New Study Gauges Corporate Resources Mobilized to Comply with Conflict Mineral Disclosure Law

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On October 1, 2014, The Payson Center for International Development of Tulane University Law School released a study analyzing the results of a June 2014 survey of issuers who filed the required Form SD with the SEC in the form of an online presentation, entitled “Dodd-Frank Section 1502: Post-Filing Survey 2014”

This study investigates the market impact of Section 1502 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, which applies public disclosure law to Tin, Tantalum, Tungsten and Gold (3TG) – so-called conflict minerals.

The law affects public issuers and their suppliers which procured or manufactured products containing 3TG, whether or not they originated from the Democratic Republic of the Congo.  The amount of minerals which, however, varying widely between companies, with some companies manufacturing products with extremely low concentrations, to other companies using thousands of pounds of 3TG per year.

The study’s findings reveal that issuers mobilized substantial in-house and external resources, an aggregate total of 709.7 million, to set up conflict mineral programs in order to furnish the required information by June 2, 2014, as per the disclosure law and rule.  Issuers each invested an average of $545,962 worth of time and effort to comply with the law, the value of each company’s conflict mineral program largely comprised of in-house corporate time, external human resources, an IT evaluation and IT system expenses.  Small issuers, with less than $100 million in revenue, spent $190,330 worth of resources on average – roughly 1/3rd as much as their large issuer counterparts.  

Of the models offered in 2011 and 2012 to project the cost impact of the law, the SEC’s $3 billion estimate comes closest, if one adjusts for the fact that roughly 1/5th of issuers filed as anticipated.

The study furthermore discusses the company’s perspectives on the law, including their reservations and recommendations.  Lastly, reported good practices are discussed, and re-produced in the study’s Web-page.  

“This study settles the question of Section 1502’s compliance costs to issuers, providing stakeholders with a point of reference and benchmarks” says Dr. Chris Bayer, the study’s Principal Investigator.  “While the surveyed companies are forging ahead by implementing systems and processes to carry out the traceability, due diligence, and disclosure functions, they are doing so amidst questions and reservations.  For example, some companies are concerned that one of the law’s externalities is that it dis-incentivizes responsible sourcing from the region.  By addressing the outstanding compliance questions and the well-founded reservations, the SEC could promote efficiency in the process.”  

With 112 issuers participating in the study, the data is representative of the 1,300 issuers who filed the required Form SD with the SEC.  

The survey results will be followed by a more in-depth paper, which will be published later this year.

For more information, please contact:

Chris Bayer, PhD
email: cbayer@tulane.edu

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