Society & Culture - Posted by Karen Nikos-UC Davis on Thursday, September 6, 2012 11:40 - 4 Comments 
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(No Ratings Yet) Loading ...‘Conflict mineral’ rule to cost shareholders billions
Tin ore mined in North Kivu, a province bordering Lake Kivu in the eastern Democratic Republic of Congo. (Credit: ENOUGH Project/Flickr)
UC DAVIS (US) — Recently approved federal rules requiring companies to disclose use of “conflict minerals” could cost shareholders billions of dollars, a study predicts.
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The text of this article by Futurity is licensed under a Creative Commons Attribution-No Derivatives License.
Conflict minerals are those mined in the Republic of Congo and neighboring countries and those linked to armed conflict and human rights abuses.
The study, led by Paul Griffin, a professor in the Graduate School of Management at the University of California, Davis, looks at the costs of implementing section 1502 of the Wall Street Reform and Consumer Protection Act, a broad national reform of the US financial system signed into law by President Obama in 2010.
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Section 1502 requires publicly traded companies to report to shareholders and the Securities and Exchange Commission whether their mineral supplies come from strife-torn areas of Central Africa.
Conflict minerals—such as gold, tantalum, tungsten, and tin—are found in such common consumer products as cell phones, game consoles, and most products with integrated circuits (including automobiles).
Griffin and his research team examined 206 companies from December 2010 through March 2012 and found those companies—half who had voluntarily disclosed before the law became mandatory—lost $6.5 billion in shareholder value due to declining equity values.
Both disclosing and nondisclosing companies were affected because of the ripple effect in capital markets when uncertainties arise about a particular business practice—using conflict minerals, in this case.
The losses experienced by the firms were similar to earlier predictions by academic researchers and company trade groups, Griffin says, but exceeded the SEC’s estimated compliance cost of $71 million.
The disclosure rules do not prohibit companies from using conflict minerals, nor impose penalties for their use.
The rules could trigger additional state regulation. California in 2011 approved Senate Bill 861, which precludes companies in violation of Dodd-Frank reporting requirements from contracting with state agencies. SB 861 is expected to take effect after the SEC ruling. Maryland has adopted similar legislation.
“In their pursuit of a social remedy to expand transparency and eliminate trade in US companies’ use of conflict minerals, the US Congress and the SEC should understand the amount and cost of this remedy, and who bears that cost,” the report concludes.
David Lont of the University of Otago in Dunedin, New Zealand, and Yuan Sun, a doctoral student at the UC Berkeley Haas School of Business, co-authored the study.
Source: UC Davis
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4 Comments
George
Gus
Agreed, the article is pro-business even though the content seems ethically the least we should be doing. Also, it fails to indicate how companies would be losing money by informing their customers about the source of their products. It is implicit that people DO NOT WANT product from such origins, and that they may care enough to punish these companies.
Mick Alonso
Read the article, watch the video, and they are miles and miles apart.
Why is that?
Whoever wrote the article was trying to provoke me into thinking the researchers were idiots, and it worked. The writers of the summary article are idiots. Good work by UC .
Prof. Davis’s study does not look “at the costs of implementing section 1502 of the Wall Street Reform and Consumer Protection Act” as Ms. Nikos says. Rather, it looks at the short-term impact on the stock price of companies that may be affected by the final rules, which were not known at the time this research was done.
Because of very aggressive lobbying by numerous stakeholders intended to influence the shape of those final rules, including widely divergent estimates of the cost to companies of implementing them, there was significant uncertainty about what the ultimate material impact of the regulations would be.
Comparing a loss in stock market valuation with the cost of implementing the final rules, as this article does, is highly misleading.
The research seems to me to show that an uncertain regulatory environment can cause transitory declines in stock prices. I am unclear about the utility of this finding to investors that have a medium- or long-term investment horizon.
My own view, based on the research I have conducted on this issue, is that compliance costs for many if not most companies will be manageable if not immaterial, and will be accompanied by a number of benefits ranging from improved supply chain efficiency to better risk management. You can download that research, which was sponsored by Global Witness, an NGO that actively supported disclosure rules, here:
http://shop.greenresearch.com/products/the-costs-and-benefits-of-dodd-frank-section-1502
The tone of the article suggests that government should not be involved in issues such as this. Does the professor and therefore, the school, feel the same about the use of child labor?