Hints of Value Emerging from Conflict Minerals Disclosure Efforts

Dodd-Frank Section 1502 and the associated SEC conflict minerals disclosure mandates have been highly criticized since their beginnings.  Many arguments against these arose – among them: the approach required by the law was the wrong tool for the solving the problem; there was no practical way to determine the ultimate effectiveness of the expense and activities companies had to incur; the benefit of the requirements cannot be determined or quantified; and SEC is not the correct venue for social agenda matters.

Even so, regulated companies began working on their compliance efforts after the SEC adopted the rules in August 2012, with many more jumping on the bandwagon through 2013.

In the 15 months of work since the SEC rules, a glimmer of business value is emerging from the efforts.  What we are seeing (and hearing from others) are some positive developments, such as:

  • Greater understanding of suppliers. This is the first integrated effort some companies have undertaken to identify suppliers across their organization.  At the least, companies are frequently surprised at the number of suppliers they have, or how outdated their supplier data is.  Some have used this as a reason to implement broad supply chain optimization projects, consolidating suppliers and spend to obtain cost savings.  Of course, not all supplier lists are carefully reviewed.  We recently received a request to fill out an EICC template from the IT solution implemented by a client for whom we conducted the original conflict minerals program gap assessment.
  • More insight into products themselves.  Not every company understands the breadth of products offered.  Companies reducing corporate overhead at times leave decisionmaking to business units, which can result in new products or product changes made without knowledge of corporate functions or leadership.  Conflict minerals projects are bringing these forward and highlighting the need for increased communications internally about new products and changes to existing products.
  • Improved documentation and knowledge of design specifications for contact manufacturers.  Not all companies have rigorous documentation about product requirements for their contract manufacturers to use.  We have found a surprising amount of informal – and even undocumented – communications with contract manufacturers.  Conflict minerals compliance activities have increased company knowledge about the amount of influence on design, specifications or product performance for contract manufacturers
  • Improved supplier prequalifications.  Discussions about adding a conflict minerals check to new supplier qualification reviews has brought forth gaps and missing controls in existing processes.  In these cases, companies have improved their overall processes and controls for on-boarding new suppliers.
  • Strengthened importance and visibility of corporate social responsibility (CSR) activities.  The linkage of the conflict minerals legal compliance mandate to CSR activities, departments and reporting has increased their visibility within their organizations.  This comes at a time when increasing pressure is being felt on other CSR issues that have caught the public’s attention in recent months.
  • Preparing for the future.  There is a general sense that supply chain transparency mandates will increase – either from new legal requirements – such as in the EU – or from other stakeholders.  Conflict minerals compliance activities can create an overall structure to be leveraged for future sourcing transparency initiatives.

Some of these were predicted as anticipated benefits early on.  While the value of these benefits may not be easily quantifiable, we do think they offer at least some silver lining to the compliance burden.

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