Friday, October 8, 2010

About ethical behavior in resource exploitation

Dear Colleagues

The good news in this message is that the United Stets and the European Union are interest in the issue of raw materials and community violence. In the case of the United States it is good to have a framework of law in which to regulate ... but how good?

This is the URL:

This is the text of the post on the Ethical Corporation's website:
Politics column: Make phones, not war
Initiatives by the US and the OECD have the potential to clean up mineral production, says Peter Davis, politics editor

It is said that each of us carries around a piece of the Democratic Republic of Congo (DRC) in our pocket. DRC is one of the few sources in the world of coltan, the rare mineral that is a key element in the manufacture of mobile phones. Does this mean that each of us is at least a little bit responsible for the ongoing conflict in the region?

As diamonds were associated with the continuation of the west African wars of the late 1990s, so coltan and a range of other rare elements are associated with funding conflict in DRC.

In August the US Senate passed Barack Obama’s financial reform bill. Under the new law, the US government will be given the power to seize control of a failing bank to avoid a collapse that could threaten the financial sector, and derivatives trading will be subject to new controls.

The act also contains section 1502, which requires manufacturing companies to report annually to the Securities and Exchange Commission if their products contain conflict minerals from the DRC. The new law will apply to manufactured goods containing tin, tantalum, gold and tungsten, used in electronics manufacturing.

Companies will also be required to submit a due diligence plan with the annual SEC report. The SEC has 270 days to finalise regulations to implement these requirements.
I am deeply sceptical. Regulation is expensive and regulation is not very powerful ... and as we have seen in the past decade a perfectly workable framework of regulation in the US can easily be trumped by a political agenda that favors weak regulation.

The problem of governance and corruption has been around a very long time, and in the life of my career rather little has been done that makes much of a difference. In some ways the situation is significantly worse today than a few decades back. Bottom line, bribery and corruption is an efficient way of getting agreements and making profits ... the payment amounts may be huge, but they are small relative to the profits to be earned. The fact that this wealth transfer from the location of the raw material to the stockholders of an international is going on ... while the local people stay in abject poverty ... is deeply immoral and offensive.

Some of us are aware of the power of money to corrupt ... and it is this issue that in part has driven the development of The Burgess Method (TBM) of value accounting. The value chains in most resource extraction initiatives leave a lot to be desired.

The good news is that an increasing number of people are aware of the issues involved ... and soon there will be value metrics ... and soon there will be cocktail party talk about both profit and value in peoples' investment portfolios! This would have been a silly dream a few years ago ... but not anymore!

Peter Burgess

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