September 6, 2013 – September 13, 2013
The summaries provided in this Weekly Recap do not necessarily represent the views of Squire Sanders (US) LLP and should not be deemed to be endorsements of them. The Recap is intended to be a compilation of articles and events to encourage discussion within the conflict minerals community and to keep our readers updated on the most recent developments.
Elm Consulting: “Did the Cost of Conflict Minerals Report (CMR) Audits Just Go Up?”
We posted a story last week concerning Enough Project’s and Responsible Sourcing Network’s paper detailing the expectations of certain stakeholders as to the form and content of a reporting company’s Form SD and Conflict Minerals Report.
This week, the Elm Consulting Group International LLC (“Elm Consulting”), a professional services firm focusing on the development and implementation of effective compliance programs, contemplates whether the cost of conflict minerals audits will rise because of the expectations of the certain stakeholders.
Among other things, the stakeholders expect issuers to list in their conflict minerals filings “the percentage of products containing conflict minerals, number of conflict minerals products that have had their supply chains surveyed, percentage of conflict minerals products with indeterminate conflict minerals and percentage of conflict minerals products that have had the smelters identified.”
The stakeholders’ expectations for a reporting company’s conflict minerals filing would, if addressed in a company’s reports, likely lead to an increase in auditing costs. Elm Consulting elaborates, “the level of specificity in the narrative, including numerical performance indicators, will drive the level of audit effort required.” Because of this, Elm Consulting recommends that “issuers view the conflict minerals report as a regulatory filing” and use their corporate social responsibility report ”to…include indicators/other content sought by the stakeholders.”
All of this underscores the fact that conflict minerals is not merely a matter for SEC disclosure consideration. Companies need to consider customer demands, brand differentiation and now specifically stated expectations of certain activist groups.
Troutman Sanders Files Petition with SEC for Alternative Conflict Minerals Disclosure
On Wednesday, September 11th, the law firm, Troutman Sanders, filed a petition with the SEC requesting a deferral of the effective date of the conflict minerals rule and proposing an alternative disclosure method.
Troutman Sanders’ proposal is summarized as follows:
- Any registrant may defer filing a Form SD for up to one-year, provided that commencing with its first Exchange Act periodic report due on or after October 1, 2013, it provides a detailed status report in that report and subsequent periodic reports of the actions it has taken to date to comply with the conflict minerals rule and any actions it anticipates in the near future.
- Any registrant with foreign operations may defer filing a Form SD for up to two-years with respect to the coverage of foreign operations, provided that the registrant complies with the requirements for the one-year deferral described above. Foreign implementation would not need to be covered in the status reports during the first year.
The status report would be furnished under Exhibit 99 and Annex A of Troutman Sanders’ petition proposes the minimum required content of each status report.
Troutman Sanders believes that this alternative disclosure method “strikes the right balance between the goals underlying Section 1502 and the required disclosure and the practicalities of implementation.”
It is possible that some reporting companies will choose to include the kind of information proposed here in their periodic filings to address concerns or demands of customers or certain activist groups.
Compliance Week: Will Regulators Stop at Conflict Minerals?
Joe Mont of Compliance Week recently wrote an article identifying some of the “issues that are on activist and shareholder agendas that could become the next conflict minerals if Congress or state legislators decide to pick up the cause and require companies to disclose more about how they use certain controversial components or if they engage in questionable practices.”
Mr. Mont lists the following materials as “problem materials,” meaning that there is a possibility they could be regulated in the near future: “blood diamonds” in Africa, “death metal” in Indonesia, palm oil, cobalt and water.
Assent Compliance, a contributor to Mr. Mont’s article, urges companies to leverage their conflict minerals compliance and be ready to integrate their existing compliance measures if and when new regulations are adopted.
Conflict Minerals Policy: The Bright Group
“While The Bright Group (TBG) is not required by law to report conflict mineral sources, TBG is committed to implement a socially responsible sourcing policy respecting human rights and avoiding contributions to conflicts through mineral purchasing decisions and practises within its supply chain. TBG does not purchase or source any of these conflict minerals as raw material directly however being a contract manufacturer, products manufactured by TBG may contain these conflict minerals in the components of assemblies. TBG is committed not to procure knowingly any parts that contain any of the conflict minerals that originate from facilities in the “Conflict Region” that are not certified as “conflict free”. TBG will ask all its suppliers to undertake reasonable due diligence to ensure the same compliance within the complete supply chain. We acknowledge the visibility to reach at smelters level is complicated and where a supplier procures these minerals at that level then this information must be declared.”