No one appears completely happy with the U.S. Securities and Exchange Commission's new rule on tracking the presence of conflict minerals from the Democratic Republic of the Congo in high-tech and other types of products. Comments on SEC's action range from outright opposition to quibbling over details.
Coming down strongly in the negative column - even before the SEC rule was finalized - was the U.S. Chamber of Commerce, an ardent foe of much business regulation. Thomas P. Quaadman, vice president of the chamber's Center for Capital Markets Competitiveness, called the SEC "broken."
"Unfortunately," he wrote, "the SEC's rule will not be reflective of the way supply chains actually work and will do little to curtail the turmoil and civil wars that have raged in the Central African nation since 1960. Instead the rule will create an unworkable regulatory regime that will be exploited by bad actors and difficult to implement for honest market participants." Quaadman had little to offer in the way of an alternative means by which global business can combat the horrors occurring in the Congo and elsewhere.
Weighing in on the dubious side was the National Retail Federation. The group applauded SEC's exclusion of retailers from the rule (provided that they have no direct control over the making of a product), while saying that "it was too soon to determine the full impact of the regulations on retailers." At the same time, NRF vice president for supply chain and customs policy Jonathan Gold said compliance with the rule "could still be extremely difficult and there is considerable debate on whether filing reports with the SEC will make any difference." The NRF failed to convince the commission to adopt a minimum level of conflict minerals, below which products would not be covered by the rule.
General support for SEC's action came from investors and advocates pursuing human rights on a global scale. The Forum for Sustainable and Responsible Investment said the rule's disclosure requirements would allow portfolio managers, mutual funds and financial planners to "be better informed about material risks in investments." At the same time, the group was unhappy with certain provisions "that are weaker than we would have liked." It declared itself disappointed that companies will not have to include conflict minerals disclosures in their annual reports. Instead, the information will be contained in a new Form SD (SD standing for "specialized disclosure") that will be electronically filed with SEC.
The Responsible Sourcing Network, a project of the non-profit group As You Sow, is pleased that SEC finally got around to issuing a rule that was mandated two years earlier by enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act. But RSN director Patricia Jurewicz thinks full implementation shouldn't have been delayed so long - two years for large companies, four years for smaller ones. In addition, she would have preferred that the reporting requirement apply to "anybody who's got their name on a product.... We're not pleased that it gives companies a pass if they didn't influence the design decisions."
Jurewicz likes the fact that corporate reports will be "filed instead of furnished," so that "people won't have to run around to each [company's] website" to learn whether certain manufactured goods contain conflict minerals. Most of all, she believes SEC's action will force business to take seriously the problem of conflict minerals - more so, even, than equally pressing human-rights issues such as the use of forced and child labor in the cotton fields of Uzbekistan.
Love it, hate it, feel lukewarm about it - the SEC rule is a reality, and global business will have to adjust. Mickey North Rizza, vice president of strategic solutions with BravoSolution, says companies will need to come up with new and reliable sources for auditing suppliers and complying with the law. That means touching on every step of the supply chain in which conflict materials might be involved.
It's unclear at this point exactly how companies will manage that feat, but there's already some guidance in the form of a framework developed by the Organization for Economic Cooperation and Development. Industry efforts that can also be of help include the Electronic Industry Citizenship Coalition and Global e-Sustainability Initiative.
Even before they start complying with the new regime, companies ought to be taking a number of actions to enhance their supply-chain visibility. Rizza recommends that all supplier data be held in one place, for easy reference by the original equipment manufacturer when it needs to vet a new vendor.
Companies would also do well to adopt information-technology systems that can digest and analyze massive amounts of supplier data on a real-time basis. After all, they're going to have to disclose such granular details as country of origin, smelter facility and even the location of specific mines. One might as well have that information on hand, even before the new rule takes effect.
Going forward, manufacturers should begin incorporating conflict-mineral language into their supplier contracts. Such efforts should extend up multiple tiers, BravoSolution says. And while that goal is tough to achieve, it's one at which companies should be aiming anyway. Beyond satisfying the requirements of a government agency, visibility results in better cost control, a tighter rein on suppliers and a reduction in supply-chain risk.
Funny how so many of the regulations that business decries end up yielding bottom-line benefits. We saw the same phenomenon in the wake of new security measures mandated after 9/11. The much-maligned 24-Hour Rule for filing vessel manifests with U.S. Customs and Border Protection ended up giving importers better information on the status of their shipments. Similarly, SEC's conflict minerals rule could equip manufacturers with deeper intelligence about their supply chains, while boosting their brand reputation with consumers. Complaints about regulatory burdens and overbearing government notwithstanding, there needn't be a conflict between good business and a dedication to human rights.
- Robert J. Bowman, SupplyChainBrain
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