In Conflict Mineral Disclosures, Different Industries Seeing Different Trends

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By Yin Wilczek  

June 24 — Based on their first-ever conflict minerals disclosures, different industries are approaching the Securities and Exchange Commission's conflict minerals requirements in different ways, a consultant said June 23.

Charles Harris, a partner in PricewaterhouseCoopers's National Professional Services Group, said that PwC found different trends in examining the filings by the 10 largest companies in five sectors.

“That's to be expected because their supply chains are different, and how they interpret what they need to disclose is a little different,” he said.

Harris spoke at a Practising Law Institute conference in San Francisco on SEC reporting requirements.

Analyzing the Disclosures

Rule 13p-1 under the 1934 Securities Exchange Act requires U.S. public companies and foreign private issuers to disclose on Form SD their use of so-called “conflict minerals”—gold, tantalum, tin and tungsten from the Democratic Republic of Congo and adjacent countries—if those minerals are “necessary” to a product made by the companies. June 2 was the first filing deadline for submitting disclosures under the rule, which still is subject to an ongoing legal battle.

According to an Edgar search, 1,315 issuers have submitted filings with the SEC. PwC said that almost 1,000 of those filings included a conflict minerals report.

In its review of separate industries, PwC said that two out of 10 of the largest companies in the aerospace and defense sector indicated that their products were DRC conflict undeterminable, while the rest did not state their conflict status. Outsiders had expected a high percentage of filers to file the undeterminable status.

In the auto sector, seven out of the 10 largest companies disclosed their conflict status, PwC said.

Retail Sector

Meanwhile, in the retail industry, six out of 10 companies disclosed that their products were DRC conflict undeterminable while the rest were silent on their status, PwC said.

PwC added that although the technology sector has been widely touted to be more transparent than other manufacturers, only three out of the 10 companies explicitly disclosed their conflict status.

Looking ahead, Harris told the PLI gathering that the “court of public opinion” ultimately will dictate the level of detail in the disclosures going forward. He also suggested that companies and their management must determine what message they want to convey on conflict minerals.

“What is your status in terms of conflict free?” Harris asked. “Are you intending to be conflict free?” Some companies have not been clear in their filings and NGOs may exert pressure on this point, he said. “I think there's going to be pressure going forward” for “descriptions around this information.”

Lessons Learned

In other lessons learned, Harris warned that companies that provided their conflict minerals information in multiple outlets must ensure that their disclosures are consistent so there isn't “inaccurate information in the marketplace.” He also observed that issuers likely will involve more of their suppliers in the years ahead.

“The key takeaway is that this is going to be a phased-in approach,” Harris said. “Companies started off perhaps leaner this year with intent to use the learning from this year's process and expanding that out.” Accordingly, they may expand the number of suppliers to whom they send confirmations. They also are “working their supply chains to get their suppliers on board,” he added. “Issuers don't feel they should be the only ones on the line here—their suppliers need to also play this game as well.”

Ultimately, companies should try to show they made a good faith effort to comply with the requirements, Harris said. “If you do that, you're going to be on the side of the angels, no matter what,” he said. “You're in a good position to argue that you have complied with the basic tenets of the rule.”

Harris also acknowledged that the parameters of Rule 13p-1 remain in flux. However, the rule is unlikely to go away, he warned, adding that too much time and effort has been put into the legislation that mandated the rulemaking. “I just don't see backtracking on that,” he said.

In an April 14 decision, the U.S. Court of Appeals for the District of Columbia founds parts of the commission rule unconstitutional to the extent they require issuers to report to the agency and to state on their website that any of their products have not been found to be “DRC conflict free”.

The SEC stayed part of its rule in response to the decision. The commission also petitioned the court to rehear the case, but asked that its petition be held in abeyance pending the resolution of an unrelated First Amendment lawsuit.


At the conference, the panel also addressed whether the SEC will enforce against false or inaccurate disclosures. Moderator Carol Stacey, director of PLI's SEC Institute and a former chief accountant of the SEC Division of Corporation Finance, said the SEC will review the filings at some point. The review probably will be “form over substance for the SEC” because its staff lacks expertise in chemical and manufacturing processes.

The filings likely will be reviewed like other Exchange Act submissions where errors will be analyzed for materiality, Stacey suggested. “If it's an error in conclusion,” issuers would be allowed to refile and amend the document.

Small Numbers

Meanwhile, some commentators were taken by surprise by the small number of issuers that filed. The SEC had initially estimated that its rule would impact about 6,000 issuers.

An SEC representative did not have an immediate response on the discrepancy.

Michael Hermsen, a partner in Mayer Brown LLP's Chicago office, suggested that various factors might have led to the over-estimation, including the fact that the commission could not know with precision what companies use in manufacturing their products.

In addition, the SEC's guidance could have led some issuers to conclude that the rule does not apply to them, Hermsen told Bloomberg BNA. The third factor could be that some companies are not taking the disclosure requirements seriously, he suggested.

“I expect that some of the interested NGOs will be taking a look at who didn't file that they were expecting would file,” Hermsen said. “Also, companies that didn't file should be taking a look at the filings by their competitors and seeing why the competitors made filings and whether they need to revisit conclusions they reached not to file.”

It will be interesting to see if the “universe of company filings increases during the second year as people get the opportunity to digest these first filings,” he added.

To contact the reporter on this story: Yin Wilczek in Washington at

To contact the editor responsible for this story: Phyllis Diamond at

PwC's statistics are available at

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