From Kansas to the Congo: Why Naming and Shaming Corporations through Dodd-Frank's Corporate Governance Disclosure Won't Solve a Human Rights Crisis
51 Pages Posted: 6 Mar 2013 Last revised: 12 Sep 2013
Date Written: March 5, 2013
The Securities and Exchange Commission serves to protect investors, maintain fair and efficient markets, and facilitate capital formation. With the passage of Dodd-Frank section 1502’s conflict minerals corporate governance disclosure provision, the agency has entered into the human rights arena. Any company regardless of size that files reports with the SEC must now ensure that is not funding rebel groups engaged in rape, torture, the use of child soldiers, exploitation of child labor or other activities that have, in part, led to one of the world’s largest and most protracted humanitarian crises. This “name and shame” law, which does not actually make it illegal to source minerals from the Congo, aims to provide transparency to consumers and investors so that they can make informed choices about the companies with which they choose to do business. On the surface this makes sense in an era in which companies are hyper-vigilant about their reputations. Whether a corporation takes a shareholder or stakeholder-centric point of view, no firm can afford to be associated with conscription of child soldiers or the rape of women and children.
This Article briefly outlines corporate motivations for social responsibility programs; the state of corporate liability for human rights abuses prior to Dodd-Frank; the level of sexual violence in the Congo which led to the legislation; the legislative history behind the conflict mineral rule including the involvement of civil society groups; the legal challenges to the rule; and some alternatives to the rule. The Article contends that in a well-intentioned effort to help the people of the Congo, the drafters of the law oversimplified the causes of the violence and failed to consider appropriate alternatives. Compounding the errors, the implementers of the law -- the SEC believing that it was hamstrung by Congressional requirements -- failed in its duty to consider costs and benefits or to appropriately use its discretion. Companies, however, will conduct their own cost benefit analyses as it relates to reputation and legal risk and some will likely pull out of the Congo causing a de facto boycott. Consumers and investors will ultimately determine whether name and shame really works in this instance. Nonetheless, they will continue to demand transparency in the supply chain regardless of the success of Dodd-Frank.
This Article ultimately concludes that the conflict minerals rule is a poor choice for human rights legislation for corporations because the law’s flaws may lead to unintended and devastating consequences for the very beneficiaries it intends to help- the Congolese people.
Keywords: Dodd-Frank, conflict minerals, Congo, corporate governance, SEC, 1502, corporate responsibility for human rights, corporate social responsibility
JEL Classification: K2, K4
Suggested Citation: Suggested Citation