The Cost of Dodd-Frank: Ten Million or Four Billion?
Will ‘Silly’ Regulation Prevail Over Common Sense?
By Ian Doyle
The issue of conflict diamonds, and more recently conflict minerals, remains a problem at many levels. On the ground, what can be done to change the deplorable conditions of artisanal miners exposed to extreme poverty, slave labour and rape as a weapon, in those regions where armed gangs seek to control mining areas through the sale of conflict minerals? Could greater transparency be the solution for business? What should be the regulatory response? How can consumers become more aware?
On a regulatory level, there has been much hope based on the Dodd-Frank Act Section 1502, which requires listed companies in the US to exercise due diligence to determine the origin of the mineral and metal content in their products. By obliging companies to be more transparent, this would seem like a positive development in helping consumers to be informed. However, a 24 September article by Tim Worstall in Forbes magazine highlighted the limitations of such regulation.
Entitled “Global Witness’ Latest Silly Suggestion About Conflict Minerals”, he highlights that the proposed mechanism for traceability under Dodd-Frank is overly costly for business and bureaucratic. According to Worstall, all mineral deposits have a fingerprint, making it possible to pinpoint where raw material comes from. So potentially, traceability issues could be simplified at the refining level through a simple comparison between the analysis of the purity of the ore and the existing ‘fingerprint database’. Worstall posits that the process would cover,
“a maximum of 500 companies … costing perhaps that $10 million [versus] something covering every listed company and costing $3 to $4 billion.”
I find Worstall’s arguments compelling as a solution to issues of traceability, but for me, it raises another question: the issue of the nature of trade itself.
In 1776, the Scottish moral philosopher Adam Smith, considered to be the father of modern economics, proposed that the purpose of economics was strictly the creation of wealth. His theory was based on the idea that economic transactions are disassociated from social relations and has evolved into the economic system by which we function today. So irrespective of the traceability solution, trade is still operating within the confines of an economic paradigm that encourages disconnectedness and therefore is not representative of the true value of trade.
FairTrade is a market response to this relational disconnect, which enfranchises the poor to achieve a basic standard of living and wealth creation, but a 2010 article in the Journal of Business Ethics highlighted how even Fairtrade is struggling to maintain its community based roots. We might say that we live in a globalised world and that this isn’t possible. But is this good enough? Perhaps this is the opportunity to think about new ways of doing business. Rather than focus on issues of compliance, is this not the opportunity to rethink the purpose of business and how it could be more beneficial for all?
One of our principle reflections at FJA is how jewellery businesses can have more inclusive processes right across the value chain. It is also encouraging to see that this goal is not limited to a select number of jewellers. For instance, the Responsible Ecosystems Sourcing Platform (RESP), formerly part of United Nations Conference on Trade and Development (UNCTAD), has been set up for this specific purpose. Its goal is to:
“to facilitate the design and implementation of business models that improve the management of natural resources-based value chains.
Eduardo Escobedo, Director at RESP states that,
“Although RESP aims to facilitate the business role in protecting biodiversity, we believe that we have a role to play in enhancing mining management practices as well as the remediation and restoration after the mining activity has ceased. More importantly, by reflecting on new business models, there is the potential to reframe how trade is done, and to reconnect business-people to nature and reintegrate relationships in the value chain.”
The relevance of RESP’s work for jewellers is that it has several international working groups with one focussed on coloured gemstones. As a funded entity, this is an encouraging development, as it raises the level of awareness about the issues associated with the sourcing of coloured gemstones and the potential mainstreaming of new business models whereby trade embodies relationship.
FJA’s recently published report, Creating a Prosperous and Inclusive Gemstone Industry in Greenland, highlighted the tremendous potential that the jewellery industry has to take the lead in building Greenland’s gemstone industry for the benefit of all. The hope in Greenland goes beyond just a traceable ruby or sapphire, as there is the possibility of gemstone supply chain innovation through direct trade. FJA is currently liaising with the Greenland government and local miners to facilitate this transition.
ABOUT THE AUTHOR: Ian Doyle is a CSR Consultant with the Lifeworth network and an adjunct professor in Business Ethics at Grenoble Ecole de Management. Ian’s pro-bono work includes heading up strategic development at Fair Jewellery Action.
