5 Tips on the Conflict Minerals Questionnaires

If you manufacture or sell a product that contains anything with metal in it, you’ve probably received a questionnaire about “conflict minerals”.  You may have received many of them.

Unless your company is publicly traded and you have a securities lawyer on staff, you might be wondering what this is about, why it pertains to you, and what (if anything) you should do with these pesky (and intimidating) questionnaires.

Things are about to get worse:  in the fourth quarter of 2013, you will probably be receiving emails or calls that urgently request a response.  Here are answers to five questions posed by many smaller companies. These questions focus on background and requirements for 2013.

1.  What’s the law? 

The Dodd-Frank Wall Street Reform and Consumer Protection Act was signed into law in July 2010.  Within this law is a provision that seems an odd fit with the statute’s title.

Section 1502 addresses “conflict minerals” – tin, tantalum, tungsten and gold.  A portion of the world’s supply of these critical minerals comes from a war-torn region in the Democratic Republic of Congo (DRC), where warlords use profits from mining these minerals to commit human rights atrocities and destabilize the region.

Investors, the thinking goes, would want to know if companies source minerals from these areas.   Section 1502, commonly known as Dodd-Frank Conflict Minerals (DFCM), requires publicly-traded companies to determine if their products contain conflict minerals that come from the DRC or surrounding countries.  This requires an initial inquiry, further due diligence, and in many cases an independent audit of these activities.

Companies must determine if conflict minerals are or are not in their products.  For the first 2 years, “we don’t know” is a permissible determination.  The DFCM rule takes effect for calendar year 2013, with the first financial filings due May 31, 2014.

2.  The Timing. 

Manufacturers and others have objected to DFCM, citing inconsistency with the balance of the statute, and impracticalities in achieving compliance.  The National Association of Manufacturers filed a suit taking issue with some of the more troublesome provisions of the law, but were not successful in stopping DFCM implementation.  The requirements will go into effect as is for the calendar year 2013.  Many companies had been hoping for some relief from the courts. When this did not occur, they redoubled efforts to learn the source of conflict minerals in their supply chain.

3.  We’re a small company – Why us? 

Companies are looking to their supply chain for information metals in their products.  First tier suppliers are looking to second tier suppliers, who are looking to third tier suppliers, and so on.

Tantalum and tungsten are common in electronics, which are embedded in many consumer products.  Tin is in many things that would surprise you, such as pigments in dyes used in textiles and coatings on glass.  Once you start looking, there could be tin in many other things: buttons on a jacket; sunglasses; picture frames; and promotional items you give away.

Larger companies are taking a broad, inclusive approach – sending questionnaires to everyone, and expecting their suppliers to do the same.  The DFCM rule does allow for some exemptions, such as catalysts or tools used in making products.  SEC has published answers to FAQs with other exemptions, such as metal in crates used to ship products in bulk.

4.  What should I do with these conflict minerals questionnaires?    

The DFCM questionnaires are an example of the type of sustainability questionnaires I have covered in another Vistage blog.  Publicly-traded companies have already noted the very low response rate from their suppliers.

As noted above, DFCM allows “we don’t know” as a determination for 2 years.  Companies are increasingly pressed to “draw the line” for their 2013 determinations.  A response – even an incomplete response – indicates that your company has received the questionnaire and has taken an action to allow the customer to make a determination by year’s end.

If you haven’t done so already, you should launch your own series of inquiries to your suppliers and diligently track responses, so you can update communications to your own customers.  Informal, off-the-record discussions at conferences have indicated they are making plans to seek alternate suppliers to those who do not respond.  Send something.

5.  Will anybody audit what my company does this year? 

DFCM does not require companies that are not publicly-traded to do an independent audit of their due diligence.  If your customers must get an independent audit, their auditor may contact you as part of their procedures for that audit.  Trade associations in some industries may elect to pool resources and conduct audits.

Some professionals working in the field have noted that a similar audit could help suppliers understand and provide the kind of information their customers are looking for.

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