Conflict Minerals: Electronic Firms Aren’t Slacking on Compliance

The global marketing and analytics company IHS Corp. recently issued a press release titled “Vast Majority of Electronic Companies Not Yet Ready for U.S. Conflict Minerals Law.” IHS surveyed large electronic original equipment manufacturers (OEMs) and found 90 percent haven't yet produced the necessary data, declarations, or documentation needed to fulfill regulatory requirements. Only 11.3 percent had required information available, and that information only covered 17.1 percent of the electronic components on the market.

Although these are eye-popping numbers, should the industry really be worried? Let's review the history.

The Securities and Exchange Commission issued a proposed rule in December 2010 and requested public comments. The response was overwhelming. Affected parties said the draft rule was overly broad and impractical to implement, and the timetable was unrealistic, given the lack of any currently available tools to do what was being requested. To the SEC's credit, it studied the comments and made major changes before issuing the final rule on August 22. Electronics companies knew major changes were coming. Most waited for SEC clarification before making requests of their supply chain.

So are companies dangerously behind and unprepared to comply? I don't think so. Companies now know with certainty what is required. They now have the tools they need to gather the necessary data and declarations. The EICC-GeSI template is a good example. An updated version was released in August after the SEC rule was issued. Most companies have begun sending it to their suppliers and asking them to complete and return it.

The trade group IPC is also working on a comprehensive industry due-diligence guidance document and a data exchange standard. It plans to work with ANSI and to issue both (called IPC 1081 and IPC 1755) in the spring of 2013.

IPC recently teamed up with Hewlett-Packard and the law firm Allen & Overy in presenting a “how to comply” Webinar you can view. They will also present “how to comply” seminars in San Francisco and Chicago in November.

Publicly traded companies will have to submit their first SEC conflict minerals report on May 31, 2014. The report must cover conflict minerals usage in 2013. As long as companies start requesting information from their suppliers before the end of this year, they should have the time needed to comply. The SEC is allowing companies a two-year phase-in period to deal with any suppliers unable to provide needed information.

Now that the electronics industry has the clarification it needed, as companies begin seeking supplier declarations, they should be able to comply.

Has your business started its compliance efforts? Are you comfortable, or do you feel behind and unprepared? Let me know. For more information on conflict minerals and other legislation affecting the electronics industry, click here.

4 comments on “Conflict Minerals: Electronic Firms Aren’t Slacking on Compliance

  1. Barbara Jorgensen
    November 2, 2012

    Ken: PricewaterhouseCoopers analyst Jim Forbes presented at ECIA on a related topic and came to the same conclusion. In terms of preparing for REES, electronics is better prepared than most industries but overall, businesses aren't aware of this issue. I think the same can be said of conflict minerals: electronics companies defintiely have a handle on things, but they are going to have to get the word out to business in general to have any kind of impact. Kudos to electronics for being leaders in these efforts, but it's time to spread the word. The origin and nature of these minerals aren't just in the domain of electronics — it's everybody's concern.

  2. R.J.Matthews
    November 3, 2012

    Agree that the 90 percent headlines were a bit deceptive. More progress is being made than they suggest Barbara and Ken.

    “With only about 21 months remaining until publicly-traded U.S. component manufacturers must disclose their usage of conflict minerals to the federal government, the industry appears to be unprepared, given that about 90 percent of firms so far have not produced the data, declarations, or documentation that will help fulfill regulatory requirements detailing the presence of such minerals in their supply chains.”

    That does sound bad but there are more areas than just the paperwork which hopefully will be in order when the time comes.

    “As of August, the percentage of electronics component manufacturers with available conflict minerals information amounted to only 11.3 percent of the peer group, according to the IHS Parts Management Service at information and analytics provider IHS (NYSE: IHS). These companies account for 17.1 percent of active electronic components on the market, as presented in the figure below.”

    Suddenly dos not sound so bad with the jump to 17.1 percent of active components. Interesting that was a jump in the graph from November 2011 when the first company rankings came out.

    Utilization of conflict minerals is widespread in the electronics market, employed in all kinds of products, from cellphones to hearing aids, to pacemakers and jet engines. For example, IHS estimates that $0.15 worth of tantalum-a conflict material- was contained in every smartphone shipped when Dodd-Frank was originally signed in 2010. In 2012, this would amount to $93 million worth of tantalum in smartphones alone.

    Things are not as bleak as they were on the tantalum front with AVX leading the way.

    Not all progress though as there are plenty of firms that are making no effort or think they can just post up a bit on their website saying they do not agree with conflict minerals and it is job done. Classic case is Nintendo.

    Overall though i think progress is being made just not fast enough when there is a war in the DRC.

    The Enough Project says the results are already apparent on the ground in the Congo. The amount of money armed groups make off three of the main conflict minerals (tin, tantalum and tungsten) has dropped 65% over the past two years, according to a report released earlier this month, which attributes the decrease both to the efforts of the tech industry and to new legislation.

    Companies once were “turning a blind eye to where they're getting their materials from,” said Lezhnev. But after considerable pressure from advocacy groups and college students, more of them have become aware of the issue.
    “Sunshine,” he said, “is the best disinfectant.”

    Trouble is this lawsuit could seriously drag things out when activists would be happier moving some of the pressure onto other sectors of the supply chain to get them to follow the Tech sectors example and getting other countries to follow Americas lead and bring in their own laws.

    The lawsuit is actually disadvantaging American manufacturers who could be benefiting more from their greater knowledge of the issues and actions already taken.

    Journey to compliance
    Even after the SEC deadline arrives, the task of reducing or eliminating conflict mineral usage will continue.
    “Compliance with the conflict mineral rule is about the journey, rather than the destination,” King noted. “Companies will have to arm themselves with information, tools and procedures to continually monitor their supply chains for conflict minerals.”

    Think we all agree with that anyway.




    November 5, 2012

    It is a daunting task to determine where materials are sourced.  A lot of trust will need to placed on one's suppliers to make sure they are complying and being honest with you in their reporting.

  4. kmanchen
    November 5, 2012

    You're right! Electronics companies have enough time to comply, but a lot of trust will need to be put on one's suppliers.

    The electronics supply chain has many layers. Mines extract ore, send it to a smelter to produce a rough (60-65 % pure) material, then smelters send it to local refiners who produce a high purity material, that refiners sell to manufacturers. Once smelted there is no practical way to test to determine mine or country of origin.

    Each layer of the supply chain has to conduct its' own conflict minerals due diligence. Smelters must confirm mines of origin. Refineries must rely on smelter declarations. Manufacturers must rely on refinery declarations. Customers must rely on supplier/vendor declarations.

    Companies need to start asking suppliers for conflict minerals declarations. They need to document all responses. They also need to review the information they receive and address any inconsistencies in supplier responses. 

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.