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.