The US Securities and Exchange Commission (SEC) finally issued its long-awaited conflict minerals rule in August, as mandated by Section 1502 of the Dodd-Frank Act. It requires companies to report to the SEC on the use of any "conflict minerals" sourced from the Democratic Republic of the Congo (DRC) and adjoining countries.
This is the region where a violent conflict has been raging for 14 years, claiming over 5 million lives. The four materials of concern -- tin, tantalum, tungsten, and gold -- are used in electronic components, jewelry, automobiles, and many other manufactured products. Investors have commended the SEC for issuing its rule requiring companies subject to SEC reporting (and their suppliers) to:
Determine the origin of any conflict minerals present in their products
Conduct supply chain due diligence
Have a third party audit conducted of their due diligence
File reports with the SEC every year by May 31 (first one is to cover calendar year 2013 and be filed by May 31, 2014).
Before deciding whether it was good or bad for electronics companies, let's look at why it took the SEC so long to issue the final rule. It issued a preliminary rule in December 2010, but didn't issue a final rule until August of 2012.
The rule was delayed due to the large number of comments and questions from affected parties after the preliminary rule was issued. A lengthy comment period was needed because the empowering legislation was an add-on amendment (section 1502) to the Dodd-Frank Wall Street Reform and Consumer Protection Act, rather than a stand-alone law. The usual process of proposing a law, forming a congressional committee, and obtaining input from affected parties was by-passed. The SEC was directed to issue a rule in an area for which it had little or no expertise, without adequate input from affected parties.
It was only after the SEC issued its preliminary rule and reviewed comments from affected parties that it was able to craft a workable final rule. To its credit, the SEC listened closely to affected parties and made necessary changes.
So is this rule good or bad? While nobody can criticize the intent of the rule, there is disagreement over how it will affect both industry and society. Two of the five SEC commission members voting on the final rule were so uncomfortable they voted against it. The two dissenters:
Said they weren't convinced the rule would be effective in stopping the flow of funds to rebel groups committing human rights abuses in the region
Expressed fear the rule would encourage illegal smuggling of mined materials out of the region, and that conflict region materials would then be mixed with conflict-free materials
Said they weren't convinced that targeting manufacturers was the right approach in addressing this issue.
DRC government officials have long voiced concern that the rule could result in companies not buying mined materials from the DRC region. If that happens, it would make conditions worse in the region for those trying to make a living by mining.
So what's the verdict? I don't think anyone in the electronics supply chain is pleased with the legislation process that was followed by Congress or the amount of after-the-fact work that was needed to create a workable rule. Compliance will undoubtedly be a burden on industry. Regardless, if the final rule proves effective in stemming human rights abuses in the DRC region, I think it will have been worthwhile. What do you think?
I agree with your point that this rule circumvented the usual procedure. Perhaps if it had been vetted the same way most bills are, it would have developed differently. These add-ons are designed to sneak in under the wire of bigger legislation, and I agree the intent of this rule is a very good one. The devil is in the details.
Ken, I like the way you framed the conclusion of your article. Electronics makers and their suppliers and distributors may worry about the cost of implementing the SEC rules on conflict minerals but right now they are better off trying to figure out the best ways to comply. The die is cast, as they say. There's no going back at least not as far as anyone can see.
If regulators say jump, we complain, moan and try to define how high but eventually we jump.
Agree with comments that the rules and certainly the issue is here to stay just look at the news over the last week.
Congo calls for embargo on Rwandan minerals http://af.reuters.com/article/topNews/idAFJOE88I00T20120919
Conflict free tin initiative announcement https://www.itri.co.uk/index.php?option=com_zoo&task=item&item_id=2539&Itemid=177
The Initiative introduces a tightly controlled conflict-free supply chain using the iTSCi procedures of traceability and due diligence as the fundamental basis. So far, Royal Philips Electronics, Tata Steel, Motorola Solutions, Research In Motion, Alpha, AIM Metals & Alloys, Malaysia Smelting Corporation (MSC) and Traxys are committed to the Initiative which welcomes participation from additional companies. ITRI, the iTSCi field advisor and capacity building NGO Pact, and other partners will implement the required procedures in co-operation with Government agents of the DRC Ministry of Mines.
"Nobody wants bad press, significant investors divesting or a lawsuit," said Schulte Roth & Zabel partner Michael Littenberg. "There are a whole host of reasons for companies to take this seriously."
The electronics industry should be grateful for the SEC's benevolent oversight, and introduction into electronics supply chain considerations. After all, without this oversight, the financial industry might have suffered from many scandals and abuses by now. Oh, wait a minute....
Well, that was financial. Now that the SEC has redefined the "E" in "SEC" to mean Electronics, electronics makers can look forward to results and opportunities similar to what the financial industry has thus far enjoyed. And I'm sure conflicts will really get under control now that the SEC is on board.
This could probably result in new companies that could provide the tracking services to control the origin of the materials and also provide centralised services to many semiconductor companies.
Rich the financial sector worldwide has not had the over sight needed as any prospective new rules have been met by intensive lobbying along the line off we do not need more bureaucracy or restrictions on free trade, any rules here will make it harder to compete with other foreign companies, outsiders do not have the expertise to know what to do, and we can be trusted totally to regulate ourselves.
We have had the exactly the same kind of tired arguments being trotted out over the conflict mineral debate and right back to the fight over slavery.
Elctrnx_lyf the new rules and the focus on the DRC supply chain will mean lots of opportunity for some firms that can come up with solutions to the problems.
Supply chain professionals have had a lot dropped in their laps but i think they are up to the challenge.
I agree that the conflict minerals rule is here to stay. Nothing to do but comply.
Congress put the SEC in a tough position. The SEC couldn't have crafted a workable final rule without the valuable input they received from electronics industry representatives. I want to commend one trade group (IPC) in particular for their contributions.
For over a year I have been serving on two IPC conflict minerals taskforces. Our goal was to prepare "due diligence" and "reporting" standards that electronics companies can follow in complying with the conflict minerals law. IPC hopes to have these standards endorsed by ANSI/ISO for use worldwide, and to release them in early 2013. Thankfully we have an organization like IPC looking out for our industry, for providing needed input to the SEC, and for preparing industry standards to make it easier for companies. The legislation process followed may have disappointed us, but not IPC.
Life is better with industry trade groups, and with governmental regulators, who work for our benefit and well being. I am looking forward to more rules and more benefits, delivered to us with the finest intentions, from the benevolence of bureaucratic kindness. Thank you.
Ken thanks for your kind words and your participation. As everyone has said, while Congress had the best of intentions it is unclear what effects the law will have and that the SEC is to be commended for their efforts to make the best of a law that was not adequately considered, discussed, or vetted.
Regardless, we must now focus on compliance. In addition to the due diligence document Ken mentioned (and which we hope to finalize and publish by December), IPC has developed a summaryof the final rule and has scheduled two seminars in the next couple of months to explain the regulation further and ensure understanding. "Conflict Minerals Critical Issues," will be held on November 1, 2012, in the San Francisco Bay Area, Calif.; and on November 14 in Chicago, Ill. For more information or to register for a "Conflict Minerals Critical Issues" seminar, visit www.ipc.org/conflict-minerals-seminar.
Speaking just for myself while i am not happy over some of the many concessions the IPC managed to get, the argument has to move on to making Dodd Frank work, as it is here to stay as is the issue of conflict minerals.
There is a real need for actions to be taken now with the present conflict in the DRC which has now spread to threaten the mountain gorillas.
R.J. Sometimes half a loaf is better than non. It would be nice to get the kind of support for the folks in the Congo that this issue deserves but as you are quite aware business imperatives also tends to push back against some of these. While one isn't necessarily in agreement with the concessions granted the IPC, there have been gains to the region as a result of the passage of the Dodd-Frank bill. However, in the longer term vigilance on the part of monitors, companies and human rights activists will help achieve the desired goals.
One thing is certain, without some compromise on all sides the sufferings in that part of the world would have been greater.
This new version will expand coverage to all electrical and electronic equipment, require special marking of finished goods and more compliance documentation, and increase penalties for non-compliance.
The US Senate Armed Services Committee uncovered approximately 1,800 cases of suspected counterfeiting over a two-year period. One Air Force supplier alone supplied 84,000 counterfeit devices.
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Thailand Stages a Comeback Join EBN contributor Jennifer Baljko on Thursday August 23, 2012, at 11:00 a.m. EST for a live chat on how electronic manufacturers in Thailand have shored up their supply chain to reduce the impact of future natural disasters.
Euro-Crisis: What It Means for High-Tech Firms Join EBN Editor in Chief Bolaji Ojo and Contributing Editor Jennifer Baljko on Thursday, July 12, at 10:00 a.m. EDT for a Live Chat on high-tech and Europe's economic difficulties.
Microsoft Surface: Potential Winners & Losers What are the implications for the electronics industry supply chain of Microsoft Corp.'s decision to launch its own tablet PC? Join industry veteran and EE Times' systems and OEM expert Rick Merritt on Tuesday, July 3, at 12:00 pm EDT for a Live Chat on this subject.
Join EBN contributor Jennifer Baljko on Thursday August 23, 2012, at 11:00 a.m. EST for a live chat on how electronic manufacturers in Thailand have shored up their supply chain to reduce the impact of future natural disasters.
Peter Drucker famously said "Trying to predict the future is like trying to drive down a country road at night with no lights while looking out the back window." Yet in the razor's-edge world of electronics—with a lean supply chain and just-in-time demands—the need to know the future is vital.
While no one really can accurately predict the future, we can take guidance from another Drucker saying which is the best way to predict the future is to create it.
You've heard the saying "the No. 1 supply chain risk is your people." That hasn't always been the case. But today's complex global supply chain requires a new type of multitalented employee. It's one who understands, finance, marketing, economics, is savvy with technology, graceful with relationships and can think analytically.
Where are these people? Are universities properly preparing the next generation supply chain professionals? How do train your existing workforce for these new, demanding positions?
Brian Fuller, editor-in-chief of EBN, will lead a 60-minute Avnet Velocity panel discussion that will ask and answer these and other questions swirling around today's supply-chain talent challenges.
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