Intel supply chain case study

Discussion Case: Intel and Conflict Minerals At the 2014 Consumer Electronics Show in Las Vegas, Intel’s CEO Brian Krzanich announced that from then on, all microprocessors made by the company would be certified as conflict-free. This meant they would contain no conflict minerals—tantalum, tungsten, tin, or gold sourced from mines that financed horrific civil conflict in the Democratic Republic of the Congo (DRC) and nearby countries. “The solution isn’t easy,” the Intel CEO noted. “But nothing worthwhile ever is.” Of the four conflict minerals, the one most important to Intel and other electronics com- panies is tantalum. Columbite-tantalite, commonly known as “coltan,” is a black metallic ore. When refined, it produces tantalum, which is used to regulate electricity in portable consumer electronics, such as smartphones, laptops, play stations, and digital cameras. The largest share of coltan comes from Africa; other sources include Australia, Brazil, and Canada. In the late 2000s, a common goal to ban conflict minerals emerged among members of an oddly matched group—the electronics industry, the United Nations, governments, and human rights organizations. Their efforts led, ultimately, to a set of international guidelines, national laws, and voluntary initiatives whose goal was to keep the electronics industry and its customers from inadvertently supporting killing, sexual assault, and labor abuses. The Democratic Republic of the Congo is a nation of 71 million people in central Africa, covering a vast region the size of Western Europe. Since the late 1990s, the DRC has been the site of a brutal regional conflict, in which armed militias, including some from neighboring states, have fought for control. Despite the presence of United Nations troops, as many as 5 million people have died—the most in any conflict since World War II. Warring groups have used sexual assault as a weapon to control the population; an estimated 200,000 Congolese women and girls have been raped, often in front of their husbands and families. The United Nations and several NGOs reported that militias had systematically looted coltan and other minerals from eastern Congo, using the profits to fund their operations. According to the human rights group Global Witness: In the course of plundering these minerals, rebel groups and the Congolese army have used forced labor (often in extremely harsh and dangerous conditions), carried out systematic extortion, and imposed illegal “taxes” on the civilian population. They have also used violence and intimidation against civilians who attempt to resist working for them or handing over the minerals they produce. Said a representative of The Enough Project, another human rights group, “In eastern Congo, you see child miners [with] no health or safety standards. Minerals are dug by hand, traded in sacks, smuggled across borders.” Once mined— whether in the Congo or elsewhere—raw coltan made its way through a complex, multistep global supply chain. Local traders sold to regional traders, who shipped the ore to processing companies such as H.C. Starck (Germany), Cabot Corporation (United States), and Ningxia (China). Their smelters produced refined tantalum powder, which was then sold to parts makers such as Kemet (United States), Epcos (Germany), and Flextronics (Singapore). They sold, in turn, to original equipment manufacturers such as Dell (United States), Sony (Japan), and Nokia (Finland). By the time coltan reached the end of this convoluted supply chain, determining its source was nearly impossible. Steve Jobs, then the CEO of Apple, commented in an e-mail in 2010, “We require all of our suppliers to certify in writing that they use conflict-free materials. But honestly there is no way for them to be sure. Until someone invents a way to chemically trace minerals from the source mine, it’s a very difficult problem.” As public awareness of atrocities in the Congo grew, governments began to take action. The Organization for Economic Cooperation and Development, an alliance of mostly European nations, issued guidance for companies that wished to responsibly source min- erals. In 2010, the U.S. Congress passed the Wall Street Reform and Consumer Protection Act (also known as the Dodd-Frank Act, and further discussed in Chapters 7 and 13). This law included a provision, Section 1502, which required companies to disclose whether tantalum, tin, tungsten, and gold used in their products had come from the DRC or adjoin- ing countries. Companies were required to file their first Section 1502 reports in 2014 (although some business groups had sued to overturn the requirement, saying it was too burdensome). Companies also acted. For its part, Intel sent teams to more than 86 smelters and refin- ers in 21 countries, educating their partners about conflict minerals and collecting infor- mation about the origin of raw materials they processed. The company collaborated with other companies in the Electronics Industry Citizenship Coalition (EICC) to develop a Conflict-Free Smelter Assessment Program, a voluntary system in which an independent thirdparty auditor evaluated smelters and refiners and designated them as conflict-free.