July 28, 2014

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Ridding the Supply Chain of Conflict Minerals: Intel's Work In Progress

Intel announces progress in ridding its supply chain of conflict minerals, but it wants other companies to also step up to the plate.

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By Francesca Rheannon

The CES Gets More than Tech Talk

The Consumer Electronics Show is Las Vegas’ biggest trade show of the year. It’s the place where crowds go to swoon over the latest gadgets and tech toys and scope out what's new and hot in TVs, watches and phones. It’s a far cry from the killing fields of the Democratic Republic of Congo (DRC), where warlords and rebel groups have killed, maimed, raped and kidnapped millions of people.

But Intel CEO Brian Krzanich wants everyone to know that those killing fields are actually no further than that shiny new gadget they may be holding in their hands. He’s been the motivating force behind Intel’s commitment to cleanse its supply chain of conflict minerals – the tungsten, tantalum, gold and tin that are mined and sold by armed groups in the DRC to finance their murderous operations. Since 1994, more than five million people have died in civil conflicts in the DRC.

Krzanich surprised the audience at the giant trade show when he concluded his keynote address by spotlighting the problem of conflict minerals and announcing Intel’s commitment to make its productsconflict-minerals "DRC conflict-free."

“For a CEO of a large company to take time in that environment to put attention to a human rights issue, to basically put a spotlight on all of those gadgets that we were there to see and tell the audience that they all had a connection to what was happening in Africa and the Congo, I think was just a surprise to people,” Intel communications manager Christine Dotts told me in an interview for CSRwire.

PR Stunt or the Real Deal?

She was on the line to introduce me to Intel’s Director of Corporate Citizenship, Gary Niekerk. He’s on the team Krzanich has been charged with making sure the company fulfills on its promise to go conflict-free. Before speaking with Niekerk, I had gone online to gauge the reaction to Krzanich’s speech. Corporate America is not exactly the most trusted brand these days and I discovered some suspicions that Intel’s announcement was mainly a “PR stunt.” I asked Niekerk how he would answer the skeptics:

I roll my eyes when I hear this is a PR stunt because there are a lot of easier ways of getting PR than doing this. This is an ongoing project we've worked on for almost five years with enormous time and effort to travel to all these smelters around the world – 200,000 miles of travel to over 60 different smelters in 20 different countries – to set up the systems to [get the supply chain conflict mineral-free].

Gary was there when the word first came from CEO Krzanich that he was serious about getting conflict minerals out of Intel’s supply chain. He was initially surprised (as he revealed in the TED Talk below); it wasn’t an issue that had been big on his radar screen:

One of the things I do in my job is work with outside stakeholders. They bring a lot of different issues to Intel, like dealing with climate change, tar sands, human rights and animal rights, etc. We have a materiality matrix that we apply when we're speaking with outside groups. We ask such questions as: “How many stakeholders does this affect? What's the relevance to Intel's business? How important is the topic to us?” We apply that screen and do what we think is right.

On this issue, when it first came in, I said, “Wow – this is a terrible situation. On the other hand, we buy very few of these materials. We're in the middle of the supply chain, so we're not the OEM.” If you apply our materiality matrix to this issue, it didn't rise to the top of the chart. We then discussed the issue with our CEO and Brian said, “I want these things out of our supply chain. I want to figure this out and get it done.”

I was a little taken aback, but I said, “OK, if that’s what the boss wants, let’s do it.”

Getting the Smelters on Board with Audits

Despite all the best intentions, insuring that supply chains are, in fact, socially responsible can be tricky, as Wal-Mart found out with the Rana Plaza building collapse in Bangladesh. It’s an issue that Intel is trying to wrap its head around, Niekerk told me:

When we started this there was no rules, no guidance, no systems in place to track and trace minerals from the mine of origin to the supply chain. So we started with zero and today we have smelter validation systems with third-party audits.

The audits look at two pieces when the minerals go into a smelter. One is an administrative piece: do they have controls and processes in place to manage the minerals? The second part is the flow of materials. [Auditors] look at their invoices and shipping records to see how much material comes into the smelter, and then look at the receipts to see how much got sold. It’s all about a reasonable due diligence.

“Reasonable due diligence to determine the country of origin of…conflict minerals” is a requirement of Section 1502 of Dodd-Frank, as laid out in a final rule pursuant to the Act issued by the SEC in August 2012. And, while audits are required by the SEC “in some cases,” the foreign smelters in Intel’s supply chain are not subject to the dictates of Dodd-Frank or the SEC.

Audits run from a few thousand dollars to tens of thousands for a smelter to undergo, Niekerk told me. He said that some of the smelters balked at the cost. To persuade them, Intel put money into a fund together with other companies to pay for the audits.

Opposition from Business Groups to Rules on Conflict Minerals

It’s not so easy for Intel to persuade its peers in in corporate America to get on board, however. The National Association of Manufacturers and the U.S. Chamber of Commerce, among others, have filed suit against the SEC to have its ruling on the Dodd-Frank provision on conflict minerals overturned. They charge that the measure will increase costs and is not within the purview of the SEC to regulate.

Intel is a member of both organizations — and the company is well aware that it cannot end the trade in conflict minerals by itself. I asked Gary Niekerk what Intel thought of the corporate pushback against Section 1502 of Dodd-Frank. He acknowledged that it was “a bit awkward” for Intel that NAM and the Chamber were bringing suit on the issue, but that Intel was determined to chart its own path to do what it thought was “right for our company.” Nonetheless, he said:

We want others to join us. To make it work, NGOs, government organizations and business need to be involved. This is not something that Intel or any other company can do by itself. It really needs the support of different governments around the world to move this issue forward.

When I pushed a little on whether Intel is engaging with its fellow membersIntel-conflict-minerals-free of the Chamber and NAM on the issue, Niekerk responded that, while the company has shared its white paper on its conflict minerals program with them, it hasn’t “lobbied intensely” because it has been focusing on getting its program to clean up its supply chain right. But that does’t mean Intel isn’t reaching out:

Making an announcement at the Consumer Electronics Show that some of the metals that you might be using in these cool gadgets potentially come from conflict areas was in part our way to bring everybody along. We want others to join us and we thought that the world's largest electronics show was a good venue to do that. [And] we've worked closely with the Enough Project, which is one of the leading activist NGOs on the issue. In our industry, we work very closely with the EIGC, Apple, HP Motorola, etc. But it's still important to get some of the other industries involved.

This is still a work in progress, Niekerk, assured me, with ample opportunities for making compliance systems more robust and for other companies—and industries—to join Intel in ridding the world of conflict minerals. (The company welcomes inquiries from other enterprises that want to go the same route.)

And real progress has already been made. At the Consumer Electronics Show, CEO Brian Krzanich announced that in 2014, all Intel microprocessors it ships will be conflict mineral-free.

The opinions, beliefs and viewpoints expressed by CSRwire contributors do not necessarily reflect the opinions, beliefs and viewpoints of CSRwire.

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