The study of all 1300* Form SDs/Conflict Minerals Reports (CMRs) we are completing with Georgetown Law School is almost done. Some of our conclusions so far are consistent with those reached by other analyses of samples of the filings, or those that focused on limited data points across the 1300.
Among the most interesting – and unique – results we found relate to SIC code statistics. The study revealed that companies representing 268 unique SIC codes filed conflict minerals disclosures. For obvious reasons, many companies are pursuing benchmarking efforts using SIC codes to define the reference groups. But we have seen that relying on SIC codes has some significant shortcomings. For example:
- For several SIC codes, only one issuer filed a Form SD/CMR, although many other issuers are listed in SEC’s EDGAR database as having the same SIC code, potentially indicating a low compliance rate. We chose one example at random to see if we could gain insights into the disparity. For our example, EDGAR listed 11 issuers sharing the same SIC code, so our initial reaction was that less than 10% of this group complied with the SEC disclosure requirements. Through additional research, we found that 10 of the 11 companies listed have been acquired, changed to a private company, or are otherwise no longer active listings. In this case, 1 out of 11 actually equals 100%.
- Several of the SIC codes with conflict minerals filing rates below 1% are entities with a multitude of partnerships under a larger corporate entity (such as utilities and energy companies) – all of which carry the same SIC code, although very few appear to be truly subject to the disclosure requirements. In this case, the filing rate is highly diluted for reasons that we believe are appropriate.
- EDGAR relies on an issuers’ primary SIC code; secondary SIC codes are not reflected. One noteworthy example of this is Warren Buffet’s Berkshire Hathaway. The corporation is a holding company with a large portfolio of disparate companies. Many of these holdings are manufacturers that use 3TG and trigger the conflict minerals disclosures. Berkshire Hathaway submitted conflict minerals filings, but it did so under its primary SIC code 6331 (Fire, Marine and Casualty Insurance). Similarly, the Markel Group also submitted its Form SD/CMR for its portfolio of manufacturing companies under its primary SIC of 6331**. And just how many companies are listed in EDGAR for this SIC code? 408. Perhaps there are other similar issuers, but we would not expect a significant number of those; therefore, it is apparent that looking only at the filing rate at a “raw” SIC code level can be quite misleading.
These findings may also be instructive concerning the SEC’s initial estimates of the number of issuers expected to file conflict minerals disclosures. We have been told that the estimate of 5,994 anticipated filers was based solely on SIC code information, without investigating additional details of the issuers within the identified codes.
We will make more updates available in the coming weeks. Also, if you are interested in having Elm provide your company with a customized benchmarking report using the study data, please contact us.
* Technically, the actual number of filings is more than 1300, but that includes amended filings and redundancies caused by some subsidiaries filing in addition to the parent company. We have selected to eliminate the duplicates.
** A report issued this June by one of the Big 4 accounting firms stated that no S&P 500 companies in the insurance sector filed conflict minerals disclosures. Of course, the S&P 500 represents only a portion of SEC issuers and conflict minerals filers which explains the difference in our findings.