The Dodd-Frank Act mandated the SEC to adopt rules to require reporting companies to make certain “social disclosures.” For example, Section 1502 of Dodd-Frank requires the SEC to adopt disclosure rules that will require reporting companies to make certain disclosures if “conflict minerals” are “necessary to the functionality or production” of its manufactured products. Metals and ores currently classified as “conflict minerals” are (1) Tin – Cassiterite, (2) Tantalum – Columbite-tantalite, (3) Tungsten – Wolframite and (4) Gold. Congress’ intention in enacting Section 1502 was to attempt to stop the national army and rebel groups in the Democratic Republic of the Congo from using illicit profits from the minerals trade to fund their military efforts. These types of disclosures are often referred to as “social disclosures” because they are intended to effect social changes.
In an effort to expand reporting companies’ duty to make disclosures relating to social issues, Representative Carolyn Maloney (D-NY) introduced a bill on August 1, 2011 that would “require companies to include in their annual reports to the Securities and Exchange Commission a disclosure describing any measures the company has taken during the year to identify and address conditions of forced labor, slavery, human trafficking, and the worst forms of child labor within the company’s supply chains.” This bill, entitled the “Business Transparency on Trafficking and Slavery Act” (H.R. 2759), is intended to curb reliance on a loophole in the Smoot-Hawley Tariff Act of 1930 which prohibits importation of goods made with forced labor or convict labor but has a broad exception for goods that cannot be produced in the United States in sufficient quantities to meet the demands of American consumers.
This proposed legislation is part of a current trend of increasing disclosure burdens of public companies related to social issues. Although required social disclosures may be well-intentioned, such requirements seem to be inconsistent with the fundamental purpose of Federal securities laws (i.e. investor protection) and such disclosures will likely result in an increased costs borne by companies and shareholders without providing additional information that is useful or beneficial to the investing public.
To view H.R. 2759, click here.