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New Rules Push Business Supply Chains Into the Light (Op-Ed)

conflict minerals, compliance, coltan A piece of columbite-tantalite, known as coltan. / Credit: Mineral collection of Brigham Young University Department of Geology, Provo, Utah. Photograph by Andrew Silver. BYU index 4-8081, (FeMn)(NbTa)_2O_5.

Jess Kraus, CEO of Source Intelligence, contributed this article to BusinessNewsDaily's Expert Voices: Op-Ed & Insights.

The arrival of new rules to illuminate where and how a company sources its raw materials means businesses must proactively reveal where their resources come from, a task that may at first seem daunting.

In July of this year, the United Nations Secretary-General received a report from the coalition behind the U.N. Global Compact, a strategic policy initiative that supports the alignment of business operations and strategies with 10 universally accepted principles in the areas of human rights, labor, the environment and anti-corruption.

This development is a clear reminder that U.S. companies must embrace both transparency and overall global impact — and that applies to businesses' supply chains, too. Brands must move from "having nothing to hide" to pro-actively showing and proving they have nothing to hide. These companies must go beyond uttering lofty statements on values and culture, and begin giving unambiguous and clear evidence about actual results.

Supply-chain transparency and corporate accountability in responsible sourcing is here to stay. Policymakers, private industry, and consumers now demand that organizations tightly integrate their sustainability practices into their business strategies, and that every player along the delivery chain be committed to the effort.

New rules

A timely example of this shift is the U.S. Security and Exchange Commission's Dodd-Frank Section 1502 Conflict Minerals ruling, which requires by May 2014 that publicly traded companies to disclose the origins of conflict minerals — minerals such as gold and tantalum that can originate under criminal conditions in regions of conflict — contained in their products.

The one-year anniversary of the Dodd-Frank 1502 Rule promulgation was August 22, and never before has my company, Source Intelligence, seen such a high level of inbound corporate requests for product demonstrations, access to our conflict minerals resource center and support in putting a viable due-diligence program in place in time to comply.

According to Tulane University's October 2011 economic impact projection, in the aggregate, it will cost American companies an estimated $7.93 billion to comply with the necessary systems and processes of the Dodd-Frank 1502 Rule.

Conflict minerals compliance: where to begin

One of the questions I hear most often from those in private industry and their legal advisors is, "Where do we begin?" After a company sets its internal policy regarding conflict minerals, that company should follow a methodical approach to ensure compliance and an audit trail.

There are five steps involved in complying with the Conflict Minerals Final Rule:

Filter: Determine which of a company's products are in scope. Evaluate whether they contain any 3TG (shorthand for tungsten, tin, tantalum and gold) or require 3TG in the manufacturing process.

Reasonable Country of Origin Inquiry (RCOI): Determine whether the conflict minerals used in a company's products may have originated from a conflict region, such as the Democratic Republic of the Congo (DRC), or whether they came from scrap or recycled sources.

Due Diligence: After completing the RCOI, if a company either comes to know or has reason to believe conflict minerals originated in the DRC and did not come from recycled or scrap sources, that company must take certain actions. Specifically, the company must engage in due diligence to gather information about potential risks so they can be assessed and managed appropriately.

Data Assessment: Information gathered from the supply chain should not be taken at face value. A company must assess supplier-provided data to understand the information's completeness and accuracy.

Report: Prepare and submit Special Disclosure (SD) forms and Conflict Minerals Reports to the SEC, as necessary.

Serving the greater cause

As an industry leader in supply-chain data and compliance services, Source Intelligence has responded to the market and partnered with corporations in the implementation of a complex supply-chain–tracing infrastructure.

Companies are being asked to transition from legacy purchasing systems to a completely transparent supply chain. It's hard for companies to use internal resources to comply with this demand, because their core competency is not supply-chain tracing. Becoming transparent requires specialized information technology platforms, around-the-clock supplier engagement and experts in compliance regulations.

However, once the supply-chain–tracing infrastructure is in place, companies have the power to address and prevent not only conflict minerals violations, but also other human rights, labor, environmental or corruption risks to their brands.

For those who are taking a "wait and see" approach to the SEC's Conflict Minerals Ruling, hear this: Supply chain transparency and responsible sourcing practices are here to stay. Policy, private industry and consumer trends all point to the same conclusion: The time is now to integrate corporate social-responsibility into the strategic operations of your company.

Sitting on the sidelines is no longer an option; this is a legal and strategic requirement to protect your brand and your organization's reputation.

The views expressed are those of the author and do not necessarily reflect the views of the publisher. This article was originally published on BusinessNewsDaily.