A little more that a week ago, Elm received information from two independent sources that SEC was not going to publish the final Conflict Minerals regulations by the statutory deadline of April 15, 2011.
Today, this was confirmed by information on SEC’s website. At this time, SEC’s anticipated date range for the final rules is August to December 2011.
Although the delay extends the uncertainty of specifically what the requirements will entail, it provides impacted companies a much-needed expanded window of opportunity to plan basic program elements and begin specific communications with suppliers and customers.
One key element of compliance that won’t change is the complexity of structuring a supply chain-oriented audit program. We have written on this matter several times in the past and continue to counsel clients to begin this planning as soon as possible, and defer any auditing until this has been carefully considered. Some of our earlier comments on the risks of moving forward in the absence of planning are perhaps even more relevant given the rule’s delay:
- Companies directly regulated by SEC. Audits conducted “pre-rule” risk being non-compliant with the final SEC requirements. Early adopters may be faced with paying for audits a second time to achieve compliance. Reputational damage is possible where companies publicize or market the results of audits that are non-conforming to the final rule. At an extreme, companies could face lawsuits over nonconforming audits in a manner similar to lawsuits filed for non-GAAP financial reporting or certain corporate social responsibility reports.
- Privately-held companies responding to customer demands. For these companies, the risk is not compliance oriented, but centers on unnecessary costs and reputational damage. Where customers demand this information of suppliers, the demands must be met. The question becomes “is SEC compliance driving the customer’s request?” If so, …the customer’s need may not be so urgent or burdensome as originally thought; and early adopter efforts on the supplier’s part may be overkill/overly expensive in light of a rule deferral period. Legal action from customers who rely on the “pre-rule” audit information and reputational damage are both possible where companies publicize or market the results of audits that are non-conforming to the final rule. Suppliers would be wise to work with customers to find an acceptable balance between the drivers, timing, scope and cost.
… Elm continues to recommend that companies move forward with implementation evaluation, scoping and planning activities, but wait for SEC’s rule to be finalized before conducting audits.
The Commission’s plans for regulatory development of all Dodd-Frank related rules are published in the section of the website titled Implementing Dodd-Frank Wall Street Reform and Consumer Protection Act — Upcoming Activity.
The conflict minerals regulations are listed under the heading Corporate Governance & Disclosure, with the subheading of Section 1502.
In a related matter, many reports during the past week stated that the conflict minerals rules were finalized or went into effect on April 1. Those reports erroneously used the words “rules” and “regulations” when referring to the voluntary auditing program created by EICC, who announced April 1 as the official commencement date for full program rollout.