The past few years, have shown, in incident after incident, that the SEC is overloaded, understaffed, and unable to effectively carry out its mission to police the securities markets. So Congress, that august body which cannot agree on anything,
agreed to give the SEC an additional mandate unrelated to its core mission: to ensure that public companies properly and accurately disclose whether any of their products contain raw materials produced in Congo or other war-torn Central African nations. This regulation, “[b]uried deep in the 849 pages of last year’s Dodd-Frank financial-overhaul law ” certainly has a laudable goal, and it may be that the mere act of requiring disclosure will improve the situation. However, assigning enforcement to the SEC almost guarantees that all gains will come from industry’s self-compliance. Jason Zweig writes in the Wall Street Journal that
Buddy Barnes, chief financial officer of RF Monolithics, a Dallas-based maker of wireless equipment, says “we shouldn’t be funding renegades who misuse their resources and abuse their people.” His company relies on all four minerals, although RFM doesn’t always know where they were mined.
Mr. Barnes estimates that it would cost RFM $1 million to conduct its own audit of the mineral suppliers used by its contract manufacturers. RFM, which has a minuscule stock-market value of $11 million, had net income of $228,000 in its latest fiscal year and $312,000 the year before.
“For us, it’s the difference between being profitable and not,” says Mr. Barnes, who is hoping that larger companies will set up a system of verifying “conflict-free” suppliers that firms like his could piggyback on.
Perhaps an effort by industry will be successful as it has been in the lumber industry, where most lumber sold in the United States is now produced sustainably. But it is unclear why the Congress chose this route over stopping the import of goods containing raw materials from those countries. What companies use the most of these metals and will have their costs most impacted by switching to alternative suppliers and ensuring compliance down their supply chain?
- SEC Commissioner Warns of Disclosure Overload (forbes.com)
- SEC Conceals Far More Than You Ever Imagined (genomega1.wordpress.com)