Next Monday, June 2nd is the deadline for all companies subject to the SEC’s conflict minerals rule to file their Form SD and, if necessary, their conflict mineral report. We surveyed the filings made through May 28 and this blog highlights some of the good examples, and some less than optimal disclosure. A number of filings were made early today after our review, but if you are not one of the early filers, we hope you find our analysis helpful.
[Not Very] Good:
The filing by Siliconware Precision Industries Co., Ltd. provides a good example of what to avoid. In its report, the company briefly describes its due diligence efforts, but includes no information regarding its reasonable country of origin inquiry (“RCOI”) – required to determine whether the company needed to conduct due diligence in the first place. The description of the company’s due diligence measures lists only two steps.
CAE Inc.’s filing is nearly as brief as Siliconware Precision’s filing. Here, the company does mention its RCOI, but does not explain the results of that inquiry. CAE’s due diligence description essentially tracks, in four bullet points, the language of the rule and its requirements.
Both companies conclude that at least some of their products are “DRC conflict free.” While companies are not required to describe their products as “DRC conflict free” (pursuant to the latest ruling by the D.C. Circuit) companies that elect to do so must obtain an independent private sector audit. It is interesting that neither Siliconware nor CAE indicates that it obtained such an audit. The two-year transition period, which allows a company to forego an audit of its report, only applies to issuers that describe their products as “DRC conflict undeterminable.”
Unisys Corporation’s filing provides a much better example. The report contains all of the information required by the rule. It is clearly written and well-organized, which provides for an easy read. The company put obvious effort into complying with the rule.
Like many companies which have filed their forms, Unisys asked its suppliers to use the Conflict Minerals Reporting Template from the Conflict Free Sourcing Initiative (started by the Electronic Industry Citizenship Coalition and the Global e-Sustainability Initiative). When a supplier’s response was inaccurate or insufficient, Unisys followed up with the supplier. Unisys’ RCOI and due diligence measures appear thorough and effective. In the end, Unisys disregarded the recent opinion of the D.C. Circuit and concluded that its products are “DRC conflict undeterminable.” Although this determination is not required, most companies filing to date have (unnecessarily) concluded that their products are “DRC conflict undeterminable.”
If your company conducted an ROCI and determined that it had no reason to believe conflict minerals may have originated in the covered countries, DSP Group, Inc,’s filing provides a good example to follow. The company adequately describes its RCOI and concludes that it has no reason to believe its necessary conflict minerals may have originated in the covered countries. Under the rule, the company does not have to continue to step 3 and engage in due diligence measures.
Intel Corporation’s filing represents the most comprehensive filing thus far. It goes well beyond the rule’s minimum requirements.
The filing makes it quite clear that Intel has been a leader in addressing the conflict minerals issue. The company discloses that over the last six years, it has engaged in activities such as co-chairing initiatives, conducting supply chain surveys and visiting smelters and refiners. Intel’s conflict minerals program and its due diligence process led it to determine that some of its products are “DRC conflict undeterminable.” For its remaining products, Intel states that they are “conflict free” and that it engaged an independent third party auditor to support this determination.
One other notable part of Intel’s filing is the section entitled, “Inherent Limitations on Due Diligence Measures.” Other companies are inserting similar “disclosure paragraphs” regarding their abilities to gather accurate and complete information from suppliers.
All in all, Intel gets “two thumbs up” on this report.