October 29, 2011
Dear Chairwoman Shapiro:
I come to this issue as an industry analyst and business consultant who is knowledgeable about the broad trends affecting global business. I see the conflict minerals provisions as an example of a trend that is affecting all industries, not just those that rely on the so-called conflict minerals: that is, the obligation of companies to take responsibility for their supply chains.
In recent years it has become apparent that companies' suppliers often account for a significant portion of their social, economic and environmental impacts. To fulfill their obligations to society, to customers, to employees and to investors, companies can no longer afford to focus solely on their own internal operations they must take responsibility for the performance of their suppliers as well.
Dodd-Frank Section 1502 is an expression of this principle, which is manifested, increasingly, throughout industry. In the U.S. pharmaceutical industry, for instance, companies have recently agreed to provide funding to support the Food and Drug Administrations effort to audit their own suppliers to ensure proper health and safety standards are maintained. In industries ranging from retail to apparel to information technology, companies are imposing stringent new requirements on their suppliers to ensure they met high environmental and social standards. This is because companies are recognizing that their impacts are greater than those caused directly by their internal operations they include the activities that their purchasing has summoned into being, and the actions that their sales have enabled.
Forward-looking companies have recognized the benefits of taking this holistic view. In areas from risk management to cost management to environmental management, companies are finding that that they can maximize their long-term opportunity and minimize their risks by considering the whole value chain—from their suppliers to their end customers—in the design and operation of their business.
It is not at all obvious that implementing the requirements of Section 1502 will save companies money, even in the long term. It seems clear that, by most accounting, there are costs of compliance. But there are benefits as well. And I believe we are no longer in an era where companies can safely or ethically remain ignorant about the source of materials they buy or the conditions in which they are produced.
All policies can have unintended consequences. And some policies, even if they increase well being in the aggregate, can create winners and losers. A well established theory of international trade, for instance, shows that free international trade increases societal wealth, even as some segments of society may end up worse off if their own markets are lost to lower-cost producers. Wise policymakers recognize this and make provisions to compensate the losers—using a share of the increased value generated by the policy. It is my hope that policy makers, non-governmental organizations and companies large and small will come together to ensure that the implementation of Dodd Frank Section 1502 will include some form of compensation for the inevitable victims of a policy that will have a significant impact on trade patterns.
I operate a Web site that serves as online repository of news and information to help companies as they modify their practices to comply with the requirements laid out by Dodd-Frank Section 1502. The site can be found at http://section1502.com.
My hope is that all stakeholders and policy makers can come together with the wisdom and vision to craft rules that will yield the greatest possible benefit to humanity with the lowest possible cost.
Principal Analyst / Founder
New York, NY