On Wednesday, we witnessed an interesting spectacle: The people in charge of the Securities and Exchange Commission wrestling with how to handle what is fundamentally a foreign policy question—the issue of “conflict minerals.” Generally, regulators at the SEC concern themselves with, as one would expect, securities and exchanges. Considering all that’s transpired in the past few years, you’d think that would keep their plates pretty full.
But thanks to a provision snuck into the Dodd-Frank financial reform act, the SEC had to develop a rule on how public companies should report their procedures for avoiding “conflict minerals” from the eastern Democratic Republic of Congo and surrounding countries. That rule was finally approved by agency heads by a 3 to 2 vote. Some of the dissenters apparently voted “no” because they just didn’t think it was something the SEC should have been dealing with. As one popular blogger on Africa tweeted: “I feel bad for the SEC. They can’t win on this. Bad legislation = no way to implement that will make anyone happy.”
And, indeed, the final rule appears to have been one of those compromises that satisfies no one. Activist groups didn’t like the adjustments to the initial draft meant to ease the burden on business. The Wall Street Journal even portrayed the final ruling as a big win for industry. But companies weren’t exactly celebrating. While some jewelers may turn to recycled gold as a way out, trade associations still worried the rules could be troublesome to comply with.
Given all that, let’s take a step back and look at how we got here. Most people agree war is a bad thing, and the continuing civil unrest in eastern DRC is considered the world’s bloodiest conflict since World War II. Yet, big countries aren’t willing to engage in military action to stop these conflicts. So, people who want to end them have increasingly looked at how armies get their funding. In the DRC, the main armies are said to be funded by minerals, including gold and tungsten. (And yes, there is debate over that.) As blog commenter Harrison recently put it:
If you look at when the Kimberley Process for blood diamonds was first put forward back in 2000 or so, it was suggested as part of a suite of measures, including military measures, improved governance, institutional building, etc. Yet, primarily due to effective advocacy, we have ended up focusing on conflict minerals over and above everything else.
And that is how the industry ended up getting caught up in this.
Which brings us to the SEC. Generally, activists try to get companies’ attention through PR campaigns. That’s how it worked with conflict diamonds. Yet, by getting this little piece of legislation passed, this issue has landed on the major players’ radar in a big (and cost-effective) way. Why spend time organizing demonstrations, when one well-placed law can impact change virtually overnight? It’s quite likely this will become part of the NGO playbook.
Still, there’s a bit of a rub. When I talked to Kimberley Process chair Gillian Milovanovic this week, I asked her what lessons the conflict diamonds experience could have for conflict minerals. She said this:
The Kimberley Process is and continues to be a voluntary effort. At the end of the day, I think voluntary efforts are always better, because when you have voluntary efforts, you have better results.
We’re seeing that here. Big retailers responded to the Dodd-Frank provision by hiring lobbying firms to water down the SEC rule. Which they were mostly able to do. And instead of industry working with NGOs to determine the most ethical course of action in Congo, most companies will simply cease all buying from the area out of fear. And that in turn could hurt the people it’s designed to help. Some say that has already happened:
In 2010, a coalition of non-governmental organizations, including Global Witness and Enough Project, managed to adopt a law on blood minerals by the U.S. Congress. But with the passage of this law in August 2010, the mineral trade has virtually stopped in the DRC. Instead of investing in a traceability system guaranteeing the origin and “clean” minerals they purchase, U.S. companies are simply removed from the Congo.
Suddenly, sales of minerals such as coltan and cassiterite fell 90% and the standard of living of children and their working conditions deteriorated further.
Regardless of the merits of this particular rule, the larger trend is that companies will increasingly be pressured to know where their materials come from, and to take responsibility for the conditions under which those materials were produced. This pressure generally comes from consumers; but it can come also, as we have seen, from lawmakers. (And this trend crosses party lines: The Burma ruby ban and Clean Diamond Trade Act were both signed by George W. Bush.) Indeed, some in the U.S. had feared that the Dodd-Frank provision could be expanded to include diamonds.
The jewelry industry may not like these disputes, but if anything, their numbers will increase in the future. Which is why companies must take proactive steps, educate themselves, and try to work cooperatively with the different activist groups (and vice versa). The arguments over “conflict gold” may be winding down. But these issues aren’t going away.