“Character is doing the right thing when nobody's looking.”
I believe these words of wisdom are more relevant now than ever before for technology companies as they ponder the future of their conflict-minerals policies.
Changes in the US political environment may result in the imminent demise of Section 1502 of the Dodd-Frank Act, which requires American companies to disclose the usage of these raw materials to the Securities and Exchange Commission. The repeal of this legislation would result in a major decrease in activity related to conflict-minerals compliance. This is because decision makers in many technology companies may determine they no longer need to concern themselves with the issue.
That would be a mistake.
There are many good reasons to continue complying with the spirit and the letter of Section 1502, ranging from public perception, to conforming with industry protocols, to meeting overseas rules and regulations. But the most important motive is much more fundamental: Avoiding raw materials obtained through human suffering is simply the right thing to do, whether the government is looking over the corporate shoulder or not.
The genesis of Dodd-Frank 1502 was the ongoing conflict in the Democratic Republic of the Congo (DRC). Warring factions in the DRC have used the proceeds from mining to finance their military activities. These groups sometimes employ forced labor in their mines, subjecting workers to dangerous and inhumane conditions.
Under the terms of 1502, companies are required to report their use of conflict minerals widely used in electronic components, including tantalum, tin, gold, and tungsten.
The improved transparency mandated by Dodd-Frank has yielded impressive results in choking off the supply of conflict minerals in the electronics supply chain. More than 80% of global smelters used in the production of these metals have passed audits or are in the process of being audited by the Conflict-Free Sourcing Initiative or other programs, according to The Enough Project.
In the event of a rollback of 1502, the most likely group of companies to dispense with restrictions related to conflict minerals would be those that don’t have prominent, consumer-facing brand names. Such companies don’t bear as much media scrutiny as well-known brands do.
Meet the press
In contrast, companies with established brand names are expected to stick with the status quo on conflict minerals disclosure. For these entities, the chief concern is avoiding the negative headlines that could be generated by revelations that their businesses are funding war crimes.
Several well-known technology firms in recent weeks have announced they intend to continue their compliance efforts, calling the issue a matter of human rights. Any company concerned about its brand image would be wise to follow the example of these firms.
Furthermore, smaller companies that are suppliers for big technology firms have a strong motivation to maintain compliance with the major brand’s conflict-minerals policies. These mid-tier companies need to remain aligned with the policies of their customers.
Big and small companies throughout the electronics supply chain have an additional reason for continuing to conform to 1502: Many of these enterprises belong to industry groups whose membership requires responsible sourcing of materials. For example, the Electronic Industry Citizenship Coalition’s code of conduct specifies that minerals sourced by participants should not finance armed groups in the Democratic Republic of the Congo.
Yet another reason for continuing to observe Dodd-Frank is the international legal climate.
Whatever changes occur in U.S. laws, technology companies still operate in an international marketplace. And throughout the world, the trend is toward tighter regulations aimed at improving social and environmental conditions.
The European Union has led in this area, and recently agreed to ensure responsible sourcing of more than 95% of imports of tin, tantalum, tungsten and gold. Other countries working on such legislation include China and Brazil.
To operate in these nations, U.S. companies need to ensure their products conform with laws that bear similarities to the 1502 provision.
Do the right thing
Apple recently stated in a Bloomberg article that it is “deeply committed to the responsible sourcing of materials that go into our products. We do this because it’s the right thing to do, not because it’s required by law.”
For Apple and other U.S. technology firms, the question of funding human-rights abuses has a simple answer: Do the right thing, regardless of whether anyone is looking or not.