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The High Cost of Compliance

The headline on the IPC press release says it all: “Tulane University Study Finds Dodd-Frank Conflict Minerals Regulations to be One Hundred Times More Costly than SEC Estimate.” Tulane's estimate: $7.93 billion, versus the SEC estimate of $71.2 million.

Ouch.

It's not surprising that the SEC estimate is so low. Regulatory bodies have been low-balling such things for years. When Sarbanes-Oxley first became a requirement for public companies, the cost of simply printing annual reports skyrocketed because of all the extra information companies had to track down and provide. That was also around the time companies started hiring chief compliance officers — C-level executives who keep on top of issues such as RoHS and Sarbanes-Oxley.

The thing that's most painful about the Tulane estimate is Dodd-Frank is more of a voluntary action than Sarbanes-Oxley. It's not strictly against the law to use conflict minerals — you just have to disclose it. But electronics companies agree across the board that complying with the act is the right thing to do. The same is true of RoHS: Even if you don't sell that much product in Europe, non-compliance is equivalent to being anti-environment, and no company wants to be carrying that label.

From the press release:

    The study, A Critical Analysis of the SEC and NAM Economic Impact Models and the Proposal of a Third Model in View of the Implementation of Section 1502 of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act, was prepared at the request of U.S. Sen. Dick Durbin of Illinois, a co-sponsor of the conflict minerals provisions included in the Dodd-Frank Wall Street Reform and Consumer Protection Act.

    “The Tulane study underscores the need for the SEC to be conscious of the high costs of implementation,” says Tony Hilvers, IPC vice president of industry programs. “The SEC must utilize all reasonable options to lessen the burden of implementation, the most important of which is a phasing-in of the regulations to allow industry the time to work with their complex global supply chains to develop traceability and compliance data.”

    The Tulane analysis compared the SEC estimates to the findings of a study by the National Association of Manufacturers (NAM). It also relied on data gathered by the IPC survey of manufacturers in the electronics supply chain.

In some cases, businesses have been led kicking and screaming into various mandates. Sarbanes-Oxley was a direct result of Enron's abuse of employee benefits programs. Compensation practices have been changed because of the abuse of stock options. Accounting practices have been curbed to keep companies from claiming revenues on sales that haven't materialized yet. The list goes on. Unfortunately, Dodd-Frank is one of those acts that companies want to support — but at what cost?

As an aside, I have another observation: If your estimates were off by $6 billion (give or take), would you still have a job? That's a pretty big gap, if you ask me.

3 comments on “The High Cost of Compliance

  1. Eldredge
    November 2, 2011

    As an aside, I have another observation: If your estimates were off by $6 billion (give or take), would you still have a job?

    Well, maybe (but probably not the same job!) Perhaps they should just subcontact the cost estimate responsibility to Tulane.

     

  2. _hm
    November 2, 2011

    Was off-the-mark estimate on purpose to pacify some groups?

    High compliance cost are getting equivalent to technical development cost. How many small and medium organization will be able to afford this high cost? They need to have more sustainable approach or else product cost will be very high. 

  3. Daniel
    November 2, 2011

    Hm, I think they have to continue with their R&D for an alternate resource, in order to minimize the cost. Otherwise they may not be able to find out a place in market. For any sort of marketing affordability (Cost) is an important factor.

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