Riordan Manufacturing Corporate Compliance Plan Applying the legal principles of business management correctly is absolutely essential to minimize risk in today’s fast changing global business environment. Effective managers must carefully, yet quickly and accurately analyze each situation, diagnose the correct problem and proceed to apply the correct legal solution. In this fast-paced, challenge wrought environment managers and the business organizations under their leadership need a legal framework that will help them make these critical decisions effectively. A case in point is the legal framework challenges facing Riordan Manufacturing.
Riordan is an international plastics manufacturer with 550 employees and $46 million in projected annual revenues. Riordan was initially founded in 1991 and has seen significant growth since its inception. Today Riordan is a global competitor in the plastics market with over 550 employees. Projected earnings exceed $46 million with an intense focus on manufacturing and sale of plastic beverage bottles, custom plastic parts, and plastic fan parts. Recently Riordan has made a strategic decision to move its China operations from Hangzhou to Shanghai within the next five years.
This move will necessitate some strategic changes in the legal framework of Riordan Manufacturing and Riordan Industries. This paper will analyze the legal environment including opportunities and challenges of Riordan Manufacturing in the areas of alternative dispute resolution (ADR), enterprise liability, product liability, international law, tangible and intellectual property, legal forms of business, and governance to form a successful governance plan for the company to ensure a successful transition. Alternative Dispute Resolution
There is a possibility of workplace conflict arising out of the location change in China as job losses in Hangzhou can cause distress for displaced employees. First Riordan must make certain that laying off the Hangzhou employees is in compliance with local laws. Secondly Riordan must have an ADR framework in place to deal with the potential conflicts arising from the lay-offs. ADR which includes such processes as arbitration and mediation is a more efficient and cost-effective method of resolving workplace conflict than the formal system of presenting competing interests in court.
Using ADR also tends to restore or enhance the general relationship between the disputants because the emphasis is largely on the community’s or parties’ interests, while litigation emphasizes defending conflicting positions. Additionally with ADR the parties develop the accord or resolution themselves and are therefore more committed to the success of the final agreement than the outcome of a lawsuit as ruled by a judge or decided by a jury. ADR also allows the disputants to craft a more creative and flexible resolution than one handed down from a court (U. S.
Bureau of Land Management, 2006). Thus Riordan will need to put in place an ADR process that is in accordance with local laws yet can resolve any labor disagreements that can arise out of the relocation plan. Litteral ; Finkel , the large international law firm that Riordan has on retainer should cooperate with the company’s Chief legal Counsel, Lowell Bradford, to put this framework in place. One specific method that could be helpful in the China relocation plan would be “interest-based Negotiation” also known as “Interest-based bargaining” and “mutual gains bargaining”.
Kaiser Permanente, one of the leading providers of managed healthcare in the United States, used this method successfully to ease tension between labor and management after numerous changes and a lay-off. This style of negotiation is based on fully understanding each participant’s interests by using a variety of tools such as active listening, rephrasing for clarification, and brainstorming to reach agreement. One of the first advocates for this type of negotiation was Mary Parker Follet who says this is a way to increase “creative problem solving” during times when groups were in a deadlock over an agreement (Leventhal, 2006).
Enterprise Liability Enterprise liability can arise out of Riordan’s China relocation plan. Riordan’s legal team will need to reassess and rewrite contracts with vendors and suppliers to mitigate the risks of such liabilities. Contract laws affect an agreement between two or more participants. Such an agreement creates in each participant a responsibility to do or not do something and a right to the performance of the other’s responsibility or a remedy for the breach of the other’s responsibility (Oman, 2007).
An ambiguous contract can cause a misinterpretation of ideas, needs, and wants. When joining in a contract, all parties involved need to ensure that they state their responsibilities and requirements clearly. Riordan must continue to manage its supplier and vendor contracts effectively or risk losing those suppliers and suffer irretrievable losses as a result. The effort to successfully manage contractual agreements must be a cooperative process between Riordan and its suppliers and vendors and must not leave too much room for interpretation on either side.
To avoid this, the interests of both sides must be clearly specified in the terms of the contract. This way Riordan and its suppliers and vendors can avoid risks, minimize the liabilities, and benefit from the opportunities in their business relationship. Riordan must therefore address the changes the company and its suppliers and vendors deem necessary in the revised contracts. Clarity of purpose in writing the new amended contracts must be the overriding concern. Interpretation issues can plague even well-intentioned contracts.
If Riordan and its suppliers and vendors take the time to create clear and concise amended contracts, they can not only avoid litigation but also build, preserve and enhance a profitable business relationship for the foreseeable future. Product Liability Product liability can arise as a result of Riordan switching suppliers and also from having to hire new, inexperienced employees because of the relocation. Riordan’s legal team should make certain that Riordan’s products are in full compliance with all the regulation regarding product liability in all the markets where Riordan products are sold and manufactured.
Where regulations do not specifically provide for a standard, there is an expectation that companies will meet the industry standard. Thus Riordan should also review any available industry standards as failure to meet those standards can also give rise to tort liability. Riordan should hire an independent testing company to test the company’s manufacturing processes at all its manufacturing plants at regular intervals. The testing schedule should comply with industry standards as well as with federal and international regulations.
Federal regulations should serve as the minimum standard with which Riordan must comply to avoid tort liability involving non compliance of regulations. Riordan’s board of directors should also appoint a risk manager to be the leader in reviewing company practices and procedures and thereby ensure the integrity of the testing procedures so that the results of the testing are reliable and credible. The risk manager should conduct reviews at multiple levels, from the creation of best practices manuals, to internal audits of compliance with its own manuals, to updates of those manuals.
The risk manager can detect any shortcomings in company compliance through these steps and move on to recommend a plan of action, allocate company resources, and take proactive measures to correct any shortcomings. In case a violation has occurred, the risk manager must take steps to notify the government of the appropriate country of those violations, and follow up with a plan for corrective actions. This will enhance Riordan’s relationship with regulatory agencies and build credibility which will help to minimize damage in the event outside sources report the company for non-compliance.
Riordan can then emphasize its ongoing good record of self-monitoring. The risk manager should conduct all activities in consultation with Chief legal Counsel, Lowell Bradford. Riordan must further avoid product liability risks by making absolutely certain that any new suppliers’ ingredients and manufacturing processes are in full compliance with US and international regulations for the manufacturing of heart valves, plastic bottles, plastic fan parts and any other product that the company manufactures and sells.
Riordan will need to use independent and experienced US inspectors to conduct strict and ongoing quality reviews of all new suppliers’ manufacturing processes and ingredients. International Law International laws are especially important in Riordan’s case because its new strategic plan involves moving manufacturing facilities from one location to another inside China, a country with its own complex laws governing business and manufacturing.
It is incumbent upon Riordan’s legal team that the organization is aware of and complies with every applicable instance of Chinese law to Riordan’s business including tax policy, employment laws, environmental and manufacturing regulations, trade restrictions and tariffs and political stability (Pearce ; Robinson, 2005). This should not be an issue as since the company’s inception Riordan has retained the services of Litteral & Finkel , a large international law firm that practices in all areas of the law.
Riordan must call on Litteral & Finkel to handle any possible violation of Chinese law that occur as a result of business activities by Riordan and its employees. Tangible and Intellectual Property Riordan’s legal team must ensure that all loans of tangible equipment are fully documented and governed by contractual agreements to avoid any possibility of having any property stolen as a result of an intentional tort by the borrower, such as trespass against chattels or intermeddling with the owner’s property rights (Snyder, 1992).
The legal team must seek restitution from defendants in case any such torts are committed against the company. Intellectual property rights cover works that come from the mind or intellect of people, and have commercial value. They include any intangible ideas, inventions, trade secrets, process, programs, data, formulas, patents, copyright, trademark, software or application, business methods, or industrial process (US Department of Justice, 2004). For Riordan intellectual capital and especially patentable inventions can be a substantial percentage of a company’s worth.
One risk to intellectual properly for Riordan is that the courts are scrutinizing patents far more closely than in the past. There is increasing pressure on the courts from well known companies such as Microsoft and Cisco Systems to make it easier to show that a patented invention is an obvious natural phenomenon which the patent holder merely noticed and patented. Current patent holders may be forced to show significant additional steps in the patent claim to render an item patentable.
The courts may require that an actual physical transformation of matter take place as a result of a patented process before it is a patentable item (Akers ; Rawlins, 2006). Riordan’s legal team should re-audit or re-appraise the company’s current patent portfolio to defend against this risk and the risk of violating others’ intellectual property rights. Additionally the team should review existing licenses and change the company’s current licensing practices (Akers ; Rawlins, 2006). Legal Forms of Business
Riordan must carefully address what legal form of business would best suit the organization as it pursues the relocation initiative in China. This is important because of the tax, managerial, legal and liability impacts of business formation upon the ultimate success of the organization. There are a number of legal forms that a business can take. The most common are: Sole Proprietorship, General Partnership, Limited Partnership, Limited Liability Company (LLC), C-Corporation and S-Corporation (Holland, 1998). If Riordan has not already done so, it would fit its business model best to organize as the more flexible C-Corporation.
As a C-Corporations Riordan would be organized with ownership of shares of stock which are assignable and transferable. As a C-corporation, Riordan would also be a separate legal entity from the owners and can function just as a person would in the business world while providing limited liability for the owners. This protection would protect the owners from being sued for the debts of the C-corporation unless they personally guaranteed the debts. The potential loss for the owners of Riordan would be limited to the capital they invested.
As a C-corporation Riordan would be a legal entity that must file an IRS tax return and pay taxes on profits. The control and operation of Riordan as a C-corporation would be in the hands of the shareholders who normally use a board of directors as a method of governance (Holland, 1998). Governance Investors of today need to know that there are mechanisms in place that will protect their investments from the risk of misuse, fraud and embezzlement, regardless of whether they are individuals or groups of investors such as funds, banks and other financial institutions, or even governments.
Investors need assurances that companies will use their investments as intended to improve corporate performance, and practices that assure this are at the heart effective corporate governance (Gregory, 2000). Good corporate governance is a set of ethics driven practices that differ for each company but which are essential in reassuring stockholders and maintaining a good business relationship between companies like Riordan and their stockholders.
Risk mitigation is thus the main thrust of corporate governance and includes enterprise risk management (ERM), a governance framework, a Committee of Sponsoring Organizations’ (COSO) new ERM framework, and aligning governance with ERM. With these components in place, Riordan can develop preventative solutions for governing the organization and ensure successful corporate governance along with a risk mitigation plan. Using the enterprise risk management approach will help Riordan’s management understand and manage internal and external risks they may encounter during the China relocation.
Using the ERM approach Riordan will be able to keep the transition to Shanghai on track by identifying, prioritizing and reacting to events that pose a risk in a timely manner. Riordan’s board of directors, management and other personnel affect the ERM process (COSO, 2008). COSO is essential in understanding causal factors that can lead to fraudulent financial reporting that eventually brought about the passage of the Sarbanes-Oxley Act. COSO frames guidelines for ethical financial reporting practices for public companies and their independent auditors, for the SEC and other regulators, and for educational institutions.
COSO guidelines are essential for complying with the terms of Sarbanes-Oxley. Instituting strong internal controls is the cornerstone of the COSO guidelines (COSO, 2008). To assure compliance with the Sarbanes Oxley Act Riordan should put in place strong internal controls that facilitate ethical financial reporting. ERM and corporate governance comprise four components including stakeholders, the governance safeguard provided by the board of directors, risk management, and assurance.
The boards of directors, senior management, internal and external auditors are the basis of corporate governance at Riordan and Riordan’s board of directors is responsible for corporate governance. Riordan’s board must acts on behalf of the stakeholders, but cannot assume responsibility for risk management. Risk management is the responsibility of Riordan’s senior management and risk owners (Sobel ; Reding, 2004). Riordan should clearly define and state corporate governance roles within the organization and the legal team should be involved with the establishment and oversee the practice of these roles. Conclusion
Riordan’s success in the China relocation initiative, as well as all its future success, depends on the correct application of the legal principles of business management. Riordan has carefully planned a legal framework that will help the company minimize its risks and maximize it opportunities in the areas of ADR, enterprise liability, product liability, international law, tangible and intellectual property, legal forms of business, and governance. References: Akers, B. P. & Rawlins, A. E. (2006, December). Top intellectual properties issues that will affect the medical device industry in 2007. The Pulse.
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