De Beers Burnishing Its Public Image For Consumers
During the beginning of April you may have seen headlines about the Supreme Court
declining to review a class action suit involving De Beers, the legendary diamond company.
The suit itself and the reason it went to the Supreme Court have to do with various legal issues involving class actions. More interesting to jewelry buyers are the reasons De Beers attempted to settle the class action and what it means longer term.
Although De Beers is a name familiar to almost anyone who has ever bought jewelry, ironically, the company itself has been shrouded in mystery throughout its long history.
Thats because De Beers was not a retailer of diamonds. It operated in the background, owning or controlling mines, and developing what was called a single channel distribution system, whereby it distributed most of the diamonds in the world through middlemen called sightholders.
For many years, it appeared that this business model was unbreakable. As a result, despite major legal and ethical transgressions, De Beers could afford to ignore public consequences of unethical behavior. If you wanted a diamond, that diamond was probably sourced by De Beers. And, it didnt matter whether you actually bought the diamond from a local jeweler or major retailer.
De Beers troubles in the U.S. began in earnest during World War II. Industrial diamonds were desperately needed for the war effort because only diamonds were hard enough to stamp out the millions of precision parts necessary for producing airplane engines, torpedoes, tanks and other weapons.
Despite pleas by the U.S. government and despite an apparent agreement to supply the diamonds, De Beers feared releasing its stockpile of diamonds to the US would jeopardize its control over the world market and, of course, world market prices. And, there is evidence to suggest that De Beers actually raised the prices of the diamonds the U.S. was able to secure.
In any event, the companys intransigence prompted the Justice Department to begin an exhaustive investigation of De Beers business practices and in 1945 the Department filed anti-trust charges against the cartel.
De Beers response was to thumb its nose at the U.S. It simply packed up its U.S. operations and continued to do business from London, South Africa and Switzerland.
Of course, De Beers executives couldnt step foot on U.S. soil for fear of being arrested, but that was a small price to pay as long as it controlled the worlds supply and distribution of diamonds. The U.S. filed similar charges against De Beers in 1957 and 1974 and in 1994 filed anti-trust charges against De Beers and General Electric for colluding to fix the prices of industrial diamonds.
But beginning in the early years of this century, the De Beers model began to weaken, if not crumble. The Soviet Union, the second largest producer of diamonds in the world, broke up and began selling diamonds outside the cartel. The Argyle Mine in Australia, a large producer of low quality commercial and industrial diamonds in addition to the pink diamonds for which it is known, refused to renew its contract with De Beers. And, finally rich new diamond deposits were found in Canada which the cartel was not able to control.
The handwriting was on the wall. De Beers, which had controlled up to 90% of the worlds diamonds now controlled only 65%.
It was clear the company needed to shift business strategy and it did. It became a major player in supporting the Kimberley Process, the effort to control blood diamonds. After a decade, it settled the GE suit with the Justice Department. It entered into agreements with the European Union to retail its diamonds and it is attempting to settle this class action suit.
Why all this burnishing of its image? Because De Beers has become a player in the U.S. retail diamond market. And, finally, after all these years, the company is learning perils of ignoring public opinion. It may not actually be a kinder and gentler company, but it is learning how to behave like one.
by: Fleury Sommers
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