The pressure on the SEC to release the final rules on conflict minerals has grown in the past week with a letter sent by 58 lawmakers urging SEC Chairman Mary Schapiro to schedule a vote on the final rules by July 1, 2012. While the SEC will probably not meet this requested deadline, companies that source minerals should start preparing themselves for the day this vote will finally take place, and the sooner the better. A good starting point for those companies that still haven’t taken any steps yet was a webinar that Source 44 organized last week.
Moderated by Marketplace’s Eve Troeh, the webinar (“Conflict Minerals: 4 Keys to Conflict Free”) was a great opportunity for companies to hear expert panel members discussing challenges and solutions of conflict mineral compliance. The expert panel dealt with many of the questions that the expected rules will bring up, ranging from technical and strategic all the way to moral issues. Above all one thing was very clear – conflict minerals have finally become a material issue that companies can no longer ignore.
In his welcoming remarks, Jess Kraus, President and CEO of Source 44, made an interesting comment. “Conflict minerals and the Congo’s human rights abuses are merely the poster child for abuses against humanity. These abuses will continue unless we, as socially responsible global companies, take responsibility for what happens in our supply chains,” Kraus said. This was an important reminder that conflict minerals are basically a human rights issue, which makes it a relatively exceptional case. Most of the problems with resources are related to the growing scarcity of natural resources or the environmental impacts of unsustainable sourcing. It’s quite rare to find human rights as a main driver for a significant change in the way companies use resources, which makes it even more important to get it done.
This leads me to a point that actually wasn’t emphasized in the webinar, but definitely worth mentioning – the only reason conflict minerals have become a material issue is the 2010 Dodd-Frank financial reform law. Without it most companies would react like Steve Jobs did when asked about it in 2010: “Yes. We require all of our suppliers to certify in writing that they use conflict few materials. But honestly there is no way for them to be sure. Until someone invents a way to chemically trace minerals from the source mine, it’s a very difficult problem.” Well, it’s still a difficult problem, but now it looks more solvable than ever, and not because some chemist invented something, but because some lawmakers included it in a law. Once again we see how effective regulation is, comparing to goodwill, when it comes to affecting hundreds of thousands companies.
As we could learn from the webinar, the road to success is full of obstacles, even when it’s backed up by regulation. Some of them relate to the situation in the Democratic Republic of Congo (DRC), which was described by Patricia Jurewicz of Responsible Sourcing Network, who visited the area lately. She explained how the violence in DRC doesn’t allow for visiting many of the mines in the northern part of the country because it’s just too dangerous. She also explained the complexity of the situation on the ground, including the attempts to establish free-conflict smelters.
Wally Sanabria of SanDisk, the world’s largest provider of flash memory storage solutions, also contributed an interesting perspective on the challenges in the process, this time from the point of view of a company that already tries to clean up its supply chain. He started by saying that SanDisk sees conflict minerals as a risk management issue, adding that it affects their reputation and ability to serve their customers. Interestingly, he noted that it was initially brought to the attention of the company by a customer. Sanabria is, by the way, not the first to approach conflict minerals as a reputational issue – last week Deborah Fleischer quoted Bruce Klafter of Applied Materials, who said: “It is a compliance issue now. It will become a reputational issue once the regulations are out.”
Sanabria shared that tracing the supply chain beyond the first tier suppliers has its challenges, from limited awareness among suppliers to multiple supply chain levels and supplier confidentiality concerns. “We have built a successful and robust program in-house. I also believe working with Source 44 could provide the ability to improve supply chain data collection, especially for downstream suppliers, enhance auditing, enable mapping and modeling, and simplify reporting.” In terms of goals, SanDisk is looking at how many dollars that are spent on suppliers are clean and it has reached 95 percent, aiming to reach 100 percent eventually.
It’s clear that SanDisk is taking conflict minerals very seriously, applying a strategic and systematic approach. There’s no doubt it is ready for the new rules, but it will be interesting to see if its leadership will eventually pay off, if and when conflict minerals become a reputational issue. In any event, it will surely save SanDisk a lot of headache once the SEC finally releases its rules.
Raz Godelnik is the co-founder of Eco-Libris, a green company working to green up the book industry in the digital age. He is an adjunct faculty at the University of Delaware’s Business School, CUNY and the New School, teaching courses in green business and new product development.