Tag Archives: Michael Littenberg

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.

Littenberg: Conflict Minerals Rule Limbo Puts Pressure on IPSA Prep Costs

Our good friend Michael Littenberg, a leading legal expert on the SEC’s conflict minerals disclosures, was featured in today’s Wall Street Journal commenting on the Independent Private Sector Audit (IPSA) of CY2015 Conflict Minerals Reports (CMRs). The article quoted Michael as saying that issuers

are really grappling with how much time, effort, and cost to put into preparing for an audit, when there is still uncertainty about what the litigation means for the audit requirement for 2015.

Companies we work with have had enough uncertainty related to conflict minerals requirements, so most are moving ahead with IPSA planning as the original rule is written. They are currently screening auditors, budgeting funds and learning more about what they may need to do to prepare. We’ve mentioned numerous times that it is easier to free up previously allocated funds if they are not needed than it is to scramble to find funding at the last minute, so in many cases there isn’t much disincentive to plan for the IPSA.

At the same time, some issuers are shelling out tens of thousands of dollars for a third party to conduct audit preparation reviews and assessments. We don’t believe it is worth paying for such activities given the unique nature of the IPSA, the control issuers have over the audit effort and other low-cost options that are available (such as training and using your own Internal Audit staff).

As far as IPSA costs themselves, we continue to hear about significant overpricing so consider your options in selecting an auditor.




Conflict Minerals Reporting Indicators, Investor Rankings From Responsible Sourcing Network

On May 19, in a webinar hosted by Michael Littenberg at SRZ, the Responsible Sourcing Network (RSN) will release its full report Mining the Disclosures: An Investor Guide to Conflict Minerals Reporting. The report is aimed at helping investors better understand the US Securities and Exchange Commission (SEC) conflict minerals disclosures and determine potential financial implications of the information, as well as offer guidance to reporting companies on broadening their disclosure.

RSN states that they applied their ranking system to “51 of the largest market cap companies from 17 high exposure industries”, and these results will be announced in the webinar. In advance of the release, RSN has made available three documents – their Indicators Shortlist, Indicators Longlist and Step-by-Step Guidance for Companies and Investors.

We have reviewed these documents and provide our thoughts, beginning with a surprise. Although we don’t agree with everything, RSN’s indicator lists are generally reasonable and appropriately aligned with the OECD Guidance and the SEC disclosure requirements. RSN presents their information in a way that is easy to understand and clearly separates best practices from basic compliance – something that the Global Witness/Amnesty International report on the SEC conflict minerals disclosures falsely considered as one and the same.

Two of the indicators advocated by RSN we have thoughts on are:

  • Whether the issuer disclosed various quantitative metrics on products, suppliers, supplier response rates and smelters/refiners. As RSN makes clear, disclosure of this information is voluntary, and each issuer will make their own decision about reporting metrics. We feel this is appropriate in certain instances. For instance, where an issuer has a very small number of suppliers, metrics help make clear the context of a short smelter/refiner list.
  • Whether the issuer provided details about the specific steps they took to conform to the OECD Guidance or simply referred to the Guidance. This has broader implications than perhaps understood by RSN as doing so could significantly increase the cost/effort of the Independent Private Sector Audit (IPSA) when that is required.

The timing of the release of RSN’s indicator lists may be problematic as there are only days left before the filing deadline, which leaves issuers little time to make any changes they may want. Each investor group will decide the level of importance they place on the conflict minerals disclosures, and of course each company should assess the context of their reporting and decide what approach to take. There will certainly be some companies who adopt RSN’s concepts, but not all.