December 21, 2012 – December 28, 2012
KPMG: Information for the Board: What Boards Need to Know About the Conflict Minerals Rule
KPMG reminds us that boards of directors have a fiduciary responsibility to company shareholders. Therefore, they bear responsibility for the risks associated with Conflict Minerals – including reputational risk – and should be involved in the compliance process. KPMG recommends that companies begin with the development of a compliance approach, which is essentially a governance structure and a process to help ensure decisions are taken efficiently, at the appropriate level, and with ultimate accountability to the chief executive officer and the board. Next, companies should begin tracing where the minerals in their company’s products originate, and where and how they enter the supply chain.
Rather than look at this as a burden, KPMG proposes that companies embrace the conflict minerals rule. When companies understand their supply chain they can reduce inefficiencies and cut costs. In addition, companies will be in a better position to comply with other supply-chain-related laws, such as the U.S. Foreign Corrupt Practices Act.
AMSEC: Supplier Conflict Minerals Disclosure Form
AMSEC, a subsidiary of Huntington Ingalls Industries and a full service supplier to the Navy and commercial maritime industry, released its conflict minerals disclosure form for suppliers. The disclosure form requires suppliers to disclose whether conflict minerals are contained in its products and if so, from where those conflict minerals originated. Included in the form are representations that the supplier will support its disclosures with reviewable records and certifications and that AMSEC may utilize and disclose conflict minerals information provided by the supplier to satisfy AMSEC’s disclosure obligations under the Conflict Minerals Rule. The Conflict Minerals Disclosure form is incorporated into any purchase order issued by AMSEC for any of its products.
Hexcel Corporation: Conflict Minerals Policy
Hexcel Corporation is a leading advanced composites company and one of the largest U.S. producers of carbon fiber. Excerpts from Hexcel’s Conflict Minerals Policy follow: It is Hexcel’s policy not to use Conflict Minerals from the Conflict Region in its products or manufacturing operations and Hexcel has communicated this policy to each of its suppliers. In furtherance of this policy, Hexcel requires all suppliers of materials used in the manufacture of Hexcel products to demonstrate to Hexcel’s reasonable satisfaction that they will not knowingly procure for resale to Hexcel any materials that contain Conflict Minerals from the Conflict Region. Each supplier of materials to Hexcel must certify that no materials sold to Hexcel contain Conflict Minerals from the Conflict Region. Each supplier must also provide to Hexcel, upon request, written records of its due diligence process and the results supporting the supplier’s representations and compliance with its agreements relating to Conflict Minerals. Hexcel also requires each supplier to implement its own policy and supporting procedures with respect to Conflict Minerals consistent with this policy.
Forbes: Conflict Minerals Rule Contains Loopholes
The new conflict minerals rule received Forbes Magazine’s nomination for “Worst Law of the Year.” This Forbes op-ed highlights what it calls an interesting loophole in the conflict minerals rule that electronic manufacturers may take advantage of in 2013. The conflict minerals rule applies to reporting companies that “manufacture” or “contract to manufacture” products that contain necessary conflict minerals. The SEC stated in its August 2012 release that
“[a] company is considered to be ‘contracting to manufacture’ a product if it has some actual influence over the manufacturing of that product. This determination is based on facts and circumstances, taking into account the degree of influence a company exercises over the product’s manufacturing. A company is not to be deemed to have influence over the manufacturing if it merely: affixes its brand, marks, logo, or label to a generic product manufactured by a third party.” Page 64-65.
Forbes notes that for an electronics manufacturer, if it is just buying off-the-shelf parts from a supplier and assembling them it does not have to monitor its supply chain because it isn’t actually “manufacturing” as defined by the rule. Electronic capacitors are off-the-shelf parts, not something that the electronics manufacturers produce themselves. Instead, electronic capacitors are something electronics manufacturers buy and then assemble. Thus, Forbes argues, the Apples and Ericssons of the world are not actually covered by the conflict minerals rule at all.
The Forbes op-ed highlights the EICC/GeSI initiative and its focus on conflict-free certification of smelters.
Corporate Counsel: Top Ten Issues for Public Company GC’s in 2013
Second only to conflicts of interest issues with compensation consultants, the conflict minerals rule garnered a spot on the Corporate Counsel’s Top Ten Issues for Public Company GC’s in 2013 list. In 2013, companies will have to determine whether they are subject to the SEC’s conflict minerals rules and, if so, take steps to comply with these rules and be ready to report their compliance.
American Bar Association: Primer for Public Companies on the New Conflict Minerals Reporting Rules
On December 21, 2012, the American Bar Association released a primer for public companies on the new conflict minerals reporting rules. The primer highlights the background and purpose of the new conflict minerals rules and provides guidance on the scope and applicability of the conflict minerals rules to public companies. As for now, the primer recommends public companies evaluate their products to determine whether conflict minerals are “necessary for the functionality or production” of these products.