Since the US Securities and Exchange Commission adopted their final conflict minerals rule on August 22, Elm and our Conflict Minerals Consortium partners have seen an explosion in proposals, RFPs and related meetings, which we expected.
Also expected was the concurrent growth of firms marketing themselves as conflict minerals experts or having off-the-shelf technological solutions.
We offer the following points to consider when evaluating possible business partners for a long, unprecedented, complex – and likely costly – journey. A little due diligence on your consultants may provide you a smoother due diligence process for conflict minerals.
You may find it worth asking your potential conflict minerals advisors, consultants and solutions providers questions like those below. Even a 60 second review of Google search results on the expert can be revealing.
- When did the expert start working on conflict minerals matters? The issue began to come forward in the electronics industry back in 2008, but gained real momentum in 2010 with the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act in July 2010. A very small number of external advisors/consultants have direct experience going back to 2010, or even 2011 for that matter.
- Did the expert participate in public comment activities during the SEC rule development? Public comments on the proposed rule were submitted by a few consulting firms and accountants. SEC met in person with hundreds of interested parties between 2011 and 2012. In October 2011, SEC invited a panel of 16 experts to participate in a detailed question and answer session with the Commissioners and Staff. Only two of those 16 were from companies that provide external advisory services.
- What does a project team look like? How extensive is the network of team members? Has the team worked together before? Given the potential breadth of a comprehensive program, a full-service team is likely to require external expertise from areas such as legal, IT, corporate social responsibility (CSR), mining, RoHS, supply chain management and auditing. External integrated cross-functional teams are already rare, and with the demand for conflict minerals support growing, availability of those limited resources is becoming a concern to many companies.
- What types of project work has been done? Narrow project scopes limited to filling out spreadsheets or reviewing product content data can be relevant to an overall conflict minerals management program, but a much wider view is critical to understanding the challenges in developing/implementing this framework. Other elements include training, strategic advisory and decision-making criteria/contingencies, management systems development and integration and external communications.
- What industries/business types has the expert worked with? Although the electronics industry took the lead early, Section 1502 impacts a huge cross section of products, companies and sectors globally. Force-fitting something potentially considered “the” solution in one sector may be inappropriate or unworkable for another.
- Has the expert worked with clients that are: large/small, public/private, complex supply chains/simple supply chains? Each situation presents different challenges – can the expert offer unique insights or discuss potential differences/similarities to your situation?
- Is the expert directly involved with or supporting existing industry initiatives/solutions, which may create concerns about the expert’s impartiality, independence or approach? As mentioned above, each company faces different pressures in developing a conflict minerals program. Experts involved in the development of existing solutions may not offer you alternatives to what they feel is a “standard” approach, or may attempt to enforce efforts beyond what is applicable/cost effective for your situation.
- Is the expert offering to work on two sides of the fence – such as developing your systems, then auditing the systems they helped you develop? We don’t believe it is appropriate for auditors to audit work they have done, as this can impair their independence/objectivity. Generally speaking, auditor codes of ethics and various standards prohibit this as well.
- If discussing audits, can the expert clarify what role the anticipated audit will play in your project, what standard will be applied and what the objective is? What auditor qualifications/credentials does the expert offer? A study conducted last July by the US Government Accountability Office (GAO) stated there are 9 different “conflict minerals audits”, not including the audit of the conflict minerals report that is part of the SEC regulation. There is a great deal of confusion about what a “conflict minerals audit” really is, and a generic reference to ISO19011 auditor guidelines may not be sufficient. It is not unreasonable to consider that the credibility of your program and related audits may rest upon the quality and independence of auditors you select.
- Is the expert suggesting that they provide consulting services to – or audits of – your suppliers on your behalf? This can create significant concerns about who owns the process, the report/information generated, whether the supplier can then share that information with other customers, and how confidential information is managed.
- Does the expert seem to have visibility in the marketplace that is commensurate with the level of expertise they portray? Has the expert published articles on conflict minerals? Do those articles reflect simply “book knowledge” of the requirements, or are valuable and pragmatic insights offered? In what venues has the expert published or given public presentations on conflict minerals? Do speaking engagements extend beyond those sponsored by their own company?
- Is the subject matter reasonably related to the core competency/expertise of the expert or the company? We are seeing some interesting service/brand extensions in an attempt to cash in on the topic.
- Are the expert’s conflict minerals expertise/knowledge being applied to your project in an appropriate manner? There are certainly experts in the marketplace, but it is worth ensuring that they are not overextending their expertise into areas where they offer no value or are unqualified. For instance, technical support on scoping/implementing a supply chain IT solution is not typically within the subject matter expertise of an auditor or lawyer.