> Journey to Conflict-Free Electronics:  Going Beyond Compliance By Le-Marie Thompson | March 20, 2014  



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Journey to Conflict-Free Electronics:  Going Beyond Compliance
By Le-Marie Thompson | March 20, 2014
 
The issue of conflict minerals in electronics is a complicated humanitarian and commercial challenge. The regulations within the U.S. Dodd-Frank Finance Act are one factor, and European Union guidance on minerals sourced from conflict areas is another. Shareholder and investor pressures complicate the matter with high expectations of a swift corporate resolution. Furthermore, government institutions and corporations in the Democratic Republic of the Congo (DRC), where the minerals are sourced, have much at stake. Holistically, this puts companies in a precarious situation; so what to do?

Go beyond general compliance! There is a point where a company’s brand must stand for something, and this challenge is one where you want to be on the right side of history. Companies like Intel and Apple have begun to set the precedent of going beyond general compliance by establishing processes and procedures to lead them towards a conflict-free future. These companies have expressed to the market what they believe in, and, more importantly, are in tune with what their customers want: guilt-free, environmentally friendly electronics.

Intel and Apple are not alone, however.  A smaller company in the Netherlands, Fairphone, has developed a cell phone conforming to the company’s social values and advocacy of greater transparency in supply chains. In 2010, Fairphone began raising awareness of conflict minerals through sustainable product designs and procurement processes that put ethical conditions at the forefront of their product development. Nager IT in Germany has developed a faire mouse, incorporating environmental awareness and good working conditions within its supply chain. These companies cannot change humanitarian conditions in the DRC on their own, but they have planted the seed for a movement towards conflict-free electronics.

What we see from Intel, Apple, Fairphone, and Nager IT are examples of brand philosophies that go beyond simple compliance with a government regulation.  These companies are setting a worthy example by serving a consumer base that is becoming increasingly aware of the problem with conflict minerals.  

Protecting the environment and society is no small feat, especially in the face of warring militias, corruption, instability, and institutional challenges. However, there are opportunities for even the smallest of companies to be part of the change encompassing electronics manufacturing. 

Next in our series, we discuss the steps your organization can take to go beyond compliance and towards conflict-free electronics. 

 
 
 
Journey to Conflict-Free Electronics:  A Manager's Introduction Guide
By Le-Marie Thompson | January 15, 2014

Are you familiar with Blood Diamonds? Well, there are other minerals that are sourced through conflict.  In an effort to produce conflict-free electronics to the U.S. market, over 6,000 publicly traded companies and their over 280,000 suppliers must prove to the government that they are committed to ridding their products of conflict minerals by May 2014 in compliance with the Dodd-Frank Finance Act.

The new regulations are important because trade in conflict minerals has led to the finance of armed groups and militias in the Democratic Republic of the Congo and surrounding countries, as well as forced labor, child labor, and rape.  A mineral is conflict-free when it is sourced and distributed free from these conditions. The minerals under this rule are known as 3TG: tin, tungsten, tantalum and gold. They are used in items such as capacitors, solders, vibrating monitors, switches, relays, and connectors.

The goal of these regulation is to make sure that U.S. companies are not compromising the freedom of individuals in the region to sustain healthy lives and maintain stables societies by unintentionally enabling conflict via armed militias.

The next six months will be essential for you to make sure your organization is well poised to comply with the Dodd-Frank regulations, as well as be prepared to begin the journey towards a conflict-free supply chain. Given that your day-to-day responsibilities are consumed with deploying innovative products into the marketplace, we’ve put together a quick manager’s introductory guide to help you identify the tools available to support your company.

Rules & Regulations

The rules and regulations outlining the requirements can be found in Section 1502 of the Dodd-Frank Act. Fair warning, this is a robust 356 page document. If your organization has a general council and/or financial officer, ask them to help you put together your company’s strategic plan to address this challenge.  That being said, if you are a small or medium-sized company, the responsibility may fall entirely into your lap.  We understand that this may be a daunting challenge in addition to your day-to-day product activities, but you are taking the crucial first steps towards the manufacture of conflict-free electronics.

Essentially, there are two main questions the Securities and Exchange Commission (SEC) wants you to answer;

(1) Are conflict minerals needed for your product?

(2) If so, where are they coming from and who supplies them to you?

The rules specifically apply to publicly traded companies. However, if you are a private company that sources materials (and still would like to source them) to a publicly traded company, these rules may apply to your organization.

Product Knowledge

The key to smoothly complying with this regulation is a strong knowledge of your company’s products.  Allocate time to pull data on the hardware products you currently have in production. If you are fortunate enough to have a supply chain team, work with them to aggregate the product designs and bills of material data for products currently in production. These documents should also outline the suppliers of the respective components that you use in your products.   

Please note that the conflict mineral rules and regulations are not retroactive. The reporting requirements do not apply to conflict minerals used prior to January 31, 2013. Therefore, the component and supplier information that you gather should only be for products produced within the calendar year of 2013.  Armed with the knowledge of your suppliers, there are various tools and resources that you can utilize to help answer the SEC’s questions above.

Tools & Resources

With your aggregated supplier data, you can provide suppliers with the Conflict Mineral Reporting Template form to fill out and return to you.  This form, provided by the Electronic Industry Citizenship Coalition, is not required but has become an industry standard. For publicly traded companies, your suppliers will need to return these items back to you in time for the May 31, 2014 SEC filing requirements.  If you are a private company sourcing to a publicly traded company, this may be the requirement placed on you by that company.

 

The four major accounting firms also provide resources and services to assist companies like yours in this endeavor. They can be found through the following websites: PricewaterhouseCoopers, Deloitte, Ernst & Young and KPMG.  Furthermore, additional resources on conflict minerals are available for your perusal here: SEC FAQ, Conflict-Free Sourcing Initiative, Conflict-Free Tin Initiative, Public-Private Alliance for Responsible Mineral Trade, Partnership Africa Canada, iTSCi and IPC.

Preparation is key!

This new year, give your organization the gift of preparation.  The journey towards conflict-free electronics is expected to be a long one.  We advise you, as your company’s general manager, not to be overwhelmed by the amount of data being shuffled your way.  When in doubt, seek out help from any of the aforementioned resources in this guide.

 

 

 

 

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