Welcome to Tulane's Dodd-Frank Section 1502: Post-Filing Survey 2014 presentation!

June 2nd, 2014 marked the Form SD submission deadline.  Yet filing was the last step.  Affected companies have, inter alia, conducted the regulatory applicability and determination analysis, carried out a Reasonable Country of Origin Inquiry, developed and implemented a due diligence system that included IT systems when necessary, commissioned and prepared for Conflict Mineral Report Audit, and then prepared the SEC report. These considerable efforts have come at a cost and impacted the market.

Four years after the President's July 21, 2010 signing of the Dodd-Frank Wall Street Reform and Consumer Protection Act and with it provision Section 1502 concerning conflict minerals, and two years after the SEC's August 22, 2012 issuing of Rule 13p-1 and the Form SD, many questions emerge:  How, specifically, have companies navigated the challenge of building a conflict mineral program (CMP)?  What good practices have emerged from this unprecedented disclosure law?  Thus far, what has been the law's economic impact?  This survey gets to the bottom of these questions.

Please click on the video links below to view individual sections of the presentation, and download a .pdf version of the slides.  Thank you for your interest!

Intro, Overview, Stakeholder Forum, Methods

I. Profile of affected companies

II.  Internal company resources utilized

 

III.  External company resources utilized

IV. Cost summary

V.  Synergies

VI.     Market impact

VII.    Good practices, Conclusion

 

Please see below the verbatim responses concerning issuer Good Practice with regard to CMP-specific approaches and tasks. 

3TG identification

  •  “We hired a PhD chemist to help us identify possible 3TG in the materials that make up our products. Unfortunately, due to 1) the lack of clarification by the SEC on the "derivatives" issue and, 2) the lack of a "de minimis" level, most of our costs for compliance are due do trying to identify and then obtain upstream supplier information for extremely low concentrations of organic and inorganic compounds of tin from catalysts, heat stabilizers, etc. in our materials.  It is FAR easier for us to obtain 3TG information from our [few] electronics suppliers because they are generally more familiar with the rules.  Our suspicion is that many other publicly-traded companies of predominantly non-electronic products are not holding themselves to the same standard -- the same stringent interpretation of the rules.  Maybe those companies are wiser if SEC truly did not intend to have companies chasing down undetectable (by laboratory analysis) concentrations of non-elemental 3TG.  We need clarification so we can concentrate on eliminating sourcing of measurable quantities of 3TG from conflict mines -- not just spending enormous amounts of money and time on academic exercises.”
  • “We went through each of the components in our products to determine the % makeup of 3TG, and made sure that the supplier answers aligned with the known contents.”
  • “We modified our product development process to identify the inclusion of 3TG minerals at the time of component sourcing, and then further adopted through our IT system a process to segregate those of our products that contain any 3TG minerals that are slated for sale or rental to third parties.  This allows us to accurately determine which components in our supply chain are subject to reporting requirements and which are excluded as a result of being manufactured for internal use only.”

CMP conceptualization

  • “The best practice would be to thoroughly read and understand both the Legislation and the OECD Due Diligence Framework.  Understanding what is a requirement versus a suggestion when developing a compliance process is a vital piece of information.”  
  • “We came up with a compliance checklist early in the process that we could follow to complete our RCOI and due diligence.”
  • “Developed an internal due diligence system and a survey of external suppliers.”
  • “One year and a half ago, no Conflict Minerals team or policy existed at our company.  We have since put together a knowledgeable internal team, consisting of members of upper management, legal, compliance, finance and internal audit. We created and implemented a conflict minerals policy which was communicated to all of our suppliers.  At minimal cost, we created an internal system to conduct RCOI and due diligence. We reached out to 80% of our suppliers and received responses representing 99% of our spending.”
  • “The good practice our company implemented was an increased emphasis on data integrity. We assessed the accuracy of the data in our ERP system as well as the procedures for entering the information and maintaining it. Moreover, it lead us down the path of creating more traceability in our system surrounding the data integrity and management.”

Risk assessment

  • “As part of developing the RCOI, we worked with materials experts to segregate our purchasing commodity groups by L, M, & H if they were likely to have 3TG.  This helped in initial screening for follow-up.”
  • “Technical services team now identifies all products that may contain 3TG and this information is stored for all SKUs.”
  • “Developed a corporate-wide supplier risk segmentation strategy.”
  • “Implemented a Social Responsibility Risk management system that looks at all 3rd party risks and the impact to our corporate brand to get ahead of future legislation and regulation.”
  • “Developed a thorough due diligence system to track the 3TG.”

Internal streamlining

  • “Starting a small, cross-functional conflict minerals task force.”
  • “Using our existing process mapping techniques, we developed a Supplier, Input, Process, Output, Customer (SIPOC) matrix from which a process swim lane and procedures / work instructions were drafted.”
  • “We are a highly-decentralized organization with 53 strategic business units in 19 countries - each with its own structures, systems, and procedures and all of which participate in highly-regulated markets.  We did a great job of adopting a corporate "one size fits all" policy, but working with/through the individual BU's to implement the policy and maintain the relationships with both the suppliers and customers.  Communication - both internal and external - was the key.”
  • “Developed standard lean processes across business.”
  • “The company established a system to identify and assess risk in the supply chain by dedicating one FTE to manage the process and communicate with vendors. This person became knowledgeable in law, data management system, and supplier FAQs. This person owns the program and is the "go to" person in the company.”
  • “We built an effective, open-minded, cross-functional team to manage and implement the project.” 
  • “As an OEM in the Auto sector we saw value and synergy for using I-Point system to manage RCOI, which was endorsed by the AIAG, with many common suppliers to the industry. However, lack of knowledge within the multiple levels of the supply base regarding the source of CM was evident in the quality of responses received.”
  • “We held regular meetings as a team and with our executive sponsors.”
  • “We learned a lot from the requirement.  The supply chain transparency is increased.  We also developed the CFM tracking system in our factory.”
  • “Conducted individual internal business unit surveys with one-on-one training.”
  • “Prepare for reporting to the SEC and potential CMR IPSA / We rigorously document every step of our process with a detailed explanation of why the step/process/procedure is necessary, how it fulfils the regulatory requirement and aligns with the OECD DD Framework, as well as detailed organization chart, roles and responsibilities, and systematic instructions to allow the process to be repeated.”

Supplier engagement & communication

  • “All suppliers are required to complete template and provide CM information.”
  • “Issued conflict minerals policy and specification, implemented CMRT smelter/refiner data collection from suppliers, analyzed resultant data, sought to improve data quality from suppliers.”
  • “By developing and implementing the Due Diligence process we initiated a new dialog with our vendor community regarding our collective responsibility to obtain and retain information regarding the source of the materials which go into the products we sell.”
  • “One good/best practice we implemented in order to complete the four main tasks required to comply with the SEC regulation was that in conducting the regulatory applicability analysis, due to the complexity of our products, we surveyed 100% of our direct material suppliers in order to understand which commodities were affected.  We developed and implemented the RCOI using the cross-industry standard EICC GeSI Conflict Minerals Reporting Template and reviewed the smelter listings from suppliers against the Conflict-Free Smelter List.  Policies and websites of validated smelters were reviewed for mine site information; however, little information was available regarding the mine site origin so remains unknown.  Utilizing data collection tools such as the iPoint Conflict Minerals Platform combined with email communication allowed us to manage the due diligence and identify potential risks as well as provide the data to prepare for SEC reporting.”
  • “We surveyed 100% of the 7000 suppliers that may supply us with products containing 3TG.”
  • “Due to material traceability issues we were able to establish more stringent material specifications with our downstream suppliers, and this in turn has made our reporting to agencies such as UL and CSA easier.”
  • “About the only advantage in year 1 was to identify good contacts for direct suppliers and ensure our suppliers were working with their suppliers before year 2 reporting.  Otherwise, data was changing so fast that it was like shadow-boxing.  Data reported to us by suppliers often did not match their SEC filings!”
  • “From the Due Diligence suppliers declared to us.  We can prioritize the suppliers based on the risk of smelters suppliers purchased the minerals from.”
  • “We ensured that Tier 2 factories completed the EICC Forms by holding Tier 1 Suppliers accountable for the completion of this information.” 
  • “We now communicate our conflict minerals stance in our supplier agreement when bringing on a new contract to manufacturer.”
  • “We kept it simple. We spent very little on outside advisors. We conducted an organized process focused on identifying all relevant suppliers and systematically soliciting certifications from them. Our process will be much easier to implement in year two.”
  • “We are migrating from a custom, internally developed form for the RCOI to the EICC-GeSI form for the CY14 process.  We believe that use of the standardize EICC-GeSI form will improve supplier responses as well as data aggregation efforts.  We found the custom form, which was originally thought to be easier, led to confusion by the suppliers and resulted invalid responses requiring additional follow up.” 
  • “We identified all smelters in our supply chain and the trading agents and brokers between us and the smelters.  To reduce supply chain risk we are now focused on developing more direct relationships with the smelter to ensure supply chain transparency and to reduce the total number of smelters in our supply chain.  We are only dealing with smelters that are on the CFSI.org certified conflict free list.”
  • “We developed a very thorough, ~50+ question survey, which we reviewed with our suppliers.  This followed all the steps in the OECD framework.  We followed through to get complete answers, to make sure we thoroughly understood the supplier CM process.”
  • “We drafted and approved procedures to keep a well-documented account of each supplier's response and created a matrix to identify inconsistencies in responses and a process to follow up with suppliers when such inconsistencies were found.”
  • “Surveyed all suppliers and provided complete lists of SKUs to determine product types with the most exposure to having contents of these minerals.  Based on responses received in year 1, we will scale down surveys in year 2 to focus on products and suppliers with highest risk of containing 3TG minerals.  We have also educated our product managers on the importance of the SEC regulation and the types of communications to engage in with suppliers.”
  • “We developed a reliable and consistent process for filtering supplier spending at our many manufacturing operations worldwide to identify suppliers in scope for conflict minerals surveys.”
  • “All purchase orders contain statements that RCOI is required.  Every new item that is purchase must have a first article and required a Conflict Mineral Survey. / All items purchased must have a Survey in order for us to report, if we do not get a response from supplier or distributor we document all communication for our due diligence.”
  • “Identification and survey of suppliers of CM containing products, and annual updates of RCOI data to assure that understanding of the smelter sources of 3TG metals is accurate. This is required as several large OEM customers are requiring conflict-free 3TG sources going forward after 2014. Having updated conflict mineral sourcing data available insures that we can continue to supply these OEMs and possibly gain market share against competitors.”
  • “One good/best practice we implemented in order to complete the four main tasks required to comply with the SEC regulation was that in conducting the regulatory applicability analysis, due to the complexity of our products, we surveyed 100% of our direct material suppliers in order to understand which commodities were affected.  We developed and implemented the RCOI using the cross-industry standard EICC GeSI Conflict Minerals Reporting Template and reviewed the smelter listings from suppliers against the Conflict-Free Smelter List.  Policies and websites of validated smelters were reviewed for mine site information; however, little information was available regarding the mine site origin so remains unknown.  Utilizing data collection tools such as the iPoint Conflict Minerals Platform combined with email communication allowed us to manage the due diligence and identify potential risks as well as provide the data to prepare for SEC reporting.”

Collaboration / standardization with trade associations & peers

  • “Leverage our membership with CFSI and utilized industry programs.”
  • “Established multi-function team to benchmark other companies’ practices/policies.”
  • “Interfaced activity with automotive and electronics industry groups.”
  • “In preparation for reporting to the SEC, the Company collaborated with a number of industry groups to ensure that we would file in a similar format to that of other companies in our industry.  As this was a new filing, the collaboration with others in the industry was helpful in order to ensure that less duplicate work needed to be completed.  The cooperation also offered some reassurance that the Company would be effectively complying with the requirements of DF S1502, with the recent legal changes to the regulation.”
  • “Working with Industry associations have been one of the most important "best practices."  Establishing common practices, guidelines and aligning industry processes help all those involved.  We have been able to challenge our understanding of the requirements and leverage resources within other companies which supplement our internal team.  There is a cost associated with joining the groups, but there is a high return on investment if you are actively involved.”
  • “Collaboration with other like firms and the automotive industry through informal means to adopt a like calendar.  This because many of the suppliers are shared among several OE's being our corporation is not strictly automotive, it is difficult to band together like this industry does.  The informal collaboration has helped us drive consistency through the supply base.”
  • “We sought to align with and advance industry-wide approaches.  For Phase 2, we used the Conflict-Free Sourcing Initiative's Conflict Minerals Reporting Template to survey suppliers and identify smelters, and used that collected data to assess risk in the supply chain.  For Phase 4, we relied on the Conflict-Free Smelter Program to determine country of origin of the minerals and assess the minerals' conflict-free status.”
  • “Established strong company management systems by implementing a CM Policy which was communicated to Suppliers.  Additionally, we included conflict minerals requirements into commercial contracts and buying agreements.  Moreover, we upgraded the vendor on-boarding process to include a conflict minerals function to better address this new requirement.”

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