May 28, 2015– On June 1, companies across the U.S. will provide reports to the Securities and Exchange Commission documenting whether the products they manufacture contain minerals mined in Congo —an area known to force people to mine for minerals amid armed conflict and human rights abuses.
It’s only the second time in history companies will file the disclosures, following the 2010 passage of the Dodd-Frank Act, which requires public companies to track the use of minerals in their products and make annual disclosures about whether their products contain minerals from Congo.
The issue of conflict minerals is gaining steam worldwide. In recent weeks, the European Union Parliament passed draft regulations related to cracking down on companies that use minerals in their products mined from Congo as a way to work toward improving human rights conditions in the war-torn region.
An emerging voice in the conflict mineral debate is that of University of Utah S.J. Quinney College of Law professor Jeff Schwartz, who is scheduled to publish an article in the Harvard Business Law Review this fall. The article, “The Conflict Minerals Experiment,” examines the inaugural data submitted by companies to the SEC —and whether the disclosures helped with supply chain transparency.
Schwartz found in his research that many U.S. companies did not delve deep into their wells of suppliers, with many reporting that they couldn’t figure out if conflict minerals from Congo were a part of their supply chains. The attempt by the U.S. to get companies to be more accountable for using minerals obtained from the region by implementing the Dodd-Frank Act isn’t necessarily a model other countries should follow, said Schwartz.
“The main findings of my study are that the costs and benefits of the conflict minerals rules have been grossly exaggerated by those debating their merits. Compliance appears to have cost far less than critics of the rules had argued, but the rules produced little information about corporate supply chains, frustrating the ambitions of the human rights groups that supported them,” said Schwartz. “These are important findings, not only for those concerned about the effect of the rules themselves, but also for other countries that are looking to the SEC’s rules as a potential template for future supply chain transparency efforts.”
Schwartz came to his conclusions after examining over 200 reports submitted to the SEC last year, the inaugural year of the disclosures.
“The conflict minerals rules are a failure in their current form because they do not produce meaningful information about conflict mineral supply chains. This is the result of flawed rules and a cursory compliance effort on the part of the regulated entities,” said Schwartz.
Schwartz will continue his research by examining the second round of disclosure reports submitted to the SEC. Companies must meet a June 1 deadline in filing their reports.