Category Archives: Uncategorized

Apropos: Dia de los Muertos and the Billable Hour

Today is Halloween in the US and Dia de los Muertos in Mexico.  It is a time based on the idea of reflecting on death.  Now we aren’t being morbid here – instead we grinned at the amusing irony of the timing of this article on LinkedIn which is an obituary to the billable hour.

We absolutely agree with the downsides of billable hours.  All of us at Elm, in prior points in our careers, have had ourselves and clients held hostage by the almighty billable hour.  Over the past several years, we decreased our use of hourly rates and billings – instead working on a daily rate or, increasingly, on a fixed fee basis.

Given all that is right with eliminating hourly billing, a reasonable person might ask why doing so remains ubiquitous for consulting/auditing firms?  Yet another irony for those of us who help client organizations in changing their internal culture – because it’s the way it’s been done in the past. 


“Too Many Sustainability Standards” No Longer a Solo Chorus

We are not very popular with sustainability consultants, media and self-appointed standards setters.  Rather than supporting  the myriad of initiatives, we have decried them as marginalizing sustainability and splintering the market – thereby substantially diluting any real successes that may be achieved by those implementing initiatives.  But being a contrarian has left us singing acapella solo in the concert hall.

A bit of harmony was added from this article published earlier this week.  The author does a good job of explaining key problems with competing inconsistent standards.  We know of one major corporation who currently fills out more than 100 sustainability questionnaires each year from various stakeholders.  This is not a new development as I recall in the mid-1990s the forest products company I worked for responded to more than 40 such information requests/surveys annually.

Several of the newer sustainability standards/ratings emphasize that they don’t impose on the company for information – they use publicly available information in their algorithms.  In theory, that sounds nice, but it adds inconsistency beyond just the various algorithms – rating models based on surveys use different information than those relying on what is publicly available.

Then there is the matter of how each initiative/standard fundamentally defines “sustainability” and/or weights various associated factors.  Last year, I sat in on a panel discussion that was ostensibly a cheerleading session for the Sustainability Accounting Standards Board (SASB) with some of the major backers on the panel.  When I brought up the idea that sustainability is not clearly or consistently defined in the corporate world, the panelists were incredulous.  Yet others in the audience chimed in with additional comments supporting the variability in understanding of the term.

Its nice to finally have some company in the choir, but even so we expect that proliferation of standards/quasi-standards will continue as long as consultants feel there is money to be made.  We continue to take a very basic client-specific business based approach to defining sustainability based on the individual client, emphasizing achievable expectations and measurable business fundamentals.  This approach may not be as sexy as others, but it is realistic and, um, sustainable.

Across the Finish Line for Conflict Minerals Filings

UPDATE: As of June 15, the total number of filers stands at 1,209 by our count.

Today is June 1, 2016, the day after SEC’s filing deadline for Form SDs and Conflict Minerals Reports (CMRs).  All regulated companies should have submitted their disclosures by now, although we expect to see more continue to trickle in for a few days.  But by our count as of late afternoon June 1, the final tally is 1,197 companies filed a Form SD.  We didn’t look into how many submitted a CMR versus just a Form SD – we will leave that to Dr. Chris Bayer.

With regard to the IPSA count, our final numbers, the listing of the companies conducting an IPSA, and a breakdown of the auditors is available in this post.

Congratulations to all those who crossed the finish line.  Enjoy your summer before having to turn your attention back to conflict minerals.


CY15 Conflict Minerals Filings Analysis Underway: Don’t Call it “The Tulane Study”

As in past years, Dr. Chris Bayer is leading an analysis of the CY2015 SEC filings on conflict minerals.  Like last year’s report, it is an independent review and ranking of the disclosures – what Dr. Bayer is calling “assess and bless”.  Although this year’s analysis of good practice indicators has changed, the compliance indicators remain unchanged.  Previous years’ reports attracted much attention in the media and did indeed drive company behavior rather broadly – perhaps more than other reports or organizations in the past.

However, it is incorrect to refer to the CY2015 report as “the Tulane study” or link it directly to Tulane University in any way.  Dr. Bayer conducted the work under Development International, a firm he founded.  Indeed, the CY2014 study was also conducted under Development International as well.

So for this year, please don’t call it “the Tulane study”.

Who Reviewed Your CY15 SEC Conflict Minerals Filing?

Like shopping days before Christmas, the countdown is beginning for the SEC conflict minerals filing date.  Most of our clients are well into their draft Conflict Minerals Report (CMR) and final smelter/refiner verification.  As in the past, we are offering quick turnaround CMR reviews and supplemental smelter/refiner verification.

Let us know if you are interested in having us review your CMR before the submittal deadline.  But we suggest doing so quickly – we will be presenting at the upcoming OECD Forum in Paris May 10-12 and will have extremely limited availability that week.

Surprise – You Are DRC Conflict Free!

As more companies complete their conflict minerals Reasonable Country of Origin Inquiry (RCOI) and smelter/refiner verification for their CY2015 SEC disclosures, many are surprised to find diminishing data gaps and uncertainties prevalent in previous years.  Information is better, widely available and more smelters/refiners have been audited.  Generally speaking, this is good news.  But it creates a conundrum for some issuers who might not have expected this development yet, especially given the status of the legal challenge to the SEC’s conflict minerals disclosure rules.  What’s the problem, you may be asking.  It all comes down to how you summarize the information.

Let’s begin our trip Down The Rabbit Hole.

A product can be classified as “DRC Conflict Free” (using that term for ease of discussion) as a result of the RCOI or from subsequent due diligence.  When RCOI processes conclude that the company has no reason to believe that any necessary 3TG in a product may have originated from Covered Countries, or that the necessary 3TG originated from 100% recycled or scrap materials, the product(s) is/are “DRC Conflict Free” because no materials originate from Covered Countries.  In this case, the filing issuer must only submit a Form SD and no Independent Private Sector Audit (IPSA) is required.

If the RCOI indicates that some necessary 3TG may have originated from a Covered Country and did not originate from 100% recycled or scrap materials, additional due diligence is required.  Two outcomes of the due diligence are generally possible – (1) confirmation that 3TG may have originated (or did indeed originate) from a Covered Country, or (2) a finding that the initial RCOI indication was incorrect and the 3TG did not originate from a Covered Country after all.  In the second outcome, the relevant materials/products are considered “DRC Conflict Free” as discussed in the above paragraph. See Final Release, pages 151 – 152, and Section (c) of Item 1.01 – Conflict Minerals Disclosure and Report.  In the case of the first outcome, filing issuer must submit a Conflict Minerals Report (CMR) in addition to the Form SD.  This is the situation where a smelter/refiner sources from a Covered Country but doing so does not fund or benefit armed groups as verified by the Conflict Free Sourcing Program (CFSP) or similar programs.

Because of the NAM v. SEC lawsuit, issuers filing the SEC conflict minerals disclosure are not compelled to provide specific conclusionary or determination wording in CY2015 CMRs.  Any such wording in a CMR is voluntary, but where the phrase “DRC Conflict Free” is used – or the status is strongly implied – an IPSA is required*.  Don’t forget, the determinations (or lack thereof) are to be made at the product level, not the company level.  Aggregating different product determinations to come up with an “averaged” (or diluted) determination for the entire company is not appropriate, which itself adds to the complexity.  The CMR does not need to include the product names/descriptions for products that are “DRC Conflict Free”, nor must the CMR  include the list of smelters/refiners associated with “DRC Conflict Free” products.  See Final Release, pages 183 and 194, and Section (c)(2) of Item 1.01 – Conflict Minerals Disclosure and Report.

To sum it up – if due diligence confirms that at least one product contains 3TG that may have originated (or did indeed originate) from Covered Countries AND is “DRC Conflict Free”, then you must choose how to approach your CMR language for the product(s).

  • If you voluntarily use the words “DRC Conflict Free” in the CMR for any product(s), then an IPSA must be conducted.  But the CMR does not have to include names/descriptions for the product(s), nor must the CMR include a list of smelters/refiners associated with the product(s).
  • If you do not to use the words “DRC Conflict Free” in the CMR for any product(s), then no IPSA is required.  But the CMR must include names/descriptions for the product(s) and the list of smelters/refiners associated with the product(s).

Technically speaking, the IPSA is limited to applicable CMR wording specific to only the DRC Conflict Free products, but practically speaking, the due diligence framework design and measures undertaken will most likely be company-level processes rather than product-level processes.  We expect in reality, an IPSA will typically have a company-level scope.

Finally, we are frequently asked how to balance SEC filing language with customer requirements for being Conflict Free.  The answer is actually simple – you probably don’t need to.  Customers generally rely on the technical information submitted directly to them, for instance through a CMRT, rather than what is filed with the SEC.  Some customers may cross-reference the two, but that isn’t very likely given that everyone faces the same filing deadline.  And companies sophisticated enough to do this are very likely to be sophisticated enough to understand the differences.

Please feel free to call us with any questions.


* Again, the IPSA is not required for Form SD-only filers, even if the phrase “DRC Conflict Free” is used.  The IPSA is only applicable to CMRs.

How Many CY2015 Conflict Minerals IPSAs Will Be Conducted?

The Conflict Minerals Reports (CMR) for CY2015 were to include an Independent Private Sector Audit, or IPSA, for companies other than  “smaller reporting companies”.  Although it can be explained in more complicated terms, the IPSA is (under the original rule wording) triggered by the same conditions that trigger a CMR, but the IPSA was deferred for two reporting years for all registrants, plus another two reporting years for smaller reporting companies.

But the 2014 and 2015 court rulings in NAM v. SEC resulted in the SEC’s Partial Stay of the Rule (May 2, 2014), along with a Statement from the Division of Corporate Finance providing additional information related to the Stay (April 29, 2014).  The practical effect of these actions was to extend the IPSA deferral, as, according to the Statement:

Pending further action, an IPSA will not be required unless a company voluntarily elects to describe a product as “DRC conflict free” in its Conflict Minerals Report.

For CY2013, only four IPSAs were conducted.  For the CY2014 filings – the first year the Statement and Stay were effective – only six issuers conducted an IPSA.  Which makes us wonder – how many IPSAs might we see for the CY2015 filings?

The six companies that filed 2014 IPSAs will likely do so again.  We have been engaged to conduct four IPSAs for the CY2015 submittals (one of which is a repeat from 2014).  To our (admittedly limited) knowledge, only three other IPSAs have been contracted, making a grand total of 12.  There are likely more that will be conducted, but it is far from clear if the total will be 15 or 150.

We are interested in getting a better idea of what really is to be expected for CY2015 IPSAs.  If you have information you can share, please let us know.  We aren’t seeking confidential information like company names or even industry sectors – just a count.  Feel free to call or email us.

Free Reprint of Risk&Compliance Magazine Article on Conflict Minerals

Risk & Compliance Magazine, published by Financier Worldwide, has published their Fourth Quarter 2015 issue that includes a “mini-panel” discussion on the current landscape in conflict minerals compliance and reporting.  Questions were posed to

  • Kristen Sullivan of Deloitte & Touche LLP
  • James Moloney of Gibson, Dunn & Crutcher LLP
  • Sonal Sinha of MetricStream
  • Mike Loch of Responsible Trade LLC and
  • Lawrence Heim of Elm Sustainability Partners.

A free copy of the official reprint is available for download here.

RC_ELM_Conflict minerals_OCT15

New Conflict Minerals IPSA Information

Last week’s District Court decision on the conflict minerals rule created more problems than it supposedly solved, at least in the short term.  To be optimistic, at least the decision comes at a time of year that allows the SEC to (hopefully) issue clarification with enough time for issuers to adopt.  In contrast, the previous years’ FAQs were released close to the June 1 filings dates and many filers were unable to change their submittals accordingly in time.

From a purely practical perspective, remember that the lawsuit only involves the use of the specific words – the rest of the disclosure requirement and associated efforts are still in effect.  You should continue moving ahead with your CY2015 conflict minerals programs and disclosures as you had planned.

What about the IPSA?  We think  companies should still make plans for the IPSA because its easier to plan/budget now than to scramble at the last minute if needed.  We are working with a number of companies who are tired of the continuing regulatory uncertainty and are going ahead with an IPSA as the rule is written.  Some have interpreted the regulatory language to require the IPSA once the two year deferral ended, regardless of the determination status or wording.

Also, we have read that it is possible the SEC will require IPSAs for all CMR filers.  There could be truth in this as the SEC economic analysis for the IPSAs in their final release was based on their estimate that 4500 issuers would require an IPSA – far higher than the actual number of CMR filers in total for CY2014.  If SEC chooses to require IPSAs for all CY2015 CMR filers (about 1,260 companies filed a CMR for CY2014), that cost has already been taken into consideration in the economic analysis, which eliminates that argument.

If your company is sensitive to the views/concerns of the NGO community, then an IPSA provides some value in that regard even if it isn’t mandated, which may also be a consideration.

You may be surprised at how many issuers are currently actively engaging an IPSA auditor – or at least interviewing and identifying their preferred IPSA auditor.  We have issued dozens of IPSA proposals in the past month and at least half of those companies have committed to continuing the process even in light of last week’s ruling.  And we receive more RFPs each day, so you certainly won’t be alone should your company choose to begin auditor selection.

We have been asked “You won’t fully commit to the continued IPSA deferral because of self-interest, right?”   We don’t place our interests ahead of clients.  We actively advise companies NOT to pay consultants – including us – to conduct IPSA readiness assessments/pre-audits, and preach for companies to write their CMRs in a manner that reduces IPSA costs.  At the same time, our clients and contacts present us with diverse opinions and approaches that we bring forward, giving others the benefit of a variety of views and interpretations.  These can then be evaluated by companies for applicability to their own situations, rather than having us make decisions on their behalf.  Maybe this doesn’t offer easy answers, but we believe in companies making their own individual decisions with as much information as they can get.

Alongside Michael Littenberg, we recently participated in a webinar on the IPSA sponsored by SourceIntelligence.  And although it was recorded before the court decision, we believe it remains completely on point.  You can download the complimentary webinar briefing here or listen in its entirety here.