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Friday, August 22, 2014

Survey Finds Companies Are Lagging in Conflict Minerals Rule Preparation

There are 10 months to go before publicly traded U.S. companies must demonstrate that they comply with the conflict minerals provision of the Dodd-Frank Act. The rule, as noted in a previous article, requires companies to disclose that they source “conflict minerals” that are mined in the Democratic Republic of Congo and neighboring countries beset by war and human rights violations. The rule is intended to limit the funding of armed groups in these countries through the sale of the mineral precursors to tantalum, tin, tungsten, and gold.

These minerals are used in thousands of products, notably electronics. The rule mandates compliance by 6,000 U.S. companies. It is thus vital that procurement officers at these companies demonstrate that they and any of their estimated 275,000 suppliers source the materials from the “covered countries” for necessary operation of their products.

Credit: africa at

Credit: africa at

Compliance must be demonstrated by May 31, 2014. Information in a survey of 900 executives by PricewaterhouseCoopers (PwC), however, shows that efforts in this direction are going slowly. According to the July report, titled Conflict Minerals: How Companies Are Preparing, 16 percent of those surveyed have yet to begin collecting compliance data, while 32 percent are determining if the rule applies to them.

Almost three-quarters of companies in the survey are in industrial products and manufacturing, technology, and automotive, so it’s a good bet they will need to document their raw materials sourcing, especially tantalum, which is used extensively in electronics.

Experts say compliance will also be important for brand image. Companies that do not comply could lose sales.

With so much riding on the thoroughness of material and supply chain audits, most respondents want a cross-functional team involved in the effort. Team members would include representatives of legal departments, purchasing and supply chain operations, internal audit, R&D, Securities Exchange Commission (SEC) reporting and finance units, and social responsibility and sustainability programs.

One point emerging from the survey is that while more than half of those queried view this as a compliance exercise, 33 percent see it creating “impetus for supply chain … improvements that can lead to cost savings,” says Greg Szczesny, managing director of PwC’s risk assurance practice.

Consequently, meeting provisions of the Dodd-Frank Act could help streamline procurement operations and contribute to bottom-line profitability.

In an upcoming article, I will take a closer look at the report and its findings and ways in which this compliance exercise can benefit procurement.


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