cost effective and reasonable within Riordan’s ethical

standards. The employee handbook serves as one type of governance that provides written

guidelines for reference.

Risk Assessment

In addition to the MBCA, Riordan must ensure regulatory compliance with the Sarbanes-

Oxley Act of 2002. This act takes precedent over state laws and requirements, like the MBCA.

The Sarbanes-Oxley Act requires Riordan follow and adhere to the following:

1) Prohibits Riordan from make personal loans to officers and directors

2) Disclosure obligations on auditors and accountants

3) Legal counsel requirement to report and initiate an investigation if the belief that a

material violation has occurred

4) Creation of a legal compliance committee for escalating violations to the board of

directors if not corrected by Riordan officers

5) Majority of Riordan board members must be independent:

6) Chair of audit committee must be an independent, and at least one member of the

audit committee must be a financial expert


7) Establish a written code of ethics (107thCongress, 2002)

Although not required, Riordan’s code of ethics should include annual ethics awareness

training for all employees, including officers and directors. In addition, Riordan must establish a

means for employees to obtain ethical advice and anonymously report misconduct. It is also

imperative Riordan thoroughly investigate reports of ethical misconduct. As described in the

preventive section, the compliance officer is responsible for administering and ensuring

adherence of Riordan’s code of ethics.

Risk Response

The COSO enterprise risk management structure recognizes an organization’s need to

infuse risk management into strategic objectives and the organization’s culture. To protect

against unplanned or unforeseen risk, all layers of Riordan are exercised and evaluated on how

the response protects assets and personnel. Entities within Riordan Manufacturing that fail to

comply with local, state or federal governmental regulations expose the organization to

regulatory risks and liability that impact assets, earnings, and most important, Riordan’s

reputation as a civic supporter.

Monitoring

Riordan will thoroughly investigate all violations of Riordan’s governance and

compliance rules and procedures to determine the circumstances that led to the violation.

Intentional and external violations will result in immediate termination. Non-intentional

violations will result in corrective action and consideration of termination based on the severity

of the violation. As warranted, Riordan will modify procedures and awareness training sessions

to address reoccurrences of non-intentional violations. In addition, officers and directors are at

risk for criminal liability if they are aware of the violations and fail to correct the violation.


Violating the Sarbanes-Oxley Acts can result in criminal liability for the officers and directors,

including federal penalties for certifying false statements.

Conclusion

Governance is defined as a guidance or control of an activity to meet a specific objective

(Fox, 2008). Corporate governance is a necessity to run Riordan effectively and be cost effective.

It keeps employees and officers from engaging in activities that may bring harm to the company.

The company’s risk management process looks at potential risks that may affect the company

and determine to what extent the risk will be taken. The underlying goal is to make a profit for

the shareholders and the careful steps planned for liabilities and risks will greatly determine the

future and profit of the company. As long as Riordan adheres to COSO guidelines regarding

financial and auditing practices along with The Sarbanes-Oxley Act, the company should be able

to realize a substantial profit, competitive advantage, and longevity.

International Law

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Conclusion

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References

Cheeseman, H. R. (2010). Business Law: Legal Environment, Online Commerce, Business

Ethics, and International Issues (7th ed.). Upper Saddle River, NJ: Prentice Hall.

University of Phoenix. (2004). SUPPLEMENT: Enterprise Risk Management - Integrated

Framework. Retrieved from University of Phoenix, LAW531 website.

University of Phoenix. (2006). SUPPLEMENT: Riordan Manufacturing. Retrieved from

University of Phoenix, LAW531 website.

Stimmel, Stimmel, and Smith. (2004).

http://www.stimmel law.com/articles/Corporate_Opportunity_Doctrine.html

Applegate, Dennis. (1999). Struggling to incorporate the COSO recommendations into your

audit process? Here's one audit shop's winning strategy... COSO.

Fox, N., & Ward, K. (2008). What governs governance, and how does it evolve? The sociology

of governance-in-action. The British Journal Of Sociology, 59(3), 519-538.

107thCongress. (2002) .Corporate responsibility.116 STAT 145.

http://www.sec.gov/about/laws/soa2002.pdf

http://www.stimmel/

Week 6 Paper 531 Law

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