Intel removes 'blood chips' from supply chain
Thomas Lee
Updated 6:31 pm, Wednesday, July 2, 2014
A congolese miner accends from a deep mine located some 200 km west of the eastern congolese town of Goma in the north Kivu region on April 12, 2010. Around 8000 people live and work here attracted by the money made from the extraction of the mineral Cassiterite from which tin is made and which is in high demand from the electronic industry. This site is controlled by the military and it is isolated by vasts forests. The only way in or out is a 50 km hike through dense forest. Photo: Afp, AFP/Getty Images
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Intel's chips are used in practically every computer in the world. Now it can add one more accolade to its reputation: a clean conscience.
The Santa Clara company's officials recently declared that they had rid their supply chain of minerals from Congo sold by militias that commit gross human rights abuses.
Not because a victim sued them. Not because the feds forced them. And not because the media shamed them.
In fact, though leaders say morality initially motivated the company, they wholeheartedly acknowledge the move was an exceedingly shrewd business strategy that pre-empted government regulation and boosted corporate reputation, supply chain expertise and employee morale.
Since 2009, Intel has worked with suppliers to identify the source of minerals and make sure the company was not unwittingly financing war crimes.
"I'm as skeptical as anyone else and I work in corporate responsibility," said Gary Niekerk, Intel's director of corporate citizenship. "We're a for-profit company. We have shareholders. But we might have inadvertently contributed to a crisis and when you realize something like that, you have to fix it. We didn't do a financial cost-benefit analysis."
Policing a far-flung global supply chain is a daunting prospect. Efforts to cut costs by retailers like Target and Gap have had tragic consequences, like the collapse of a garment factory in Bangladesh last year, which killed over 1,000 workers.
"It consumes a great deal of time throughout the organization, from salespeople fielding compliance requests from their customers, to engineers checking product designs for materials of concern, to purchasing managers working with suppliers," said Paul Schwada, founder of Locomotive Solutions consulting firm near Chicago. "And who is supposed to 'own' it? That's up for grabs."
That makes Intel's achievement all the more remarkable - and it should remind other multinational corporations that effort and commitment can still go a long way these days.
"Intel is really leading the way," Schwada said. "And that's good; they're the ones big enough and broad enough - with enough influence - to actually tackle this thing."
Back in 2008, Intel had never even heard of the term "conflict minerals" when it received a letter from several non-government organizations. The group said four minerals - gold, tin, tantalum, tungsten - the company uses to make micro processing chips might have originated in mines that funded rebel groups and militias in war-torn Congo. The trade was similar to "blood diamonds," in which groups in Liberia and Sierra Leone financed armies through diamond sales. Such groups have been responsible for war crimes like murder, rape and forced enlistment of children as soldiers.
Intel contacted its suppliers but "we didn't get good results," Niekerk said. The suppliers were either unwilling or unable to cooperate, he said.
So Intel contacted smelters and factories that receive and process the minerals. Working with 85 smelters across 21 countries, Intel helped developed audit programs to identify the origins of minerals and establish "a chain of custody" across the supply chain.
It wasn't easy. Like the suppliers, the smelters weren't eager to sign up just to do the right thing. Intel's strategy was to patiently address their concerns until the smelters ran out of objections.
How can we afford to do these audits? Intel subsidized the first audits through an "early adopters" program. What do we get out of the deal? Intel made sure the smelters knew they could benefit from positive public relations and Intel's good graces.
"This is going to you a more desirable company," Niekerk said Intel told the smelters.
As it turns out, Intel's timing was impeccable. In 2010, Congress passed the landmark Dodd-Frank Act, which, among other things, required companies to disclose whether or not they were using conflict minerals. A study by Tulane University subsequently concluded the compliance with the rule would cost companies that rely on such minerals almost $8 billion.
But Intel was already ahead of the curve "because we did all of the pre-work," Niekerk said.
Intel continues to use minerals from Congo, which has helped stabilize prices. Completely withdrawing from the country would have produce a sharp spike in Intel's costs.
"Intel is taking the mandate to the fullest intent," Schwada said. "While most companies will be happy just to be able to produce a piece of paper that shows compliance, Intel is actually going upstream with the intent of both complying with Dodd-Frank and still sourcing (Congo) minerals. Otherwise, (Congo) feels the economic pain even more than the rest of us, who are feeling the red tape pain."
In other words, Intel was not going to wreck Congo's economy to get rid of conflict minerals. The company just did a better job sorting the good minerals from the bad.
"We didn't touch the economy," Niekerk said. "It's not about pulling out of the region. That would have been the easy thing to do."
The Santa Clara company's officials recently declared that they had rid their supply chain of minerals from Congo sold by militias that commit gross human rights abuses.
Not because a victim sued them. Not because the feds forced them. And not because the media shamed them.
In fact, though leaders say morality initially motivated the company, they wholeheartedly acknowledge the move was an exceedingly shrewd business strategy that pre-empted government regulation and boosted corporate reputation, supply chain expertise and employee morale.
"I'm as skeptical as anyone else and I work in corporate responsibility," said Gary Niekerk, Intel's director of corporate citizenship. "We're a for-profit company. We have shareholders. But we might have inadvertently contributed to a crisis and when you realize something like that, you have to fix it. We didn't do a financial cost-benefit analysis."
Policing a far-flung global supply chain is a daunting prospect. Efforts to cut costs by retailers like Target and Gap have had tragic consequences, like the collapse of a garment factory in Bangladesh last year, which killed over 1,000 workers.
"It consumes a great deal of time throughout the organization, from salespeople fielding compliance requests from their customers, to engineers checking product designs for materials of concern, to purchasing managers working with suppliers," said Paul Schwada, founder of Locomotive Solutions consulting firm near Chicago. "And who is supposed to 'own' it? That's up for grabs."
That makes Intel's achievement all the more remarkable - and it should remind other multinational corporations that effort and commitment can still go a long way these days.
"Intel is really leading the way," Schwada said. "And that's good; they're the ones big enough and broad enough - with enough influence - to actually tackle this thing."
Back in 2008, Intel had never even heard of the term "conflict minerals" when it received a letter from several non-government organizations. The group said four minerals - gold, tin, tantalum, tungsten - the company uses to make micro processing chips might have originated in mines that funded rebel groups and militias in war-torn Congo. The trade was similar to "blood diamonds," in which groups in Liberia and Sierra Leone financed armies through diamond sales. Such groups have been responsible for war crimes like murder, rape and forced enlistment of children as soldiers.
Intel contacted its suppliers but "we didn't get good results," Niekerk said. The suppliers were either unwilling or unable to cooperate, he said.
So Intel contacted smelters and factories that receive and process the minerals. Working with 85 smelters across 21 countries, Intel helped developed audit programs to identify the origins of minerals and establish "a chain of custody" across the supply chain.
It wasn't easy. Like the suppliers, the smelters weren't eager to sign up just to do the right thing. Intel's strategy was to patiently address their concerns until the smelters ran out of objections.
How can we afford to do these audits? Intel subsidized the first audits through an "early adopters" program. What do we get out of the deal? Intel made sure the smelters knew they could benefit from positive public relations and Intel's good graces.
"This is going to you a more desirable company," Niekerk said Intel told the smelters.
As it turns out, Intel's timing was impeccable. In 2010, Congress passed the landmark Dodd-Frank Act, which, among other things, required companies to disclose whether or not they were using conflict minerals. A study by Tulane University subsequently concluded the compliance with the rule would cost companies that rely on such minerals almost $8 billion.
But Intel was already ahead of the curve "because we did all of the pre-work," Niekerk said.
Intel continues to use minerals from Congo, which has helped stabilize prices. Completely withdrawing from the country would have produce a sharp spike in Intel's costs.
"Intel is taking the mandate to the fullest intent," Schwada said. "While most companies will be happy just to be able to produce a piece of paper that shows compliance, Intel is actually going upstream with the intent of both complying with Dodd-Frank and still sourcing (Congo) minerals. Otherwise, (Congo) feels the economic pain even more than the rest of us, who are feeling the red tape pain."
In other words, Intel was not going to wreck Congo's economy to get rid of conflict minerals. The company just did a better job sorting the good minerals from the bad.
"We didn't touch the economy," Niekerk said. "It's not about pulling out of the region. That would have been the easy thing to do."
Thomas Lee is a San Francisco Chronicle business columnist.
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