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The US Court of Appeals for the DC Circuit recently struck down the part of the conflict minerals rule that would have required companies to “disclose publicly any products that aren’t ‘conflict free.”
Last month, Tantalum Investing News gave an overview of a PricewaterhouseCoopers (PwC) report on companies’ efforts to disclose to the US Securities and Exchange Commission (SEC) whether they are receiving tantalum, tungsten, tin and gold from the Democratic Republic of the Congo (DRC), and, if so, whether they are getting those minerals from conflict-free sources.
The upshot was that many companies were behind schedule and finding “the journey to compliance challenging at nearly every step: scoping, surveying suppliers, performing due diligence, drafting filings” — unfortunate news given that Section 1502 of the Dodd-Frank Act mandates that companies file a new Form SD, and in some cases a Conflict Minerals Report, by June 2.
With that deadline now even closer, one might reasonably expect companies to have made more progress. For the most part, however, that does not seem to be true. Case in point: a Wall Street Journal article published earlier this week states that of the 6,000 or so companies expected to file reports with the SEC, only two have done so: Siliconware Precision Industries (NASDAQ:SPIL) and Affymetric (NASDAQ:AFFX).
What’s the problem?
Some market participants have blamed companies’ inaction over the lack of clarity about what — and when — companies must report to the SEC. Indeed, The Wall Street Journal quotes Michael Littenberg, a securities attorney at Schulte Roth & Zabel, as saying, “[i]t’s been hard for companies to keep their vendors motivated with the uncertainty lingering over the rule. You’re only as good as your weakest link in the supply chain.”
Two decisions recently made by the US Court of Appeals for the DC Circuit are behind much of the confusion. One of them was last week’s denial of an emergency request from the National Association of Manufacturers, the US Chamber of Commerce and the Business Roundtable to delay the June 2 filing deadline, Bloomberg BNA notes.
Many were pleased with that decision. For instance, the news outlet quotes Global Witness representative Carly Oboth as saying, “[i]mmediate implementation of the rule is crucial to ensure that U.S.-listed companies take responsibility for their supply chains. Companies have a legal reporting obligation to the SEC in this regard, as well as a moral responsibility to show that the metals they use do not fuel conflict in the Democratic Republic of Congo.”
The DC Circuit’s other recent decision, made back in April, was to strike down the part of the rule that would have required companies to “disclose publicly any products that aren’t ‘conflict free.” As The Wall Street Journal states, it was made on the grounds that the requirement would have violated the First Amendment by compelling companies to “confess blood on [their] hands.”
The reaction to that choice has been less favorable. It’s even raised the question of whether there’s any point to having companies complete their filings, on time or otherwise. As Tom Quaadman, vice president of the US Chamber of Commerce, is quoted as saying in another Wall Street Journal article, “[w]hen I did math in school I had to do the work and show the answer. What has happened now is companies have to show their work and not their answer.”
That’s better than nothing, but as the publication notes, it will force investors to draw their own conclusions from companies’ reports rather than giving them a “nice summary conclusion.” As a result, said Bennett Freeman, a senior vice president at Calvert Investments, firms like his will have to help such investors by developing their own criteria and benchmarks from scratch.
Moving forward
Last month’s PwC report primarily provides a snapshot of companies’ unpreparedness, but it also indicates that many are willing to embrace conflict-free sourcing. Specifically, 45 percent of companies surveyed plan to become conflict free, and 7 percent intend to do so in the next two years.
That, PwC notes, “reflects the trend of companies evolving their stance on conflict minerals.” Ideally that will eventually lead to increased transparency despite the lowered standards for SEC reporting.
Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article.
Related reading:
Final Conflict Minerals Rules Taking Shape
SEC Finalizes Conflict Minerals Rules
The Conflict Minerals Act: Good Start or Bad Law?
The Road Less Traveled Makes All the Difference: Understanding the Road to Conflict-free Minerals
Many Companies Unlikely to Meet SEC Conflict Minerals Deadline: PwC