Running head: Managing regulatory risks

Managing Regulatory Risks LAW/531

Managing Regulatory Risks Managing Regulatory Risks A key factor for any business is the ability to manage risks. At Alumina, Inc. managing risks is vital to the organization, especially in relation to regulatory and common tort risks. Alumina must be able to manage its risks by identifying, preventing, and correcting any risks that could be associated with the business operations. To assist Alumina the following presents the regulatory risks and common torts, as discussed in the simulation and how they can be

identified and managed. In addition, ways in which to prevent further negligence by Alumina is presented. Regulatory Risks Regulatory risk can be defined as exposure to financial loss arising from the probability that regulatory agencies will make changes in the current rules (or will impose new rules) that will negatively affect the agencies currently operating (Webfinance.com, 2011). Managing risk exposure is priority for most businesses because it allows the company to minimize or eliminate financial loss, loss of integrity, market share, or shareholders. Various factors should be taken into consideration. Negative publicity, for example can reduce market share and thus decrease profit margin- thereby creating a financial loss for the organization or the company. In assessing regulatory risks, statutory violations, negligence, and product liability are just a few potential areas of exposure. Violations of the Clean Water Act can be avoided by performing regular periodic tests for contaminants, chemicals, or other impurities. Consistent monitoring of all effluent resources and equipment will ensure materials are run without exceptions and the water purity levels remain balanced.

Managing Regulatory Risks Staff training is especially important in ensuring each member of personnel who is responsible for maintaining the system has a formalized process in place for handling such situations. Also if impurities and unsafe levels are found, there should be a process in place to ensure the situation is addressed. Therefore, internal inspections and audits are important for ensuring irregularities are promptly addressed and rectified. Retaining market share and the duty owed to stakeholders and shareholders is crucial to keeping the business running smoothly. Tests and audits should be completed prior to publicizing information that could hurt Aluminas stellar reputation. If during the testing

process, unbalanced or unsafe chemical levels or any violations are found, Alumina cannot run a story attesting how safe their water is. It must protect its image by negotiating privately with any person inadvertently hurt or injured by Alumina products. Common Torts Companies impacting the environment and public around them have certain obligations and responsibilities they must abide by. Companies like Alumina will come across different legal risks and torts regarding their industry. In this situation, there are many factors at play regarding the contamination and violations in the past, the lawsuit accusing the company of causing injury to the public through the contamination, and the articles written about the company. According to the EPA: Compliance and Enforcement is an integral part of environmental protection. Compliance with the nation's environmental laws is the ultimate objective, but enforcement is a vital part of encouraging governments, businesses, and other companies

Managing Regulatory Risks who are regulated to meet their environmental obligations (Environmental Protection Agency, 2011). Alumina has an obligation to be sure all of the procedures and processes are abiding by the federal laws that are in place to protect the public and environment. The Clean Water Act (CWA) establishes the basic structure for regulating discharges of pollutants into the waters of

the United States and regulating quality standards for surface waters (Environmental Protection Agency, 2011). With regard to the contamination violation, the company is accountable under negligence tort as well as violating the Clean Water Act. The company can be found negligent because of the improper disposal of waste and contaminants into the water source back in 2005. Strict liability is basically liability without fault. A participant in a covered activity will be held liable for any injuries caused by the activity, even if he or she was not negligent (Cheeseman, 2010). If a connection can be made between the contaminated water and leukemia, Alumina could be held responsible. Toxic torts are defined as lawsuits in which people seek monetary compensation for injury, disease or death resulting from exposure to hazardous materials (Burke & Eisner, 2011). The individual could under Toxic Tort file a Personal Injury Claim against Alumina regarding the leukemia and medical bills if testing and investigation can verify the toxics cause leukemia. The U.S. Freedom of Information Act is a law that entitles public access to government records unless the government can provide reason for not disclosing records lawfully (The National Security Archive, 2011). The company is responsible to disclose information to the public regarding their violation but only if there is no reason lawfully to restrict the disclosure. The Bates party and legal counsel can request the documentations regarding the 2005 violation to

Managing Regulatory Risks be released under this law unless the company can determine a lawful reason not to release the documents or records such as statute of limitations depending on state regulations. Disparagement, defamatory language, and intentional misrepresentation can be applied with regard to the article written. Defamatory language is defined as: Committing libel or slander by writing or telling untrue statements about another person or committing product disparagement or trade libel by writing or telling untrue statements about a companys products or services is not protected speech, and the injured party may bring a civil lawsuit to recover damages (Cheeseman, 2010). The article did not produce facts or justifiable documentation to support their allegations against Alumina. Alumina could find the reporter and Frehwon in violation of intentional misrepresentation by printing an article that was not verified as accurate or factual. Defamation of character also can be applied to this situation. The tort of defamation of character requires a plaintiff to prove that: 1. The defendant made an untrue statement of fact about the plaintiff. 2. The statement was intentionally or accidentally published to a third party. In this context, publication simply means that a third person heard or saw the untrue statement. It does not require appearance in newspapers, magazines, or books (Cheeseman, 2010). Alumina can find Frehwon or even Bates in violation regarding any false statements in the article and spoken words regarding the company. If it is determined that the contamination

did not result in leukemia, Bates could be found in violation of defamation as well as intentional misrepresentation.

Managing Regulatory Risks If the company chose to investigate Bates personally, they would be in violation of Invasion of Privacy. The federal Privacy Act concerns individual privacy. It stipulates that

federal administrative agencies can maintain only information about an individual that is relevant and necessary to accomplish a legitimate agency purpose (Cheeseman, 2010). Therefore, the company could not do a character or background investigation of Bates, the sole claim is involving her daughters health as result of negligence from Aluminas handling of waste improperly. Arbitration is involved regarding the lawsuit filed by Bates against Alumina. To prove the contamination did not have any connection to leukemia the parties involved would need to do an investigation of the area, find any other cases similar to the daughters, perform medical tests to see if the contamination could cause cancer, and view the families medical history, etc. The process could be very costly, invasive, and time consuming. Limiting Negligence Aluminas negligence in the current matter would have been avoided, had management taken a more hands-on approach. Had Alumina paid more attention to the state and federal regulatory laws, and corrected the issues found in the past, the liability is minimized. In the future, Alumina must admit negligence in the matter and take steps for correction and compensation. Paying strict attention to the ruling by the Environmental Protection Agency, Aluminas Chief Operations Officer takes steps to ensure such problems do not occur in the future. Part of the planning includes involvement with the state officials and discovering more information on the approximate damages of the pollution.

Managing Regulatory Risks Conclusion

To manage and identify the regulatory risks, Alumina should routinely monitor the output of its machinery and equipment, provide training for its staff, correct problems when they are detected, and protect its image by publishing only verified information. In the simulation, Alumina was presented with several common torts. These torts included environmental regulatory infractions, negligence for not following regulations, toxic torts for personal injury, disclosure of confidential company information, and privacy regulations. Each of these torts represents a possible risk that must be managed through preventative and corrective action by Aluminas management. To reduce these risks, management should implement a hands-on approach by continually monitoring federal and state regulations and correct any issues detected through internal monitoring. By doing so, Alumina will have more time to focus on improving business operations and will spend less time correcting regulatory and tort issues.

Managing Regulatory Risks

Recognizing Legal Issues and Principles

Starting Point/Scenario
Alumina accused of contaminating the environment After completing the testing and getting returned levels below requirement, there is a possible defamation of character against the company

Legal Issues
Possible Environmental Violation

Legal Principles
strict liability

Potential negligence

Tort defamation of character

Protecting confidential information relating to the companys competitive edge Personal law suit against Alumina, Inc. News story explicitly stating the "clean record" of Alumina is not completely accurate Investigating Bates Possible violation of the Clean Water Act Alumina running additional story run in newspaper Dispensing of potentially untrue information Privacy Invasion Policy violation Fraud Claim arising 5 years after initial findings and correction

Privacy laws

Malicious prosecution, Arbitration, Toxic tort Arbitration Invasion of the Right to Privacy Violation of the Clean Water Act Defamatory language, disparagement, Intentional misrepresentation Statute of Limitations Rule

Managing Regulatory Risks References Burke & Eisner. (2011). Toxic tort claims. Retrieved from http://www.burke-eisner.com/practice-areas/toxic-tort-claims/index.html Cheeseman, H.R. (2010). Business law: Legal environment, online commerce, business ethics, and international issues (7th ed.). Upper Saddle River, NJ: Prentice Hall. Environmental Protection Agency (2011). Clean water act. Retrieved from http://www.epa.gov/lawsregs/topics/water.html Environmental Protection Agency (2011). Compliance with EPA. Retrieved from http://www.epa.gov/lawsregs/compliance/

The National Security Archive (2011). The freedom of information act (FOIA). Retrieved from http://www.gwu.edu/~nsarchiv/nsa/foia.html WebFinance Inc.. (2011). BusinessDictionary.com. Retrieved from http://www.businessdictionary.com/definition/regulatory-risk.html