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Regulation Takes Aim at Reputation: Dodd-Frank’s Conflict Minerals Provision

Whenever any of us buys a car, a cell phone, a laptop, or other products, we are likely purchasing goods that are made with minerals sourced in central Africa. Conflict minerals, as they are known, are everywhere. And soon, public companies will have to account for all that they use.

Halfway around the world, human rights atrocities are too commonplace for most to even imagine. To some of the factions warring for political control in central Africa, murder, rape, torture, and slavery are mere battle tactics. And average Americans play a role in financing these horrors every day.

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Whenever any of us buys a car, a cell phone, a laptop, or a host of other consumer products, we are likely purchasing goods that are made, at least in part, from minerals sourced in central Africa. Whenever a business buys a hammer or wrench to build those products, it likely does the same thing. Conflict minerals, as they are known, are everywhere. And soon, the public companies that make and sell much of what we buy will have to account for all that they use.

According to a proposed rule recently promulgated by the SEC under Dodd-Frank, companies that file reports pursuant to Sections 13(a) or 15(d) of the Securities Exchange Act of 1934 will soon have to publicly disclose if and how they are involved in the manufacture, mining, or final-end use of conflict minerals. Final-end use is the key phrase, as it pertains not just to the video game console or television, but any tool the manufacturer used to produce it.

The proposed rule defines conflict minerals as those whose purchase subsidizes ongoing violence in the Democratic Republic of Congo or nine adjoining nations–Angola, Burundi, Rwanda, Sudan, Tanzania, Uganda, Zambia, and the Central African Republic. It covers gold, cassiterite, columbite-tantalite (more commonly known as coltan), wolframite, or any derivative of these materials.

For a moment, set aside the sheer magnitude of products sold in the U.S. each year that can be connected to these minerals. Set aside the tremendous compliance burden that accompanies tracing their source. And set aside the fact that the SEC has yet to even outline what constitutes an adequate “reasonable country of origin inquiry” that must inform the disclosure.

Because while each of these issues certainly warrants significant planning and preparation, the dominant concern for the more than 6,000 companies impacted by the rule is reputation–and the damage that can be done to any brand seen as contributing to the crimes, slaughter, and strife taking place in the world’s most troubled region.

In writing Dodd-Frank and the proposed rule, Congress and the SEC essentially deputized consumers and citizens to do what the federal government cannot. Conflict minerals usage hasn’t been banned–and for good reason, given the significant impact such a policy would have on the U.S. economy.

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Instead, and not without a sense of irony, the measure empowers the free market to address the issue on its own; the idea being that greater transparency will encourage consumers and investors to take their business across the street if a company’s decisions don’t align with the prevailing public sentiment. The message is simple: companies can use conflict minerals; but only if they are able and willing to manage the reputational liabilities that accompany doing so.

To date, 17 NGOs and related organizations have filed public comments lauding the SEC’s attention to the issue of conflict minerals. Last year, one of those NGOs, the Enough Project, posted YouTube videos starring Mary Louise Parker, Sandra Oh, and other celebrities pleading with consumers to sign the group’s Conflict Minerals Pledge and commit to purchasing conflict-free electronics. Those videos are nearing a million views. Importantly, the Enough Project controls the top result in a Google search for the term “conflict minerals” and two other NGO-owned sites appear in the top ten. Visitors to these sites are informed of how “the world’s deadliest war” in the Congo is “fueled by our demand for electronics.”

Even Steve Jobs has been forced to answer consumer emails requesting information on Apple’s efforts to “source conflict-free minerals.” One of his answers was detailed in a June 2010 New York Times op-ed that quoted him as saying “it’s a very difficult problem.” It didn’t go unnoticed that his response was sent via the iPhone, which is one of the products targeted by NGO boycotts.

Public opinion is coalescing around the notion that American consumers and companies shouldn’t be trading in conflict minerals. But at the same time, there are recent corporate engagements that prove particularly instructive in devising a strategic response. At the height of the blood diamond debate, DeBeers didn’t attempt to frame the issue as overblown or cite business interests as justification for business as usual. It pioneered the Kimberly Process by which consumers are now assured that their diamonds are conflict-free.

DeBeers adopted its detractors’ legitimate issue as its own–and in the process, it evolved from part of the problem into a key driver of the solution.

As such, the DeBeers model dictates a similar action with regard to the conflict minerals now on the SEC’s radar screen. Companies must immediately begin to demonstrate their commitment to the new regulatory paradigm and, wherever possible, to going beyond compliance to ensure that they are not supporting ongoing conflicts.

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That means initiating a reasonable due diligence process for supply chain management that helps ensure minerals’ source of origin.

It means utilizing an array of proven digital and social media tools to control search engine results, and, in turn, the sources of the information that corporate stakeholders will use to decide who is taking the issue seriously and who is not.

It means indentifying neutral-to-positive journalists and bloggers who cover the issue and cultivating relationships with them that will assist in disseminating key messages.

It means sitting down with the appropriate NGOs who can act as partners in the effort and provide powerful third-party validation of a company’s activities.

And it means enlisting the aid of organizations such as the Organization for Economic Cooperation and Development (OECD), which has issued guidance on reasonable supply chain due diligence and can assist in building the compliance framework that the SEC has still yet to define.

Every company understands that the Dodd-Frank conflict minerals provision is about more than compliance with the SEC; it is about meeting the moral and ethical standards that transcend mere corporate social responsibility. The consumers and investors that are now de facto regulators in curbing conflict minerals usage are watching. And they are increasingly only doing business with those that reflect their core values.

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Richard S. Levick, Esq., is the president and chief executive officer of Levick Strategic Communications, a crisis and public affairs communications firm. He is the co-author of The Communicators: Leadership in the Age of Crisis and Stop the Presses: The Crisis & Litigation PR Desk Reference, and writes for Bulletproofblog. Mr. Levick is on the prestigious list of “The 100 Most Influential People in the Boardroom,” which is compiled by the NACD and Directorship Magazine. Reach him at rlevick@levick.com.

About the author

Richard Levick, Esq. Chairman & CEO of LEVICK, represents countries and companies in the highest-stakes global crises and litigation.

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