Conflict Minerals - Board Takeaways for 2013

What topics should CFOs get their arms around so they won't seem out of touch at board meetings this year?

As a CFO, you’re probably not a member of the company’s board. But you might as well be. You attend the greater portion of most board meetings and are asked for a lot of input.

But are you always fully prepared? After all, a new hot item may pique the board’s interest at any time.

Conflict Minerals
It’s just one of the 398 rulemakings required by the Dodd-Frank Act (and one of 136 that have been finalized). But the Securities and Exchange Commission’s new regulations regarding “contract minerals” promise to be prominent in boardroom discussions this year and perhaps next.

The SEC estimates that about 6,000 U.S. companies, or 40% of the­ approximately 15,000 publicly held ones, will be subject to heavy new compliance requirements. That is, any company that sells products containing gold, tantalum, tin, or tungsten, or otherwise uses those substances in making products, must publicly report on the metals’ movement through its supply chain. The purpose is to determine whether they were mined in the Democratic Republic of Congo and surrounding countries, where warring parties have been looting mines for years and selling the four metals in the global market to fund their violent activities.

The reporting requirement begins in May 2014. But companies’ initial reports must cover calendar-year 2013 supply-chain activities. Reports containing false or misleading statements could expose CFOs to liability under securities laws.

Most public companies in the aerospace, automotive, construction, electronics, industrial equipment and tools, jewelry, and medical equipment industries will be subject to the rules. Privately held companies could be at risk as well, if they supply products to public companies. In the aggregate, companies will spend several billion dollars to comply with the regulations, says Dennis Whalen, executive director of KPMG’s Audit Committee Institute.

“It’s going to be an awful lot of work for companies,” says Richstone, noting that the matter did not get on many boards’ radar screens until fairly recently.

At a board meeting where she first heard about it, “we all sat there with our mouths hanging open, saying is this for real?”

Several lobbying initiatives funded by corporations are under way in Washington over the issue, most notably one spearheaded by the Direct Marketing Association, Friedman notes.

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