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On the Trail of Conflict Minerals

Owned by Berkshire Hathaway, Brooks Sports is delving deep into its supply chain to find out if the tin in its zippers comes from the Congo.

For the non-initiated, it might be hard to see the links between a Seattle-based, running shoe and apparel firm and brutality in the Congo.

CaseStudy_BugYet when the Securities and Exchange Commission’s Conflict Minerals Rule went into effect in January, tracing  such connections is exactly what Berkshire-Hathaway subsidiary Brooks Sports had to start doing.

Under the rule, which was mandated under the Dodd-Frank Act, companies must disclose their use of tantalum, tin, tungsten or gold (commonly called the “3TG” minerals) if they are “necessary to the functionality or production of a product” manufactured by the companies.

The minerals are found in “thousands of products ranging from cell phones and laptop computers to jewelry, golf clubs, drill bits and hearing aids,” according to a PwC report, which cited estimates that “6,000 SEC issuers will have to provide new disclosures under the rule.”

Further, about 275,000 non-public companies that are part of the issuers’ supply chains will be affected, according to PwC.

David Bohan, president and chief operating officer, Brooks Sports

David Bohan, president and chief operating officer, Brooks Sports

Unlike many companies, Brooks started planning its effort to comply with the rule months ago, says David Bohan, the firm’s president and chief operating officer and former CFO. Then again, the company had a leg up on compliance with materials-disclosure rules, having reported via the Reach Restricted Substances List.

Nevertheless, gathering the data for the first conflict-minerals reports, which are due May 31, 2014, will be “a huge challenge” for Brooks, requiring the firm to delve deeper than ever before into the sourcing of its supply chain than ever before, Bohan told CFO.

That will be true even though the company’s use of potential conflict minerals boils down to just the tin in the zippers of the running clothes it sells. An edited version of an  interview with Bohan follows.

4 thoughts on “On the Trail of Conflict Minerals

  1. Frankly I think the concentration on this issue is ridiculous.

    As a CFO, despite the fact that I have some left-leaning views, I don’t consistently identify with any particular party…a different issue for another time. In my position I never allow my personal feelings to interfere with my decision making.

    To expect organizations of less than Billion$ status to be able to track down
    the source of every part of their product is not feasible or sustainable. It creates additional unnecessary costs to the organization and ultimately to the consumer. To know how whether workers were paid fairly (subjective), the workers’ personal situation, from their housing to virtually aspect of their welfare is absurdly out of touch with reality.

    A recent article in the LA Times about the Canadian Oil Fields (Tar Sands)
    reflected, in response to some evidence that there was a higher indication of
    pollutants and a higher incidence of cancer in the indigenous population, that
    the respondent give the really honest answer that “we can either die from starvation, or we can take the chance of dying from cancer”. The realistic
    choice is obvious to them. Not good choices, but “real” choices.

    Just as we as a country seem to feel the need to impose our version of democracy on the rest of the world, we also seem compelled to impose our
    notion of human rights into environments in which we don’t have to live. I’ll guarantee you that, were you to be living in some of these other countries, and faced with their daily realities, given the choice between having a job and starving it wouldn’t take an MBA to make the necessary decision.

    So what do we do about countries, from which we need their resources, that have a different set of values? Guess what? You don’t have to go any further than the primary source of our petroleum resources over these many decades.
    We need to stop being so obviously hypocritical.

    We need to stand up – invest back in America by creating jobs. Stop setting on unprecedented cash piles while complaining about uncertainty. That’s ridiculous! There is no certainty in business. To the extent that we sit on the sidelines awaiting certainty, someone (the smart ones) will eat your lunch.
    Our willingness as a nation to be risk-taking and innovative is what got us
    to be one of the most financially powerful nations in the world. This is not the time to abandon that notion, and to the extent that we concentrate on issues such as tracking the ultimate source of materials as indicated in this article, we are taking our eye off of the ball. We’re misusing the human capital and the financial resources that could be better directed into creating jobs and reinvesting in the future.

    If we want to make a socially/humanitarian statement, we should appeal to the major corporations that are hoarding cash to look at things differently. Instead of boasting about “improved efficiency”…translation – cut jobs, and make the remaining employees so afraid for their jobs that they’ll longer and harder and not complain, these corporations should think about investing back into their own communities by creating jobs. More jobs, more purchasing power.

    Instead of “stock buy-backs” – Instead of larger Investor Dividends -
    Instead of higher executive pay – Instead of concern with quarterly earnings and satisfying the analysts, we should concentrate as CFO’s on fighting back
    against the nonsensical social issues (reference the article) and replace it by making a genuine effort to create jobs; get over the boogeyman fear of uncertainty; not pander to the shareholder blocks; and truly invest in our nation’s future.

    hmaterials that go into a relatively small part of your own offering presupposes that someone on high has made that sometimes subjective determination of what is and what is not acceptable.

    All that having been said, the notion that we should have linkage between social issues and business related issues is something that should be challenged on a case-by-case basis.

    I’ve always been about maximizing the utilization of available resources
    As a CFOthis is particularly troubling for me
    because I think that my personal attitudes linkage between social issues and business
    issues
    I concentrate on primary things.

    • Thank you. I could not have said it better. Stop using our Supply Chains as a whipping boy for social causes half a world away!

  2. It’s unlikely that the SEC would concentrate on something (like conflict mineral restriction) without reason or vision. It’s widely believed that the EU and Canada are likely to follow with their own version of conflict mineral rules. Why all the fuss? Because “Africa is the new Asia.” In 10 years, a blooming African middle income consumer base will dominate the global market landscape. Major companies are already establishing manufacturing bases in Africa with that vision in mind. The goal of conflict minerals restriction is: political stability. This is not a humanitarian effort, which is why it’s an SEC law rather than just an activist initiative (although it certainly is that, too, and with good reason). This is a bid for an economic future in the Next Big Industrial & Consumer Region. The SEC is essentially asking companies to invest in their own economic future. Would like to hear whether readers agree or disagree with this view.

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