Tag Archives: Enough

George Clooney Brings Sex Appeal and Mumbo-Jumbo to Conflict Minerals

Recently the Enough! Project launched something called The Sentry, an initiative co-founded by Hollywood A-lister George Clooney. Clooney’s star power and brown eyes may attract his fans, but they do little to counteract the mumbo-jumbo description of the initiative.

The intent is to “dismantle the financing of Africa’s deadliest conflicts” by “follow[ing] the money [to] find out how mass atrocities are funded” with the “ultimate objective … to alter the incentives for funding or profiting from violence and mass atrocities.”

The website explains how this rather ambitious goal will be achieved and what the results will look like.

In order to track and analyze how conflict is financed, sustained, and monetized, The Sentry uses open source data collection, field research, and state-of-the-art network data analysis technology, and works in partnership with local and international civil society organizations, journalists, and governments…. The Sentry’s investigations produce analytical reporting that engages civil society and media, supports regulatory action and prosecutions, and provides policymakers with the information they require to take effective action.

The Sentry produces and publishes reports they call Country Briefs which

… categorize and provide contextual analysis of the current system of violent kleptocracy, and the various incentives and mechanics by which elites use power to enrich themselves in each of the countries we examine.

Our favorite line of all clearly inspired by lawyers – These briefs are not meant to be seen as exhaustive or definitive, but rather as representative of broader trends of corruption and illicit activity.

Putting aside all the obtuse multisyllabic buzzwords, what does The Sentry offer? In our view, the Country Brief for the DRC seems to be little more than a summary of the existing UN Group of Experts reports.

Maybe we’re missing something, or maybe that is just the starting point.  But for now, the character George is playing needs further development in order to have substance.

 

Study: Did Enough’s Jewelry Conflict Minerals Ratings Impact Sales?

We have completed the analysis of the potential correlation between the Enough Project’s conflict minerals ratings of jewelry retailers (published in November 2014 – at the beginning of the holiday season) to sales of those companies.   Just as Enough’s 2014 ratings were an update of their 2011/2012 ratings of electronic companies, so too is our analysis an update of our 2012 study of Enough’s impact on electronics companies.

A number of challenges and limitations were encountered; it is important to keep these in mind when interpreting the results.

Download our study here:  Elm Enough Jewelry Analysis 2015

Please feel free to contact us with any questions or comments.

Conflict Minerals: Everyone is Right and Everyone is Wrong

An on-line dialogue has begun at ForeignPolicy.com concerning conflict minerals and the on-the-ground efficacy of Dodd Frank Section 1502. The original article by Lauren Wolfe triggered a sharp response from John Prendergast and the Enough folks.

Further, the South African Institute of International Affairs published an “Occasional Paper” about how human rights are actually addressed within the conflict minerals due diligence concept.  And of course, the UN Group of Experts recently had something to say on the subject.

We are frequently asked “Is all this making any difference on the ground?” Our answer reflects all the perspectives in the above writings: it depends on whom you ask.

Did Enough’s Jewelry Ratings on Conflict Minerals Impact Holiday 2014 Sales?

As we previously reported, just before Thanksgiving (and Black Friday), the Enough Project published their report on jewelry companies and ratings relative to conflict minerals programs.  This is generally the same rating framework Enough used for electronics companies, the most recent one completed in 2012.

And just we did for the 2012 electronics ratings, we are developing a report on potential correlations between the Enough ratings of the jewelers and consumer buying behavior.  Like Enough, we also are using the same general methodology as we did for our original report. Our two-year baseline financial data collection is complete and we are now extracting key data, although this is not without its challenges. True to our original methodology, we are attempting to isolate both the relevant product revenues and time periods. Some of the jewelers do not publicly release financials, others do not report on a product, segment or category basis to identify jewelry-specific sales, and some of the companies have reporting periods that ended before the Enough ratings were published.

But there are points of clarity too. For instance, Tiffany is a jeweler that publicly reports its financials, including specifically for the holiday time period that Enough targeted. Although Tiffany received the second-best rating by Enough, the company’s worldwide and U.S. sales declined from the same time period last  year. We can’t draw a specific conclusion from this data, but in the end that may be exactly the point – just as it was in our analysis of the electronics companies in 2012.  This isn’t to discourage anyone from pursuing conflict-free status or activities, rather we hope these insights will allow companies to avoid developing expectations or metrics that may not be appropriate or measurable.

If you are interested in obtaining a copy of the report when it is published, please contact us.

Washington Post: Enough with Enough

In response to the Enough Project’s conflict minerals rankings of jewelry companies, the Washington Post published an article critical of Enough’s study and the efficacy of Section 1502.  The article also points out the timing of the report – “just in time for the holidays”.

One of the people quoted in the piece, Kambale Musavuli (a Congolese activist) highlighted out a few flaws in the limited scope of Section 1502 :

It is silent on environmental degradation, has nothing to say on the lopsided mining contracts that have left the Congolese people impoverished and dependent. It does nothing to address matters of resource sovereignty. It only calls for the clean functioning of a fundamentally flawed and unequal extractive process that has been en force for the past 125 years.

The author is also critical of industrial mining as a solution, quoting another source that accuses mining companies of ” closed-door agreements over mining rights”.

Near the end of the piece, the author does make a particularly salient comment:

As long as Congo lacks a government able to translate the country’s mineral and gold wealth into prosperity for its people by the taxing and regulation of multinational “legal” mining, all gold has the potential to be conflict gold in the region. Artisanal mining and smuggling are a symptom of state failure and a total lack of resource sovereignty.

In other words, the real issue is one of a strong and credible cohesive government that can effectively address mining.  We agree, but would even go one step further – before the state can effectively regulate any activity, it must first address the historic and cultural foundations of its own discord.

Did the Cost of Conflict Minerals Report (CMR) Audits Just Go Up?

In a previous article, we discussed a recent paper published by NGOs the Enough Project and Responsible Sourcing Network/As You Sow (backed by two socially-responsible investment firms) that outline their expectations for annual Form SD and Conflict Minerals Reports (CMR) content.  By doing so, the nature and costs of CMR audits – if triggered by issuers’ individual circumstances – could be impacted directly and even indirectly.

Direct Impacts

Companies may consider employing some of the report’s recommendations.  In doing so, however, companies will directly increase the cost and efforts required for the independent private sector audit of the CMR, if that is triggered.

The audit criteria are established by way of the issuer’s own description of its due diligence activities.  SEC’s regulations are not prescriptive in this way and intentionally allow issuers flexibility in this narrative.  The level of specificity in the narrative, including numerical performance indicators, will drive the level of audit effort required.

The audit effort and cost may not be a key factor to some companies in considering the nature of their CMR report, but they should be aware of this factor as part of their considerations.

Indirect Impacts

In a recent seminar we participated in with Michael Littenberg of Schulte Roth & Zabel, Michael suggested that users/readers of CMRs are less likely to be the financial community typically the audience for SEC filings.  Rather, NGOs will be the primary audience for CMRs, meaning that general expectations for content may indeed differ from the basics of SEC compliance.

The Enough/Responsible Sourcing Network paper supports that position.  With two socially-responsible investment (SRI) funds backing – and participating in – the paper’s position, that could be taken as an indicator of the financial community position on the subject as well (although the position of two investment firms certainly may not be representative of the broader financial community).

There is a possibility that the CMR audit could be impacted in terms of the basis of “significance” or “materiality” – concepts rooted in the users’/readers’ perspective.  Materiality (used in financial statements and the GAO Attestation standard) and significance (used in the GAO Performance Audit standard) are essentially the same in relation to CMR auditing, but for our purposes, we will focus on “significance”/Performance Audits.

In GAO’s Government Auditing Standards (the standards required to be used for CMR audits), Section 6.04 provides the definition/scope of “significance” in a Performance Audit.  Among the relevant components of the concept are

  • the relative importance of a matter within the context in which it is being considered, and
  • the needs and interests of an objective third party with knowledge of the relevant information.

Further, Section 6.11 states that auditors should assess “significance within the context of the audit objective by gaining an understanding of … the needs of potential users of the audit report…”

Given these statements, one could argue that NGO/SRI users of the audit report have established their expectations, therefore drawing a line in the sand on significance which CMR auditors would need to recognize in their audit activities and report.

Our Recommendation

We bring this discussion forward but in reality, it is probably academic rather than practical.  We don’t believe that SEC’s intended scope as reflected in the narrow audit objective for the CMR is likely to be expanded as a result of the paper.  At the same time, issuers should be mindful of the thought.

We continue to recommend that issuers view the CMR as a regulatory filing and not the appropriate place to tell a broader story about social responsibility achievements.  Companies should look to their CSR report to “tell their story” and possibly include indicators/other content sought by NGOs, keeping that separate from the regulatory filings and outside the potential scope of the CMR audit. We suggest that audit costs would be best managed by establishing a bright line between what is to be audited and what is outside those boundaries.  Blurring the lines or setting wider boundaries for the audit will increase the cost and perhaps set a precedent with much wider implications for issuers generally.

Enough, Responsible Sourcing Network Publish Their Expectations of SEC Conflict Minerals Filings

NGOs The Enough! Project and Responsible Sourcing Network (backed by socially-responsible investment firms Boston Common Asset Management, LLC and Calvert Investments) have published a document titled “Expectations for Companies’ Conflict Minerals Reporting”.  This paper is offered as detailed guidance for issuers submitting a Form SD and Conflict Minerals Report (CMR) to the US Securities and Exchange Commission (SEC).

According to the authors, the intent of the paper is to “articulate key reporting components that are important to many SRIs and NGOs and to suggest indicators that can be tracked over time to allow for comparability between reports and measure improvement.”  The paper continues that the “listed indicators will allow stake-holders to easily compare reports and measure progress” and that “competitive evaluations will likely occur on these public disclosures.

The document sets forth a significant amount of detail, what the authors consider best practices and relevant numeric indicators well beyond the SEC requirements.

And as if there is not already confusion about the concept of “due diligence”, the paper references four processes an issuer should undertake that combine – and in our view, expand – what SEC and OECD establish.  SEC outlines three steps, only one of which is defined as “due diligence”.  The OECD Framework contains five steps, although only one or two map to SEC’s due diligence component (see this graphic for an explanation).

While we agree that the report provides potentially valid ideas for future conflict minerals program improvements, issuers need to walk before they run.  The paper may spark further thought/discussion, but existing SEC regulatory requirements and OECD framework offer enough significant and unprecedented challenges for Year 1 implementation and reporting.

In another article, we explore implications of this paper on the Conflict Minerals Report (CMR) audit effort and cost.

Enough Issues 2012 Company Rankings on Conflict Minerals

Two years after its initial rankings, activists Enough! have issued their updated rankings on electronics companies’ progress on conflict minerals.

Even CNN picked up this up and reported it on the front page of CNN.com.

A quick review of the summary report indicates that Enough appears to have addressed some of the points from our critical review of the initial 2010 rankings.  However, our comments concerning the three flawed questions remain substantially valid.

Although we have not yet analyzed the detailed responses behind the summary report (those responses are available here), we plan to do so soon.

Similarly as we look even further ahead, we anticipate updating our own report on the financial impact of Enough’s rankings.

A Critical Review of the Enough Project’s Conflict Minerals Ratings for Electronics

During our recent research on the financial impact of consumer sentiment about conflict minerals, we conducted a deep review of the Enough Project’s rankings of electronics companies’ conflict minerals programs.  These rankings are frequently referred to in publications and in social media venues such as twitter.  As we are auditors by vocation and predilection, we took an in-depth look at the data collection tool/approach, the data itself and interpretation thereof.  Our review found that the rankings

  • Reflect outdated and incomplete information,
  • Appear to contain bias, and
  • Are inconsistent in applying their scoring system.

Flawed questions.  Several of the questions in the survey are flawed because they ask for solutions and information that did not exist at the time of the survey – and still don’t today.  For instance:

  • Question:  Has the company published the refiners it uses for 3TG?  This fails to recognize the existence of legally-binding non-disclosure and confidentiality agreements that are common between suppliers, especially in the electronics industry.  Even today, concerns about confidentiality are unresolved and no company has published a list of its 3TG refiners.  Confidentiality agreements are many times necessary to protect key intellectual property and valuable trade secrets related to the products manufactured and similar sensitive business information related to pricing, contracts and design.
  • Question:  Has the company had third party audits conducted of 3TG suppliers down to the level of refiner, at least within the past year?  Even today, there are still no agreed-upon standards for conducting such audits.  This was recognized by the UN Group of Experts in the December 2011 report at paragraph 418: “Auditing is an essential component of due diligence, but as yet there is no agreed way to carry out due diligence auditing.”  At the time of the survey, EICC’s Conflict Free Smelter (CFS) program had just completed their pilot program which involved only tantalum.  There remain gaps in the coverage of the CFS.
  • Question:  Has the company developed at least one verifiably conflict free product, with independently audited supply chains all the way to the point of extraction?  Even today, there is still no agreed-upon product certification program.  And differing definitions of “conflict free” have arisen.

Biases.  The survey includes two questions on stakeholder engagement, both of which are specifically limited to activities lead by Enough.  Credit is not given for other stakeholder engagement activities such as those directly supporting governmental entities, the OECD, the UN, any other relevant NGO, EICC-GeSI, ITRI or any other proactive trade association – or the recently launched private-public partnership sponsored by USAID.

Inconsistent answers.  Companies participating in the CFS program were given credit for doing so.  However, almost without exception, the direct membership costs and other participation fees associated with EICC to support CFS development were ignored and companies were not given points for “providing financial support for auditing for 3TG materials”.  Minimal effort on Enough’s part to cross-reference answers to EICC membership fees would have provided a more accurate reflection of the facts, even in instances were companies did not provide costs.

Microsoft was given credit for “… initiating development of our management systems and related audit processes to support our conflict minerals procurement policy.  This will be completed once we are assured that our processes are consistent with on-going US governmental rulemaking”.  Yet

  • LG received no credit for the following statement:  “We will conduct supplier audits including this issue next year.  We are in the process of developing a verification method, aligning with EICC”.
  • Nokia received no credit for the following statement:  “We have visited suppliers as part of GeSI/EICC work, which is a preparatory step for the coming regular audits”.
  • Samsung was not given credit for implementing a “supplier CSR audit” internally.  “Conflict-free minerals related questions are included in the audit items so that our suppliers do not source DRC minerals when manufacturing.”

Nokia was not given credit for financial support for auditing, although comments under the question about financial support for certification state:  “Nokia’s contribution relates to auditing, not certification”.

Toshiba indicated they had investigated one gold and one tin supplier and was in the process of investigation with other major suppliers of metals, but received no credit for these efforts.

Outdated answers.  The rankings/survey results were published in December 2010.  To put that in perspective:

  • the proposed SEC conflict mineral regulations were published in the Federal Register of December 23, 2010; and
  • OECD published its final due diligence guidance in May 2011, initiating a year-long pilot study of its implementation (still ongoing).

Also, at the end of 2010:

  • the EICC CFS program had not fully completed its initial tantalum trials;
  • only two tantalum smelters had received CFS designation; and
  • the tin, tungsten and gold CFS protocols had not even been developed.

Other interesting notes

  • Enough editorializes in the details of the HP’s answers (HP ranked #1 in the survey) by stating HP “did not suffer competitive disadvantage” by publishing its supplier list.  We would be interested in seeing the details of the analysis supporting that claim.
  • Although the survey tool clearly states that a maximum of two points is allowed for the question on participation in the EICC tantalum smelter working group, Motorola and Intel were each awarded four points, the additional points being attributed to “chairing the working group”.  It is also notable that both of these companies also participated directly with Enough in their coalition referred to in the Stakeholder Engagement questions.
  • Many companies did not respond to the survey; therefore the survey results reflect incomplete information.

The situation today is dramatically different, although not perfect.  The SEC has still not published a final rule, there are still a number of tantalum smelters without a CFS designation and no tin, tungsten or gold smelters have a CFS designation.

However, there is no doubt that if the survey were conducted today – even without appropriate revisions/corrections to the tool – we are confident that most companies would improve their rankings greatly.  With an improved survey tool and process, updated rankings have a potential of providing insightful information to consumers.