"Getting Beyond Denial: Conflict Mineral Rules More Important (And Apply Sooner) Than You Thought"
Thursday, September 27, 2012
2:00 - 3:00 pm, eastern [archive and transcript to follow]
Many are in denial. Did you know the SEC's new conflict minerals rules could have action item ramifications that rival the aftermath of Sarbanes-Oxley's Section 404?
And one subtlety to the new rule's 2014 effective date is that although it is a long time before companies are required to first report, those disclosures are going to cover 2013 - so companies need to have their ducks in a row by 2012 year-end.
That's right - by the end of this year. Join a group of experts that has been intimately involved in helping companies voluntarily comply even before the new rules were adopted:
- Brian Breheny, Partner, Skadden, Arps, Slate, Meagher & Flom and former Deputy Director, SEC's Division of Corporation Finance
- Bruce Dallas, Partner, Davis Polk & Wardwell
- Brink Dickerson, Partner, Troutman Sanders
- Lawrence Heim, Director, The Elm Consulting Group International
- Holly Smith, Partner, Sutherland Asbill & Brennan
Among the topics of this program are:
- "Product" Determination: A key element in Step 1 in the conflict minerals disclosure process requires issuers to determine whether it manufactures or contracts to manufactures products. Is it clear what a product is? For instance, what product is a cable television company selling? The entertainment or the set top box leased to customers? How about an airline? Use of seat?
- Examples of Product Manufacturing: There has been a number of interesting fact patterns regarding whether a company is manufacturing a product. For instance, does a company that assembles products, such as a computer systems integrator that sets up a network with off-the-shelf components, "manufacture" a product?
- Degree of Influence for "Contract to Manufacture": There have also been a number of questions regarding when a company has the degree of influence necessary to trigger the "contract to manufacture" provision in the rule. For instance, if a manufacturer sets performance requirements for the components it buys that will naturally require certain materials to be used in the product, is that enough? And what if you sell a product that includes your intellectual property, such as a Mickey Mouse doll that includes a voice recording supplied by the company?
- Tricky "Functionality" Conclusions: Is it possible to conclude that the packaging used for a product is not "necessary to the functionality or production" of the product? For instance, are the cans used for soft drinks necessary to the functionality of the drink? How about the tin boxes that certain cookies are delivered in?
- Various Approaches to Preparation: What steps should companies take now to prepare for reporting on 2013? Should they send letters to suppliers now? If so, will they need to resend letters next year? And what should companies be asking suppliers to disclose to the company? Does the answer to this question depend on the conflict mineral involved?
- Differences in Approach By Industry: What is the approach to preparation in particular industries? Includes discussion of electrical, gold industries.
- Changes to Sourcing Policies: The SEC's adopting release for the new rules states that "[a]n issuer's policies with respect to sourcing of conflict minerals will generally form a part of the issuer's reasonable country origin inquiry." Are companies changing sourcing policies to assist with compliance with the new rules? For instance, are companies restricting sourcing from the covered countries? Or, if a company sources from a covered country should it only source from large mining companies, as opposed to artisanal mining sources?
- Whether Audit is Required (and How): Have companies started to consider what auditor they will use, if an audit is required? The SEC made it clear that a company's existing financial statement auditor can be used, but is that a good or bad idea? Are there auditor independence considerations?
- Disclosure Issues: Is there any part of the required disclosures in the Form SD that will be most problematic for companies to make? And what happens if an issuer does not file its Form SD? Or if it files the Form SD late? Does it impact Form S-3 eligibility?
- Possibility of Lawsuit to Stay Rules: What's the possibility that a lawsuit will be filed that will block the effectiveness of the new rules? If so, how will that process work?
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