by Cydney Posner
As reported in this WSJ article, nearly 1,300 companies filed Forms SD to report on conflict minerals by the June 2 deadline. The result? Inconclusive. While a number of companies acknowledged their suppliers may have sourced minerals from the DRC or adjoining countries, a “majority of companies whose filings were reviewed by The Wall Street Journal… said they haven’t figured out if their products, ranging from electronics to jewelry, are in the clear. Only a handful were confident their supplies were free of conflict metals….” Companies contended that the sources were difficult to trace, that they did not receive questionnaires from suppliers or received incomplete, inaccurate or unreliable responses or that “the complexity of their manufacturing processes made it impossible to give a definitive answer.”
A conflict minerals consultant observed that the “’credibility and the certainty of the data, through the supply chain, doesn’t really exist completely. Because it is the first time anybody has ever done this, there is a question about the quality of the data.’” The article notes that the “SEC estimated conflict-mineral reports would cost companies up to $4 billion in the first year, and drop to between $200 million and $600 million in later years. Companies were projected to take about 480 hours, on average, to complete a report, compared with about 2,000 hours for a corporate annual report.” It will be interesting to see what the real numbers were.
After spending millions of dollars and countless hours, however, companies expecting to find praise for their efforts may be sorely disappointed. As noted in this Compliance Week article, one activist group described “the first batch of disclosures as ‘disappointing’ and lacking substance….In a statement, Global Witness expressed [concern] that a number of the conflict minerals reports already filed with the SEC do not contain adequate detail. ‘While some firms have made strong submissions, most reports filed to date don’t include enough information to show that companies are doing credible checks on their supply chains….The failure by some companies to disclose meaningful information suggests they have not taken the necessary steps to find out what is really going on along their supply chains.’”
The article identified some of the specific concerns:
“■Some companies have published minimal, if any, information on their efforts to determine which countries the minerals in their products are sourced from.
■The majority of companies have not demonstrated how they assess their suppliers’ due diligence practices.
■The majority of companies have not demonstrated the steps they have taken to identify and mitigate the risks in their supply chain.”
Another complaint was that companies were not obtaining audits of their conflict minerals reports, even though the SEC staff indicated in guidance that audits were required only in very limited circumstances this year. (Intel obtained an audit this year because it claimed conflict-free status for one of its products; however, it may well be alone in that regard.) The group urged “companies ‘to step up their act’ and ‘submit comprehensive, clear and detailed information about their supply chain due diligence’ in line with international standards set out by the Organization for Economic Co-operation and Development.’”
Another spokesperson for the group expressed her disappointment to Business Week: “’We know that these were companies’ first-ever conflict minerals reports, and we didn’t expect them to say that they are all 100 percent conflict-free….But we expected them to describe what the situation is, what they’re planning to do to mitigate any kind of risk they find at their supply chain, and too often we didn’t see that.’ ” A government policy consultant predicted that, in the future, reporting companies “will be a lot harder on their suppliers….For those who did zero due diligence, this will create a bad perception, and it’s a year before you can fix this perception issue.’”
While NGOs and social activist investment funds have not been exactly complimentary about the effort made by corporate America, as reported in the WSJ, one investment fund that focuses on social responsibility was at least relatively benign in its response: “’What we’re looking for at this stage is reasonable due diligence efforts…. We will be looking for more companies reporting in greater detail soon.’” As reported in IPS News, a senior policy analyst at the Enough Project viewed the filings as a major step: “’This is a historic day. Five years ago this issue wasn’t on anyone’s radar, and now consumers can look under the hood of what’s in a product.” Now that Intel has reported that one its products is conflict-free, “[w]e’re already seeing other companies racing to make the next conflict-free product, and we’re encouraging consumers to urge the [other large] companies to take part.”