In a report published July 10 by PwC, almost half
of the 900 companies surveyed are in the initial stages of
compliance with the SEC's Conflict Minerals rule, with 32%
still in the process of determining the applicability of the rule
to their products. As discussed in a
previous blog post, first reports are due to be filed with the
SEC May 31, 2014, and the covered reporting period is in effect
now. While the rule applies directly to publicly traded
companies, a far broader number of companies are involved in supply
chain compliance efforts, because they are suppliers to those firms
that have SEC reporting obligations. And in addition to the
SEC rule, market forces are bringing high level corporate attention
to conflict minerals.
The industry sectors most affected by the rule are:
industrial products and manufacturing, technology, retail and
consumer, and automotive. Nearly 13% of respondents reported
that they have 5,000 or more suppliers and only 16.5% have fewer
than 100. The three biggest challenges companies see to
compliance are identifying relevant suppliers, getting accurate
information, and establishing a company-wide conflict minerals
policy. Companies that identify a risk from determining that
their products contain conflict minerals list the following four
consequences as their greatest concerns: brand risk, possible
loss of customers, shareholder backlash, and possible boycott of
The survey indicates that a great deal of
work must be done in a relatively short time frame, but many
companies are discovering that conflict minerals disclosure is
driven not just by the SEC's reporting deadline, but also by
market pressures that are forcing even quicker action. Last
month's widespread news reports of activists targeting Nintendo
for lack of transparency in the level of conflict minerals in its
products (see, for example, http://articles.washingtonpost.com/2013-06-19/business/40059748_1_conflict-minerals-policies-suppliers),
have brought home to an ever-growing audience how real this issue
is as a business risk factor for a large segment of U.S.
companies. While some businesses may be delaying their
efforts in the hope that a pending legal challenge to the SEC rule
will be successful, savvy businesses are already realizing that
market forces may be an even stronger incentive to move ahead on
auditing their supply chains and developing competitive strategies
depending on the results.
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