Corporate Compliance Plan for Riordan Manufacturing, Inc - Case Study Example

Corporate Compliance Plan Table of Contents Introduction 2 Company Overview 2 Sarbanes-Oxley Act 3 Enterprise Risk Management 5 Conclusion 8 Bibliography 9 Introduction The external and the internal environment of the business houses are experiencing fast change all across the globe. The traditional ways of performing businesses are no more fetching the expected returns. Along with the changing terms and tricks of trade, the business houses are also dominated by stringent regulations. It is particularly true for all those big corporations. The executives, the officers and the directors are under the purview of the laws of the land with respect to the authorities and liabilities that they can enjoy. The fact of internal framework and the related laws assumed significant importance as one after the other of the big companies failed because of scams and nexus in between the management of the companies and the financial institutions e.g. Enron, World Com, Adelphia and Tyco International. Company Overview Riordan Manufacturing, Inc is the industry leader in the manufacturing of plastic injections. The company was previously named as Riordan Plastics, Inc and was established in the year of 1991 by Dr. Riordan, a professor of Chemistry who had many patents in his credit in the plastic related subjects. The company employs more than 500 employees and operates from various centers of United States as well as China though headquartered at San Jose. The Riordan Manufacturing is a company by nature and not sole proprietorship or partnership. The sole proprietorship is such a business that is owned by the owner individually. The owner is not separate form such businesses and the liability of the business can be bestowed upon the owner. The partnership is another form of business where two or more persons come together for a certain business operation in order to make profit. In the case of partnership also, the liabilities of the firm can be transferred to the owners if the firm is unable to meet it. The company form of business is the most widely used form. It can be private limited company or the public limited company. In case of a private limited company, the directors are responsible for liable for financial obligations but for the public limited company or the limited liability company that is not the case. Even if the company is limited as Riordan Manufacturing is assumed to be, the officer’s liability would include the following: Increasing personal liability Increasing prosecutions Violation of environmental laws Sarbanes-Oxley Act The liabilities of the directors and the officers in any public limited company in the United States are guided by Sarbanes – Oxley Act. Sarbanes – Oxley Act was enacted in the year of 2002 in order to check financial scandals and scams in the western economies like that of Enron and World Com. The law is also known as Public Company Accounting Reform and Investor Protection Act or SOX, in short. The law is meant for the public limited companies of the United States and provides guidelines for the boards and the managements of such companies. The law has the following impact on the executives and the directors of Riordan Manufacturing, Inc: Liability for Officers and Directors – The Sarbanes – Oxley Act has very stringent norms for the officers and the directors of the publicly held companies. The officers and the directors can be charged for having interest in a separate but competitive company, undercapitalization of the books of company, recording of inaccurate financial information and issuing loans in favorable terms to officers or directors of the company among many others. Code of Ethics for Financial Reporting – Financial reporting is the most important aspect of the Sarbanes – Oxley Act, 2002. The law is very strict regarding the financial reporting. It prohibits the Board of Directors to make any decisions without adequate data or sufficient deliberations. It also has strict vigilance over the salaries or other financial benefits that are paid to the employees or the management which are out of line with respect to the size of the company and the type of business and its returns. If such thing happens, the executive and directors can be held responsible. Also, the onus lies upon the directors and the executives to ensure that the majority of the board members should be from outside of the Riordan Manufacturing, Inc. Share holder rights – The executives and the directors of Riordan Manufacturing, Inc should also be aware of the sections and sub - sections of Sarbanes – Oxley Act, 2002 regarding the rights of the share holders. The executives and the directors need to ensure that the board is elected in fair way among the voting share holders. The other technical requirements like that of voting on critical corporate issues, pooling agreement and voting trust are to be held in due manner. If the company decides to have mergers with other similar sized companies or have consolidations and selling of all assets, the executives and the directors are liable to provide the share holders the right to vote. The share holders also have the right to books and records. If any of the above stated rules are not maintained, the court of law can sue the directors and the executives of any public limited company under the Sarbanes – Oxley Act, 2002. But it might be the case that the executives and the directors of the company are not at fault and yet they are charged under the Sarbanes – Oxley Act, 2002. In such a case, the executives and the directors can appeal to the Supreme Court and seek justice. Enterprise Risk Management In the year of 2004, the Committee of Sponsoring Organizations of the Treadway Commission (COSCO) came up with an elaborate ‘Enterprise Risk Management – an integrated framework’ for the purpose of greater internal control and to provide increased emphasis to the risk management of the enterprise. The objectives of the ERM can be sub-divided into strategic, operational, reporting and compliance. The ERM framework comprises of eight components namely: Internal environment – In order to attain the required success, the internal environment of Riordan Manufacturing, Inc should be in line with the vision and mission statements of the company. Objective setting – The company should know the real purpose of its business and where it is headed for. The objective of the company is the essential component that guides it through to the turbulent ways. Event identification – The company should be able to identify risks and opportunities among the various events as that become very crucial for the strategy formulation of the company in the long run. Risk assessment – Risk assessment is another important aspect and the management of the company should provide for the risks undertaken in coherent manner. Risk response –After the risks are assessed, the next step for any company is to respond to the risk in due and effective way so that the business does not get affected. Control activities – Control mechanism are implemented within the system of the company so that it does not get deviated from the initial objectives. Information and communications – In today’s world, information holds the key. The management of the company looks for the relevant information from the overall pool and those are communicated to the relevant positions. Monitoring – Monitoring is initiated to see if all the measures are effectively executed and to check if any modifications are required. Conclusion It is evident from the analysis of the case of Riordan Manufacturing, Inc that the company can expect to be successful once it complies with the Sarbanes – Oxley Act, 2002 and inculcates the enterprise risk management as proposed by COSCO within the system. Financial reporting and effective risk management have become two vital considerations for all companies. The publicly held companies like Riordan Manufacturing, Inc should follow Sarbanes – Oxley Act to ensure sustainable growth and development. Bibliography COSCO. (2004). Executive Summary. Enterprise Risk Management – Integrated Framework. Retrieved Online on March 21, 2009 from http://www.coso.org/documents/COSO_ERM_ExecutiveSummary.pdf Hilzenrath, D. S. (2009). Supreme Court Will Hear Sarbanes-Oxley Challenge. The Washington Post. Retrieved Online on March 21, 2009 from http://www.washingtonpost.com/wp-dyn/content/article/2009/05/18/AR2009051803107.html Sarbanes – Oxley. (No Date). Information. Financial and Accounting Disclosure Information. Retrieved Online on March 21, 2009 from http://www.sarbanes-oxley.com/ Read More