Radiohead and Dodd-Frank: Survive Section 1502 with 'No Surprises'

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In the seminal song “No Surprises” from Radiohead’s 1997 classic “OK Computer,” Thom Yorke observes an unhappy modern citizen, resigned to conform with society’s expectations. In the end, that citizen simply asks for a life with “no alarms and no surprises.”

Having talked to many company officials dealing with Dodd-Frank Section 1502 reporting, I sense that many could relate to the song’s theme. The SEC Conflict Minerals Law came as an enormous shock to the system, and the deadline of May 31, 2014, looms ever larger. At this point, companies seek to ease the difficulty and integrate this into the other compliance realities they face.

As manufacturing companies rightly focus on the “X”s and “O”s of establishing their compliance systems, analyzing responses from suppliers and requests from customers, and compiling their Conflict Minerals Reports (CMRs), they would do well to spend a few minutes with a recent NGO report concerning expectations for the coming reports. After all, although companies submit CMRs to the Securities and Exchange Commission, it is the NGOs who will provide a primary level of review and translate the impact of the reporting for the media, public, and many in Congress.

In addition to reiterating the need for engagement with in-region sourcing, manufacturers, in particular, may find a few points of interest:

  • Going Behind the Brands. Both the report and NGO remarks at recent conferences make clear that NGOs will not stick to retailers and brand-names in their assessments of CMRs, as they did in their much of their advocacy. Although some focus will always remain on consumer-facing products, the NGOs do want to take the pressure off of them, to some extent, and move the emphasis up the supply chain. Manufacturing organizations should expect to see their names – and grades – in the mid-2014 assessments as well.
  • Going Behind the Data. One theme emerging in 1502 compliance discussions is a view that a Reasonable Country of Origin Inquiry consisting solely of issuing supplier letters and recording the responses is the equivalent of due diligence. Many of the brand owners who are more directly involved in the OECD process understand the differences. Many manufacturers in the middle of the chain may end up overly reliant on supplier-provided data. The Enough/Responsible Sourcing Network report indicates that this will not be sufficient. Manufacturers, too, should be developing processes for evaluating responses, identifying red flags, and mitigating problems.
  • Going Behind Your Suppliers to the Smelters. Efforts to develop the Conflict-Free Smelter Program and other initiatives have rightly focused on the importance of smelters and refiners as choke points. Activities around encouraging smelters to join conflict-free programs have largely been a focus of what is expected of (at least the big) brands, viewed as having the clout to demand smelter compliance. A shift is occurring here, with the expectations for such pushing on the smelters now placed further up the supply chain. Manufacturers will need to be explaining in their CMRs or public statements whether and how they are taking steps in this area, i.e. not just identifying smelters, but pressuring them as well to join conflict-free initiatives.

The bottom line is that, when compliance officials present CMRs to the executive officer who will sign off, that officer will want to know two primary things: 1) Is everything in the CMR correct, and 2) will anything in the CMR come back to bite us, whether from the SEC or otherwise? Considering the above concepts will help ensure that there are indeed “No Surprises,” and 1502 Compliance can become a more regularized part of compliance life.

Learn more about a simple, tactical tool to help you make sure there are no surprises.

MetalMiner welcomes the above guest viewpoint from Brad Brooks-Rubin, Of Counsel at Holland & Hart LLP, on conflict minerals compliance. Editors’ note: The viewpoints, perspectives and/or opinions of guest contributors do not necessarily reflect those of MetalMiner, its sponsors, clients or partners. Contact the author directly here, or leave a comment below!

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