Case Study on Riordan Manufacturing
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RIORDIAN COMPLIANCE PLAN
Table of Contents
The Riordan Manufacturing has long recognized that its functions in the area of global plastics involve numerous substantial legal and ethical responsibilities. These responsibilities tend to affect the very ends on which the focus, customer relationships, employees, and the future of the company. In line with the current conundrum in the economic environment of the United States and the consequent termination of certain companies, it is imperative that companies like Riordan Manufacturing complies with the existing corporate rules and regulations as provided by the existing regime on corporations. This is the primary intention of this document, to provide for the implications of the existing regimes, in this case the Sarbanes-Oxley Act, on the responsibilities and liabilities of the officers and directors of Riordan Manufacturing. For the purposes of this paper, the framework followed is structure provided for by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) shall be used to discuss the major areas that directors need to consider with regards to their legal responsibilities. In the same manner, the arguments and discussions provided in the course of this document shall be supported by existing journals on corporate management, corporate governance, as well as the discussions pertaining to the implications of the Sarbanes-Oxley Act on the major corporations as well as their respective directors and officers. In the end of this document, a summation of these arguments and observations shall be given so as to line it with the existing values of Riordan Manufacturing.
The company is a global plastics manufacturer with its headquarters lodged in California. It employs approximately five hundred individuals in its respective plants located in different parts of the globe. From Albany to Hang Zhou, the thrust of the company subsists in its daily drive towards the realization of these goals. The focus of the company is summarized in several major categories. The company believes that the company is a leader in the industry of plastics and that they are supposed to address the major challenges presented by their customers. In the same manner, Riordan Manufacturing applies the most innovative manufacturing disciplines (Six Sigma) and applies the highest quality standards (ISO 9000) to maintain their standing in the market and keep a flexible stand in recognizing the industry trends. With regards to the customer relationships of the company, Riordan Manufacturing seeks to assist their customers in any way they can so as to add to their intention to be more of a solutions provider in the industry. In the same regard, the institution of high quality control as well as innovative and responsive business solutions seeks to establish a long term relationship between the company and the customers. With regards to their internal environment, the company seeks to focus more on their personnel by instituting a team-oriented environment. This is to maintain a clear path towards innovativeness for the company as a whole. Aside from training, the company provides the information needed and support required so as maintaining a culture that complements the intentions of the company and demands of the market. All in all, the company places high regard on financial and human capital to ensure that growth of Riordan Manufacturing is ensured.
The regime applicable in the operations of Riordan Manufacturing is the Sarbanes-Oxley Act of 2002. (80) This was ratified by the Bush Administration in 2002 and possibly the most significant change in legislative history with regards to the field of securities of public corporations. It clearly affects the liabilities and responsibilities of both officers and directors of public corporations. Though ratification of the said law is encouraged by the problems encountered in the securities of public corporations in the United States, the structure of the said law provides for a more global aspect of business.
The statute added certain elements which are indicated in the eleven titles provided for in the ratified law. ( 2005) It makes the corporate operations of directors and officers more stringent as it added not only additional responsibilities for the Board of Directors but also instituted added penalties criminal in nature. This means that once provisions of this statute has been encroached, punitive as well as pecuniary liabilities are readily forwarded to the accused individuals. This regime is wholly implemented by the Securities and Exchange Commission and is given the power of rulemaking and authority to interpret the laws provided in the statute to accommodate both foreign and local capital market players in the United States.
Specifically, the said regime provides for specific elements that require strict compliance. In this case, certifications on both the CEOs and CFOs are required. (2003,) In the same manner, the audit committee of the corporation has also been given an expanded role. Moreover, corporate governance, financial transparency, as well as disclosure has been regarded as important elements in the operations of the corporation.
The COSO describes the control environment as the area which controls the perception of the people in the organization. (1992,) It sets up the quality in which the organization operates in internal control systems. With a considerably stable control environment, the discipline and structure of the company facilitates the operations of the company in line with the standards and objectives that it upholds. In the case of integrity, the company stated that the operations of Riordan Manufacturing are based on the fair dealing and the ethical conduct of their employees. This means that the integrity of the company relies mainly on the management of the individual employees. In making sure that each and every one of the employees holds on to the ethical principles of Riordan Manufacturing, it maintains the company’s overall success in its operations.
On the other hand, the focus of the company indicted that Riordan Manufacturing employs the Six Sigma. This means that the operating style of the company is driven by the customers. ( 2006, ) Authority is delegated so as to achieve the targeted level of quality and return on investment on the company. With regard to the human resource development of the firm, application of the Six Sigma implies that the training of the human resource is considered as an essential element of its operations. These claims show that the company essentially has a rather stable control environment. It appears to be flexible and applies a system that has been tried and tested as provided in organizational literature.
Risks are innately ubiquitous they can be seen in both external and internal environments. The employee handbook provides for the basic objectives on which Riordan Manufacturing seeks to realize. In this regard, it is these objectives that the risk assessments of the company are prescribed. The company must realize, along with its directors and officers, that it is required by law that the company conduct risk assessment. In s107 of the Sarbanes-Oxley Act, it defines risk assessment as the “process of analyzing both internal and external risks and threats to achieving an entity’s goals and objectives.” (180) The company’s risk assessment should cover the changes in the operating environment, new technologies, the new information systems, personnel, activities, operations, and accounting pronouncements to name a few. The process is summarized into five steps. The first step is to determine the control objectives of the company. Second, the company has to establish the requirements and set a list of priorities to establish the subsequent course of action. This subsequent course of action is the identification of the risks provided for in the operations of the company. Connected to this step is the verification on the actual probability that these risks do take place. Upon establishing the risks that are apparent and the level of likelihood that the company may encounter these, then it is time to manage these risks. This is done by establishing a series of policies that promotes the overall flexibility of the company.
The COSO describes the control activities of the company as the actions that assist the company in implementing the rules and regulations that comply with the basic risk management initiatives instituted by Riordan Manufacturing. These activities include the approvals and authorizations of certain operating performance geared towards the achievement of the mission statement of the organization. In this regard, it shows that the officers and directors of the company are directly liable for this part of the Riordan’s operations. A relevant provision on the Sarbanes-Oxley Act is manifested in s303. This provision states that manipulation, coercion and fraudulent influencing of the activities related to the approvals and authorization, particularly the financial statements of the company, for the intention of materially misleading the public is rendered unlawful. This means that control activities such as segregation of assets should be free from any manipulation. More specifically, the financial statements as well as the financial information that consequently follows with reference to the control activities of the company in the required reports should be fair in presenting the financial conditions and the results of the operations which the company has carried out in the course of a particular fiscal year. Otherwise, the directors and officers shall be civilly and criminally liable as provided for by s3(b)(1) of the Sarbanes-Oxley Act. Even the in house counsel of the company has the responsibility in law to report any actions of the company contrary to public policy. This is explicitly stated in s307 of the Sarbanes-Oxley Act.
The Sarbanes-Oxley Act provides for companies like Riordan Manufacturing to implement a material event monitoring. The statute’s s409 provides the importance of information systems to comply with the provisions of the Act. In the case of Riordan Manufacturing, the IT systems essentially connect the four major locations of the company: the head quarters, Pontiac Office, the Albany Office, the San Jose Office, and the one in China.
However, the major element that directors and officers must adhere to is the disclosure procedures as provided by s406 and s407. The former provides for the creation of a code of ethics of senior financial officers that significantly affects or even waive the provisions of the Act. In the same manner, s407 points to the need of the company for board designation as well as the need for disclosure of the audit committee’s financial expert.
Monitoring on the other hand is covered by both the CEO and the CFO of the company. Under s302 and s906 of the Sarbanes-Oxley Act, the CEO and the CFO must present a certification that they have viewed the report and perused it with due diligence required. This means that they are held liable in the instance that any discrepancy arise from the investigations of the SEC.
The ratification of the Sarbanes-Oxley Act provides for added liabilities and responsibilities of the officers and directors of public corporations like Riordan Manufacturing. It allows the state to prosecute any circumstances that constitute financial fraud in the company. Though it appears that the Act is essentially wanting as it is said to be a rushed legislation, it gives public corporations the chance to gain the trust of the public with the events that transpired in the days of Enron. Recent events as manifested in the declaration of bankruptcy of supposedly stable company’s in the financial sector makes the need for transparency and disclosure in the financial aspects of the firm indispensable.
The far-reaching and comprehensive reforms provided by the Sarbanes-Oxley Act merely calls for the greater responsibility of the senior management of public companies to take on due diligence in their operations. In the case of Riordan Manufacturing, a proactive role should be taken by the officers and directors in the operations of the company in relation to the reports provided to the public. Upon a deeper perusal of the said Act, the statute specifically provides for a strict interpretation of the law in favor of the investor and against the public corporation. However, the civil liabilities and criminal liabilities imposed upon the directors and officers are equally given recourse as the Act similarly provide for mitigating circumstances in instances where violations are explicitly held by public corporations. All in all, the application of the objectives and operations of the company incompliance with the provision of the Sarbanes-Oxley Act essentially offers a win-win situation for both the public and public corporations.
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