1
Dodd-Frank Section 1502:
Compliance Costs and
Externalities of Greater Information Symmetry
August 22, 2013
Chris Bayer
...
Presentation overview
• This presentation will focus on:
– company-level costs
– implementation modalities
– synergistic p...
http://www.payson.tulane.edu/dfs1502-survey-corporate-efforts3
Tulane's 2013 snapshot survey
• July 11, 2013 – August 16, 2013
• Snowball method (with 40 trade associations
serving as s...
Survey topics
Section # of questions
A. Company Profile 8
B. Overall Implementation Status 2
C. Internal Resources Utilize...
Company profile: primary commercial
activity along supply chain
6
Count
1 Smelting/Refining
5 Processing of Smelted/Refine...
Company profile:
Companies with product(s)
containing 3TG mineral(s)
7
Count
43 Tungsten
42 Tantalum
56 Tin
47 Gold
Company profile: Industry sectors
8
Count
11 Aerospace
9 Medical
33 Automotive
11 Defense
5 Chemical
25 Electric /electron...
Company profile: public / private
9
Count
33 Public
29 Private
Count
30 Supplier
3 Issuer
29 Supplier and Issuer
Company p...
Company profile:
annual company revenue
10
Count
12 < US$ 50 million
3 US$ 50 million – US$ 100 million
5 US$ 100 million ...
Four main tasks required to comply
with the SEC regulation
1) Conduct the regulatory applicability
determination / analysi...
SEC - Degree of completion:
(1) regulatory applicability determinations / analysis
12
0 5 10 15 20 25 30 35 40
0-10
11-20
...
SEC - Degree of completion:
(2) reasonable country of origin inquiry
13
0 5 10 15
0-10
11-20
21-30
31-40
41-50
51-60
61-70...
SEC - Degree of completion:
(3) due diligence system
14
0 5 10 15
0-10
11-20
21-30
31-40
41-50
51-60
61-70
71-80
81-90
91-...
SEC - Degree of completion:
(4) preparing for the CMR Audit and reporting to the SEC
15
0 5 10 15 20 25 30 35
0-10
11-20
2...
Degree of completion:
OECD’s 5-step Due Diligence framework
1) Establish strong company management systems
2) Identify and...
OECD - Degree of completion:
(1) Establish strong company management systems
17
0 5 10 15 20
0-10
11-20
21-30
31-40
41-50
...
OECD - Degree of completion:
(2) Identify and assess risk in the supply chain
18
0 2 4 6 8 10 12
0-10
11-20
21-30
31-40
41...
OECD - Degree of completion:
(3) Design and implement a strategy to
respond to identified risks
19
0 5 10 15 20 25
0-10
11...
OECD - Degree of completion:
(4) Third-Party audit of smelters/refiners’
due diligence practices
20
0 10 20 30 40 50
0-10
...
OECD - Degree of completion:
(5) Report annually on supply chain due diligence
21
0 10 20 30 40 50
0-10
11-20
21-30
31-40
...
Number of employees involved in CMP
22
0 10 20 30 40
0-10
11-20
21-30
31-40
41-50
51-60
61-70
71-80
81-90
91-200
Companies...
Average LOE per employee on CM team
23
0
5
10
15
20
25
30
35
1 2 3 4 5 6 7 8 9 10
265 = 10% LOE
19 = 50% LOE
27 = 100 % LO...
Non-IT related expenditures on
external resources
• 41% of companies incurred costs in order to support
conflict minerals ...
Non-IT related expenditures on
external resources
25
Count
14 < US$ 50,000
6 US$ 50,000 – US$ 100,000
2 US$ 100,000 – US$ ...
IT gap / needs analysis
• 57% of companies have conducted a
gap/needs analysis for IT systems or
modifications required to...
IT related external resource
expenditures
27
Count
22 < US$ 50,000
2 US$ 50,000 – US$ 100,000
1 US$ 100,000 – US$ 250,000
...
IT modalities
28
Count
5 We will/have hire(d) external resources to modify certain existing
IT systems
13 We will/have use...
Actual / anticipated amount expended
for completion of the IT project
29
Count
3 US$ 0
22 < US$ 50,000
11 US$ 50,000 – US$...
Synergy
• 77% of companies use the EICC-GEeSI Template or a
modified version thereof
• 26% use the EICC-GEeSI Dashboard
• ...
Support – through purchasing
requirements – of in-region initiatives
• 2 (3%) - Solutions for Hope (SfH) closed pipe
syste...
Support for other in-region initiatives
• 3 companies (5%) are members of the Public-
Private Alliance for Responsible Min...
Support – through purchasing
requirements – of supply chain initiatives
• 31% EICC-GeSI conflict-free smelter program
• 1....
DFS1502 externalities
Agree Neither
agree nor
disagree
Disagree
1. DF S1502 has leveled the playing field with regard to
s...
DFS1502 externalities (cont.)
Agree Neither
agree nor
disagree
Disagree
5. Due to DF S1502–related actions, we have improv...
Summary findings
• Companies are steadily implementing main tasks
required to comply with the SEC regulation
• Almost half...
Discussion questions
• How is an increase in symmetry of B2B
information in the 3TG-based industries affecting
the upstrea...
38
Thank you for your attention!
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Dodd-Frank Section 1502: Compliance Costs and Externalites of Greater Information Symmetry

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Presentation given by Chris Bayer, PhD Candidate of Payson Center for International Development at Tulane University Law School to the Global Conflict Minerals Symposium held in Los Angeles, CA on August 22, 2013.

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  • This presentation is entitled: Dodd-Frank Section 1502 - which most of you have probably never heard of
  • companies develop conflict mineral programs
  • In July and August of this year, at the one year milestoneof the SEC rules, Tulane launched a benchmark survey.
  • In terms of annual company revenue, the respondents spanned the gamut, with more participants which made more than a US 1 billion.
  • As companies are more than aware
  • The great majority of companies had determined whether the regulation applies to them, with a declared completion degree of 78%.
  • With respect to the reasonable country of origin task, on average companies reported having surpassed the completion half-way mark.
  • Concerning the development of a due diligence system, companies reported on average being 41% there.
  • And with the CMR audits and Form SD filing still a ways off, only a fifth of companies reported having completed this task.
  • We also applied the OECD’s 5-step Due Diligence framework to gauge the degree of implementation progress.
  • Companies on average reported a 67% completion rate.
  • In terms of the number of employees each company has working on their Conflict Mineral program.
  • The Level of Effort per employee working on Conflict Minerals varied. While some employees worked full-time, others worked part time, whereas most dedicated a fraction of their time to their CM program.
  • With respect to expenditures on external resources, 41% of companies have engaged outside help.
  • Yet most of them are expending U$ 50,000 or less on this element.
  •  ... a joint initiative among governments, companies, and civil society to support supply chain solutions to conflict minerals challenges in the Democratic Republic of Congo (DRC) and the Great Lakes Region (GLR) of Central Africa. 
  • Responsible Jewellery Council The London bullion market
  • Dodd-Frank Section 1502: Compliance Costs and Externalites of Greater Information Symmetry

    1. 1. 1 Dodd-Frank Section 1502: Compliance Costs and Externalities of Greater Information Symmetry August 22, 2013 Chris Bayer PhD Candidate Tulane University
    2. 2. Presentation overview • This presentation will focus on: – company-level costs – implementation modalities – synergistic platforms – externalities • Companies are thus able to peer over their respective fences and see how their neighbors are getting on 2
    3. 3. http://www.payson.tulane.edu/dfs1502-survey-corporate-efforts3
    4. 4. Tulane's 2013 snapshot survey • July 11, 2013 – August 16, 2013 • Snowball method (with 40 trade associations serving as seeds) • Online survey (using Qualtrics) • Numerator = 62 companies o 42 based in the US – 20 with significant business activity in the US • Indicative – not representative – of affected companies 4
    5. 5. Survey topics Section # of questions A. Company Profile 8 B. Overall Implementation Status 2 C. Internal Resources Utilized 1 D. External Resources Utilized 5 E. Synergy 9 F. Perceived Advantages 1 G. Legislative Alternatives 1 5
    6. 6. Company profile: primary commercial activity along supply chain 6 Count 1 Smelting/Refining 5 Processing of Smelted/Refined Metal (including scrap/recycled sources and carbonaceous materials) 1 Chemical and material manufacturing 34 Component / Sub-assembly Manufacturing 11 Contract Manufacturing for Other Companies 1 OEM 26 Final / Consumer Products Manufacturing 1 Distributor/ Retail
    7. 7. Company profile: Companies with product(s) containing 3TG mineral(s) 7 Count 43 Tungsten 42 Tantalum 56 Tin 47 Gold
    8. 8. Company profile: Industry sectors 8 Count 11 Aerospace 9 Medical 33 Automotive 11 Defense 5 Chemical 25 Electric /electronics / high-tech 1 Sports / Recreational Equipment 1 Energy 1 Agriculture
    9. 9. Company profile: public / private 9 Count 33 Public 29 Private Count 30 Supplier 3 Issuer 29 Supplier and Issuer Company profile: supplier / issuer
    10. 10. Company profile: annual company revenue 10 Count 12 < US$ 50 million 3 US$ 50 million – US$ 100 million 5 US$ 100 million – US$ 500 million 5 US$ 500 million – US$ 1 billion 15 US$ 1 billion – US$ 5 billion 21 > US$ 5 billion
    11. 11. Four main tasks required to comply with the SEC regulation 1) Conduct the regulatory applicability determination / analysis 2) Develop and implement the Reasonable Country of Origin Inquiry 3) Develop and implement the Due Diligence system 4) Preparing for the CMR Audit and reporting to the SEC 11
    12. 12. SEC - Degree of completion: (1) regulatory applicability determinations / analysis 12 0 5 10 15 20 25 30 35 40 0-10 11-20 21-30 31-40 41-50 51-60 61-70 71-80 81-90 91-100 average: 78% % Companies
    13. 13. SEC - Degree of completion: (2) reasonable country of origin inquiry 13 0 5 10 15 0-10 11-20 21-30 31-40 41-50 51-60 61-70 71-80 81-90 91-100 average: 55% % Companies
    14. 14. SEC - Degree of completion: (3) due diligence system 14 0 5 10 15 0-10 11-20 21-30 31-40 41-50 51-60 61-70 71-80 81-90 91-100 average: 41%% Companies
    15. 15. SEC - Degree of completion: (4) preparing for the CMR Audit and reporting to the SEC 15 0 5 10 15 20 25 30 35 0-10 11-20 21-30 31-40 41-50 51-60 61-70 71-80 81-90 91-100 N/A: 8% average: 18% % Companies
    16. 16. Degree of completion: OECD’s 5-step Due Diligence framework 1) Establish strong company management systems 2) Identify and assess risk in the supply chain 3) Design and implement a strategy to respond to identified risks 4) Third-Party audit of smelters/refiners’ due diligence practices 5) Report annually on supply chain due diligence 16
    17. 17. OECD - Degree of completion: (1) Establish strong company management systems 17 0 5 10 15 20 0-10 11-20 21-30 31-40 41-50 51-60 61-70 71-80 81-90 91-100 average: 67% % Companies
    18. 18. OECD - Degree of completion: (2) Identify and assess risk in the supply chain 18 0 2 4 6 8 10 12 0-10 11-20 21-30 31-40 41-50 51-60 61-70 71-80 81-90 91-100 average: 51%% Companies
    19. 19. OECD - Degree of completion: (3) Design and implement a strategy to respond to identified risks 19 0 5 10 15 20 25 0-10 11-20 21-30 31-40 41-50 51-60 61-70 71-80 81-90 91-100 average: 39%% Companies
    20. 20. OECD - Degree of completion: (4) Third-Party audit of smelters/refiners’ due diligence practices 20 0 10 20 30 40 50 0-10 11-20 21-30 31-40 41-50 51-60 61-70 71-80 81-90 91-100 average: 16%% Companies
    21. 21. OECD - Degree of completion: (5) Report annually on supply chain due diligence 21 0 10 20 30 40 50 0-10 11-20 21-30 31-40 41-50 51-60 61-70 71-80 81-90 91-100 average: 15% Companies %
    22. 22. Number of employees involved in CMP 22 0 10 20 30 40 0-10 11-20 21-30 31-40 41-50 51-60 61-70 71-80 81-90 91-200 Companies # of employees per company
    23. 23. Average LOE per employee on CM team 23 0 5 10 15 20 25 30 35 1 2 3 4 5 6 7 8 9 10 265 = 10% LOE 19 = 50% LOE 27 = 100 % LOE Employee # LOE %
    24. 24. Non-IT related expenditures on external resources • 41% of companies incurred costs in order to support conflict minerals program review, assessment, development and implementation • “External resources” include: • consultants • auditors • industry association membership fees / related costs • legal fees • pilot program costs 24
    25. 25. Non-IT related expenditures on external resources 25 Count 14 < US$ 50,000 6 US$ 50,000 – US$ 100,000 2 US$ 100,000 – US$ 250,000 2 US$ 250,000 – US$ 500,000 0 US$ 500,000 – US$ 1 million 1 > US$ 1 million
    26. 26. IT gap / needs analysis • 57% of companies have conducted a gap/needs analysis for IT systems or modifications required to support conflict minerals trace ability and/or reporting • 34% of these companies engage external resources to support this gap/needs analysis for IT systems 26
    27. 27. IT related external resource expenditures 27 Count 22 < US$ 50,000 2 US$ 50,000 – US$ 100,000 1 US$ 100,000 – US$ 250,000 0 US$ 250,000 – US$ 500,000 1 US$ 500,000 – US$ 1 million 0 > US$ 1 million
    28. 28. IT modalities 28 Count 5 We will/have hire(d) external resources to modify certain existing IT systems 13 We will/have use(d) internal resources to modify certain existing IT systems 6 We will/have buy/bought wholly new IT systems 8 We have no IT system needs 19 Unknown at this time
    29. 29. Actual / anticipated amount expended for completion of the IT project 29 Count 3 US$ 0 22 < US$ 50,000 11 US$ 50,000 – US$ 100,000 6 US$ 100,000 – US$ 250,000 1 US$ 250,000 – US$ 500,000 0 US$ 500,000 – US$ 1 million 3 > US$ 1 million 13 Unknown / not estimated
    30. 30. Synergy • 77% of companies use the EICC-GEeSI Template or a modified version thereof • 26% use the EICC-GEeSI Dashboard • 21% use the IPC-1755 Conflict Minerals Data Exchange Standard • 46% use a commercially available CM data management system: – iPoint Conflict Minerals Platform (iPCMP) – CMO COMPLIANCE (in partnership with Deloitte) – Foresite systems – Bravo Solutions – Compliance Data Exchange (CDX) – KPMG's Conflict Minerals Tracking Tool 30
    31. 31. Support – through purchasing requirements – of in-region initiatives • 2 (3%) - Solutions for Hope (SfH) closed pipe system • 2 (3%) - ITRI Tin Supply Chain Initiative (iTSCi) • 1 (1.6%) - ICGLR Certification • 0 (%) - BGR Certified Trading Chains • 2 (3%) - Conflict Free Tin Initiative • 2 (3%) - KEMET Partnership for Social and Economic Stability 31
    32. 32. Support for other in-region initiatives • 3 companies (5%) are members of the Public- Private Alliance for Responsible Minerals Trade (PPA) 32
    33. 33. Support – through purchasing requirements – of supply chain initiatives • 31% EICC-GeSI conflict-free smelter program • 1.6% RJC Chain of Custody Certification • 1.6% LBMA Good Delivery 33
    34. 34. DFS1502 externalities Agree Neither agree nor disagree Disagree 1. DF S1502 has leveled the playing field with regard to sourcing minerals from the DRC and neighboring countries. 3 24 31 2. Due to DF S1502–related actions, we have identified opportunities for consolidation (vertical integration) and supply chain cost reduction. 2 16 40 3. Due to DF S1502–related actions, we have improved our risk management (e.g. pre-emptive identification of risk such as reliance on sole-sourced suppliers). 4 23 31 4. Due to DF S1502–related actions, we have improved our supply chain performance management in terms of responsiveness and efficiency. 4 20 34 34
    35. 35. DFS1502 externalities (cont.) Agree Neither agree nor disagree Disagree 5. Due to DF S1502–related actions, we have improved response to customer requests for CM-related information. 23 20 15 6. Due to DF S1502–related actions, we now have data and standards with which to conduct future supplier certification. 13 27 19 7. Due to DF S1502–related actions, we now have improved supplier policies. 7 28 24 8. Due to DF S1502–related actions, we now have the confidence that our company is not negatively impacting the Congo and surrounding countries. 5 28 25 9. Due to DF S1502–related actions, our Corporate Social Responsibility standing has improved. 8 33 1735
    36. 36. Summary findings • Companies are steadily implementing main tasks required to comply with the SEC regulation • Almost half of the companies are turning to external help with their CMP • The majority of companies are opting to build rather than buy • Companies are synergizing – to varying degrees – with information sharing platforms • Generally don't accord much significance to possible externalities of DFS1502 36
    37. 37. Discussion questions • How is an increase in symmetry of B2B information in the 3TG-based industries affecting the upstream, smelter and downstream tiers? • Due to the increased symmetry of information, are upstream companies at a greater advantage vis-à- vis downstream companies? • To what extent can IT-related expenses be reduced through engagement of common platforms? 37
    38. 38. 38 Thank you for your attention!

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