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Conflict Minerals: A PR Opportunity

Corporations often rant about too much government in business. Here is a piece of legislation that could give a corporation a significant boost in both customer and investor satisfaction.

Whether you are motivated by a carrot or a stick, the SEC rule on conflict minerals (CM) has something to offer your company. These minerals are defined as columbite-tantalite (coltan), cassiterite, gold, wolframite, their derivatives (such as tantalum, tin, and tungsten), and any other materials the US secretary of state identifies as financing conflict in the Democratic Republic of the Congo or an adjoining country.

Since this rule applies only to SEC-listed companies, I thought I would add up the number of firms that would be required to report annually on CM use. As it turns out, there are 8,971 public companies on the accountability roster. I continued my research and discovered there are 309,264 private companies that would not have to report CMs. The ratio of companies that have to report to those that don't is about 1:30.

How big a difference would that make in the overall scheme of things? One would think that the public companies could claim Congress is picked on them unfairly. But here is where our stick turns into a carrot.

What do public companies care about most? Their employees? No. Their products? To some extent, as far as earning potential is impacted. But the biggest concern for a publicly held company is for the shareholder and investor.

Here is a direct quote from a statement from a consortium of investors declaring their shared convictions about the regulation. The investment groups issuing this statement have more $450 billion of assets under management.

We are expressing our disagreement to the lawsuit filed against the Securities and Exchange Commission (SEC) by the U.S. Chamber of Commerce, the National Association of Manufacturers, and the Business Roundtable. We believe the SEC's final rule of Section 1502 protects investors and has an effect on a significant public interest. Given that the long-standing conflict in the Democratic Republic of Congo (DRC) has claimed more than five million lives and contributed to egregious human rights abuses such as rape, child soldiers, and slave labor, we believe companies must disclose their use of conflict minerals. As investors and fiduciaries with a long-term view of capital appreciation that must meet the interests of multiple generations of beneficiaries, we believe it is important to protect investors through improved disclosure and reporting on social risk factors such as labor practices and human rights. Requiring disclosure within a company's supply chain allows investors to evaluate supply chain policies and practices, to make company-to-company comparisons, to calculate the level of risk associated with conflict mineral sourcing, and to provide assurance that companies are not engaging in destabilizing activities.

In short, the carrot takes on a very green color. The psychological and emotional impact on the public of a company refusing to support responsible CM management would akin to the effect of someone blowing cigarette smoke in your face.

The public mantra of “corporations don't care” is so established that corporations are fighting an uphill battle to garner public trust. Jumping in with both feet to support the CM rule would generate positive feedback for any company.

Turning lemons into lemonade is an old school practice. Any corporation that really wanted to make friends with its customers and investors would capitalize on this opportunity to show that a leopard can change its spots.

10 comments on “Conflict Minerals: A PR Opportunity

  1. Tom Murphy
    June 12, 2013

    Those socially conscious fund managers you mention in the story point out, rather eloquently, the real reasons not to use conflict minerals — rape, murder and mayhem.  That should be enough.  Anyone who expects good PR on top of that really needs to re-examine their priorities.  And anyone who opposes CMs just for PR is too cynical for me to comprehend.

  2. R.J.Matthews
    June 12, 2013

    Tom Murphy i know where you are coming from but it has come to this really. There are a lot of people who do support action conflict minerals on moral grounds but if there were enough of them there would have been rules in place already.

    You do have grandstanding politicians and some leaders of industry trying to pick up easy votes or support by moaning about regulations on American industry and saying charity begins at home and so on. So the argument of short term unenlightened self interest versus long term enlightened self interest does have to be made.

    The joke is the regulations would pay for themselves just on future cut backs to aid on the ground that has to be sent in to keep the situation deteriorating.

    The UN biggest force is in the DRC and America is the biggest contributor to the UN.

    A lot of aid is also being sent in.
    http://www.globalhumanitarianassistance.org/countryprofile/democratic-republic-of-congo

    Then there is the upside if things can be improved there.

    http://www.worldbank.org/en/news/opinion/2013/02/10/congo-moves-on-from-lost-years

    “And yet it has great opportunities to create significant growth and jobs thanks to these very same abundant natural resources, huge tracts of fertile land, a large population, and a commanding location in the centre of the continent.”

    “Only 10 percent of its huge area of arable land is farmed, and only 13,000 hectares are irrigated against a potential of four million hectares.”

    “The DRC is currently importing at least 30 percent of its food needs, when proper farming of its land could feed a billion people. With 100,000MW of hydropower generation capacity, the DRC has 15 percent of the world hydropower generation potential but only nine percent of the population has access to electricity, and even then it is not always reliable.”

    So how about aid not trade with a country that could be the bread basket of Africa and supply most of its electricity. Then if the mineral trade is cleaned up there that could help Africa and the world.

    If things can be improved there, there are going to be massive benefits to world and American trade.

    Not surprised by some politicians fighting conflict minerals progress as they are probably only concerned with getting the votes they need to get elected next time not about the long term future of Africa or America.

    You would think the arguments for progress would occur to the National association of manufactures but i guess they do not have any vision to see possibilities a couple of step ahead or are afraid of upsetting some of their members.

    It is good to see that EBN has raised the issue, which is enlightened of them, but i suppose the nature of supply chain issues is always looking several steps ahead and seeing how things can be done better.

    If only everyone thought the same way!

     

     

  3. dalexander
    June 12, 2013

    @Tom…My point exactly. It is bad company press for the investment community if word gets out that they, as perhaps institutional investors, are supporting a company that helps promote child labor or much worse sexual abuse and regional wars. Look at the flak Catapillar received when news got out that they were supplying special armored tractors to Israel to bulldoze down private homes in Palestine. A company has to look clean and green if they want to compete for investment capital. The companies that move the quickest on CM conformance will be seen as “socially responsible.” They may end up marking thier products to let the buying public know they are really good guys. Maybe a motto like, “Do no harm” will be popular. It worked for Google and look how popular they are. 

  4. R.J.Matthews
    June 13, 2013

    Good point there have been several scandels in the EU involving the supply chain recently and mining in general is being looked at more. I think it is only a metter of time till rules are brought in here that will cover a lot of businesses including American business.

    http://www.guardian.co.uk/business/2013/mar/26/tesco-market-share-horsemeat-revelations

    http://news.sky.com/story/1084619/bangladesh-disaster-primark-payouts-for-victims

    http://www.globalpost.com/dispatch/news/afp/130612/eu-tightens-rules-mining-payments-governments

     

  5. dalexander
    June 13, 2013

    @R.J. 

    Dhaka, June 11 (IANS) Bangladesh 's income per capita leaped to $923 in the outgoing 2012-13 fiscal year ending this month though remained far beyond reach with respect to the country's goal of graduating to a middle-income status by 2021. So if the clothing workers were only making 25 Pounds a month, they were so far below the average income level that you are right. Just as conflict diamonds have to do with labor practices, conflict clothing and the public's response should become a factor in responsible buying practices. Americans have it so good when it comes to disposable income and our buying options. This week I asked my 5 year old granddaughter to promise me that when she grows up she will be a conscientious consumer. We had just finished watching a YouTube depiciting 5 year olds crushing and carrying rocks for a cement factory in India. I am teaching her via a supply chain game I created. (Earlier article).

  6. FLYINGSCOT
    June 14, 2013

    With a ratio of reporters to non reporter of 1:30 it makes one wonder how effective the legislation will be.  However I suppose the non reporters will be much smaller companies in general.

  7. SP
    June 14, 2013

    1:30 ratio says it all. That is one of the major issue electronics industry is facing, laws and rules are different globally, so its so difficult to come to common conclusion.

  8. dalexander
    June 14, 2013

    @Flyingscot…yes. I think the smaller, non-public companies will not be immediately impacted. Now, does this mean that the very sneaky public companies will fund non- public entities to front their conflict mineral laden exports? I'm sorry, but I think that may be the case for some corporations who already are trying to fly under the government radar with other practices. When you consider how much tin is used on semiconductor lead frames alone, then the incidence of CM usage is almost universal across all industry sectors with control circuitry powering most electronic equipment. Might this become an impetus to not take a company public? I don't think so, but it may inject a delay in an IPO.

  9. Wale Bakare
    June 22, 2013

    Why do you think difficult to reach a concord in some important issues like that? Conflict of interests?

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