Companies Slow to Adopt Conflict Minerals Strategy

July 11, 2013
A new report suggests complying with the SEC’s Dodd-Frank Conflict Minerals Rule could actually improve supply chain performance.

According to PwC’s Conflict minerals survey: How companies are preparing, almost half of the nearly 900 executives surveyed are still in the initial stages of complying with the SEC’s Dodd-Frank mandated Conflict Minerals Rule, due on May 31, 2014. Another 16 percent have not even begun gathering information, and 32 percent are still determining if the rule even applies to them.

According to analysts at PwC, however, any company with a supply chain is affected, and could actually end up improving chain efficiency.

“More than half of the companies surveyed in our study view this rule as primarily a compliance exercise, but it’s important to realize the opportunities it can present,” said Greg Szczesny, managing director of PwC’s risk assurance practice. “Not only can compliance enhance brand reputation, but it can also create impetus for supply chain and information system improvements that can lead to cost savings. Industry leaders should look beyond the requirements and see the benefits their efforts could have on business objectives. Our survey shows that 33 percent of the companies are willing to explore these added benefits.”

Nevertheless, companies should still keep in mind the problems associated with non-compliance.

“This can be an incredibly complex process and with the deadline fast approaching, companies will need to interpret the rule as best they can, and in a timely manner,” said Bobby Kipp, partner in PwC’s risk assurance practice, and the firm’s conflict minerals leader. “According to our survey, the most significant challenges that companies will face include identifying relevant suppliers, obtaining accurate and relevant information from them and establishing an entity-wide conflict minerals philosophy. Companies should take these potential challenges into account when assessing their compliance timeline and project plan, and designing their conflict minerals approach.”

Of the companies that have at least started gathering information on their conflict minerals status, 72 percent are in the industrial products & manufacturing, technology and automotive industries. These industries have made the most progress in completing the reasonable country of origin inquiry (RCOI), partly due to their engagement with trade associations that are actively involved in the conflict minerals process.

The single most challenging task for companies is getting accurate information from their suppliers, according to the findings. While it is crucial for businesses to identify how deep into their supply chain they need to go to attain the most up to date information, 58 percent of companies have not yet done so, and more than 40 percent have not done much at all with respect to gathering information and performing their RCOI and the associated due diligence.

Regardless of which department is taking the lead, the majority of PwC’s survey respondents believe that the compliance team should be cross-functional, including departments such as legal, purchasing/supply chain, SEC reporting/finance, internal audit, R&D, information technology and corporate social responsibility/sustainability.

“Approximately 11 percent of companies plan to become conflict-free sometime in the future, and almost a third of surveyed companies expect to require their suppliers to be conflict-free. However, that’s likely not happening in the near future, and the deadline for compliance is quickly approaching,” said Kipp. “It’s critical for companies first to understand the population of products that are within scope, the number of suppliers that provide conflict minerals, and the depth of information accessible from suppliers before they can properly design their compliance program as a whole.”

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