The controversial Dodd-Frank Section 1502 will likely be weakened by the new administration
Just as there is much uncertainty over how the new administration will handle conflict diamonds and the Kimberley Process, the fate of Section 1502 of the Dodd-Frank Wall Street Reform and Consumer Protection Act appears pretty unclear. That provision, snuck in at the last minute, calls for public companies to publicly report their procedures for avoiding the “conflict minerals” fueling the civil war in the Democratic Republic of Congo. In the jewelry industry, that meant public companies had to publicly report their procedures for sourcing gold and tungsten.
Today, President Trump is expected to sign an executive order weakening some aspects of Dodd-Frank. It is not clear whether Section 1502 will be among them. However, this week the acting chair of the Securities and Exchange Commission, Michael S. Piwowar, said he may rework the agency’s guidance on the provision—and even if he doesn’t weaken it, his expected successor, Wall Street lawyer Jay Clayton, likely will. Even so, experts believe companies will not be relieved of this year’s reporting requirement.
Section 1502 has been the subject of endless lawsuits and considerable controversy. Many felt that the SEC should not be handling what is essentially a foreign policy issue, and there is considerable evidence that it’s hurt the DRC as much as it’s helped.
Still, the provision officially went into effect three years ago, and companies have spent a lot of time, energy, and money trying to comply with it. Signet, for example, took the challenge presented by Dodd-Frank to develop a gold-sourcing program, which eventually led to its diamond-sourcing program. Richline credits the rule for improving its supply chain. Other companies were less proactive, but Signet and Richline are such big companies that their moves have reverberated through the entire industry.
Yesterday, Jewelers Vigilance Committee president and CEO Cecilia Gardner told me that when it comes to responsible sourcing, “That ship has sailed.” Companies today, she said, recognize that behaving ethically is good business sense. That’s particularly true in the jewelry industry, which has been hurt by its association with conflict. It’s what today’s consumers want. It’s what banks want too. And even if the federal government pays less attention to these issues, states may fill in the gap. Massachusetts, for example, just signed a new conflict minerals law.
In the best cases, Section 1502 caused companies to increase the transparency of their supply chains. Now that they have gone through that exercise, they have little incentive to revert to how things were. Which means that, however flawed the provision was, it may have achieved some of its larger policy goals. So whether it’s repealed or not, weakened or not, to a large extent, the 1502 ship has indeed sailed.