SOURCE: LockPath, Inc.

LockPath

May 21, 2015 00:00 ET

Unearthing the Truth About Conflict Minerals Reporting

OVERLAND PARK, KS--(Marketwired - May 21, 2015) - If a law is created but only one in five of those covered by the law obey it, will it make a difference?

The 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act included a provision, Section 1502, requiring companies to disclose annually whether conflict minerals exist in their supply chains. Conflict minerals refer to minerals mined in areas of the world under heavy conflict from armies and rebel groups, such as the Democratic Republic of Congo in Central Africa.

The first report to the Securities and Exchange Commission was due May 31, 2014. Bloomberg reported one month after the deadline that only 6 percent of companies met an "acceptable standard of compliance." Now a more indepth study recently released shows only 20 percent of companies covered by Section 1502 are meeting the minimum requirements.

Amnesty International and Global Witness conducted a study, Digging for Transparency, using 2014 conflict mineral reports from 100 companies. The 40-page report attempted to document corporations' efforts to analyze supply chains. Here's what researchers discovered:

  • 80 percent of companies failed to meet minimum requirements of Section 1502.
  • 41 percent of companies provided no evidence as to policy implementation to identify risks in their supply chain.
  • None of the company reports reviewed disclosed an example of risk within their supply chain.
  • More than half of companies sampled do not even report to senior management when they identify a risk in their supply chain.
  • Only 16 percent go beyond their direct suppliers to contact, or attempt to contact, the smelters or refiners that process the minerals.

Given the lack of explanatory information in the report, it's difficult to speculate what caused these results. However, as anyone tasked with such duties can attest, conflict minerals reporting is a very involved process.

Using antiquated means, traditional reporting processes absorb staggering amounts of resources and man-hours to babysit email chains, issue assessments, score results, organize and manage supporting documents, etc. And for most organizations who participate in reporting, the teams assigned to conflict minerals reporting do so as a secondary role to primary responsibilities. Teams solely assigned to conflict mineral duties are seen as somewhat of an unnecessary expense. Why? Currently, the SEC only penalizes companies for not reporting. There is no punishment for actually using conflict minerals.

This begs the question -- If there's no penalty for companies who capitalize on conflict minerals, then what are the identifiable risks involved?

This study relates its results to overall organizational risk by stating that, "consumers cannot have confidence that adequate measures have been taken by majority of companies to properly understand their supply chains and the risk of contributing to conflict and human rights abuses." This is the inherent risk an organization faces if labeled as such. The possibility of acquiring a PR nightmare based solely on this label should be reason enough to realign corporate stance on conflict mineral initiatives. The ripple effect of such an event could have negative effects on brand image which, consequently, will damage the company's bottom line. A more thorough look at this correlation is made in the article, Third-Party Management, Millennials, and Your Bottom Line: The Connection.

The optimistic view one can gain from the report is that thorough conflict minerals reporting can be accomplished. Better reporting means companies would likely have better insight into their operations. This, theoretically, would lead companies to make changes to their supply chains to minimize the use of conflict minerals, which is ultimately the goal of conflict mineral legislation.

Solutions are now available that automate many of the involved tasks of conflict mineral reporting. GRC (governance, risk management, and compliance) solutions, including LockPath's Keylight for Conflict Minerals solution, eliminate countless hours of human involvement surrounding supplier engagement and reporting, assessment/survey/review creation, and risk lifecycle management. Support documentation for reports can be consolidated into a singular repository. Additionally, by offering an internal, centralized system for managing processes and initiatives, once-siloed communication is now open and free-flowing, favoring all involved.

More importantly, a GRC solution can automate the process of assessing vendors for their conflict mineral exposure. This allows companies to perform greater due diligence on questionable suppliers and eliminate them from their supply chains, if necessary.

It is these types of solutions that reverse the negative draw on company resources created by conflict minerals reporting, saving companies huge dollar amounts on their bottom line. More importantly, the capability to effectively file these reports is greatly enhanced bringing closer the realization of the ultimate goal: reducing contribution to conflict and human rights abuses.

About LockPath
LockPath is a market leader in corporate governance, risk management, regulatory compliance (GRC) and information security (InfoSec) software. The company's flexible, scalable and fully integrated suite of applications is used by organizations to automate business processes, reduce enterprise risk and demonstrate regulatory compliance to achieve audit-ready status. LockPath serves a client base of global organizations ranging from small and midsize companies to Fortune 10 enterprises in more than 15 industries. The company is headquartered in Overland Park, Kansas.

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