Nintendo Co., Ltd. (“Nintendo”) gets the message. After several thousand petitions and a threatened protest of its latest video game console release press briefing, Nintendo has taken steps to reduce the use of conflict minerals in its latest consoles.
Companies taking a wait-and-see approach to conflict minerals compliance might take a cue from Nintendo.
On August 22, 2012, the Securities and Exchange Commission (SEC) promulgated the long-awaited Conflict Minerals Rule (the Rule). The Rule does not prohibit the use of conflict minerals in products, but it does require public disclosure of how the conflict minerals are used by the reporting company. The SEC anticipates that customer requirements and shareholders’ and the public’s reactions to the reporting company’s disclosures could influence the reporting company’s actions and policies with respect to conflict minerals.
Although the Rule does not require a company to publicly report its use of conflict minerals until May 2014, many activist groups and policymakers have taken it upon themselves to publicly disclose companies’ use of conflict minerals. One such activist group is the Enough Project.
Last summer, the Enough Project published a report that scored the largest consumer electronics companies on their efforts to become conflict-mineral free. Nintendo ranked last, scoring a zero. The report stated, “Nintendo has made no known effort to trace or audit its supply chain.”
Enough Project Rankings of Electronics Companies
Nintendo since then has made changes to its procurement guidelines to include provisions on avoiding the use of conflict minerals and the importance of investigating the source of raw materials.
What should companies take away from this?
Although the Rule does not directly affect a company’s pocketbook through fines, the Rule could indirectly affect its bottom-line through consumer boycotts, petitions, and negative press. Companies that think they may be targeted by shareholder activists should look at the negative press that Nintendo received because it was slower than other electronics companies to act.
It is not too late for companies to set up a compliance governance structure and develop a charter, work plan, timeline, and budget in regards to conflict minerals requirements. But they should do so now. May 2014 is right around the corner.