WSJ Article on Potential Shareholder Activism and Liability Under the Conflict Minerals Rules

By Cydney Posner

This article in The Wall Street Journal considers the potential liability and other problems companies may face from activists and shareholders in light of the new conflict minerals rules. First, the article suggests that companies could face "significant costs on the back-end at the hands of activist shareholders looking to push through a social agenda," which could also lead to bad press. One of the proxy advisory firm also comments for the article that "the rules had already generated ‘significant interest' among social investors and were also drawing the gaze of large public funds." As noted in this recent CooleyAlert, The Enough Project from the Center for American Progress, an advocacy group, has ranked major electronics companies based on their efforts to use conflict-free minerals in their products. http://goo.gl/ZlXQR Notably, the article discusses companies that were lauded by The Enough Project in its rankings as well as those companies that were criticized, along with statements by those companies attempting to explain their deficiencies (presented in a none-too-sympathetic light).

The article also notes that there may be a risk of shareholder litigation because the disclosures will be "filed" rather than "furnished" (presumably claims related to misleading disclosure). In addition, commentators cited in the article suggested that shareholders could bring derivative claims if a violation of the rules had a material impact on a company's financial condition or reflected a breach of fiduciary duty. Other commentators downplayed the litigation risk (because the financial recovery would not likely be great), suggesting instead that reputational risk was the greater concern.

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