Do Well By Doing Good: Best Business Practices As a Profit Motive

Russell Shor

October 17, 2016

Andy Bone readily admits that getting industry players − from local retailers to miners in far-flung gem source areas − to take an active interest in “best business practices” can be a real challenge; especially businesses dealing at a purely local level.

Bone is the director of the Responsible Jewellery Council, an independent standards-setting organization that promulgates sustainable labor, environmental and trading practices within the gem and jewelry industry. He makes a strong case that these are bottom-line issues for every business, local or not, that his organization can help address.

Bone comes from a business background – 17 years at De Beers, most recently as its director of international relations – rather than a standards organization like his predecessors, so he understands the bottom line.

 He likens RJC membership to an insurance policy.

“Insurance is really managing risk,” he says, in this case from damaging reputational issues instead of fire or theft. “RJC helps cover these risks,” he says, adding that the consequences of failing to address these issues can be very costly today.

Bone describes the three major risks to the gem and jewelry industry.

Risk 1: Regulation − Legislation can put costly burdens on legitimate businesses

“Remember back to the late 1990s when the issue of conflict diamonds came to the fore? We saw a lot of politicians eager to make a name by going after the diamond industry,” he says. “Now, there may be many people in our industry who believe the Kimberley Process [launched in 2000] isn’t relevant to them, but it’s certain that it helped the industry dodge a bullet [of onerous regulation] that saved millions of dollars and thousands of jobs around the world.”

More recently, he notes, the Conflict Mineral Compliance section of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act “would have included diamonds and gems without the industry’s investment in the KP, and the Responsible Jewellery Council, showing that we [the industry] are serious about best business practices.”

Section 1502 of Dodd-Frank requires extensive reporting and tracking by U.S. businesses that use and trade minerals from areas of conflict, including tin, tungsten and titanium, in order to deter money laundering and financing of activities that can compromise U.S. security or financial institutions. The bill also promotes fair labor and sustainable environmental policies.

Risk 2: Reputation − diamonds and gems under fire 

He acknowledges that there remains a strong undercurrent from the conflict diamond issue, particularly because synthetic diamond manufacturers are raising the issue and reruns of the “Blood Diamond” movie keep circulating.  

In addition, many think tanks and policy makers have bought into the notion that resources are a curse to many countries because they provide incentives for corruption, civil conflict and environmental damage.

Finally, the notion that diamonds are a marketing invention without any innate value also continues to circulate.
 
“Any of these attacks on our products are a serious business risk,” Bone says. “Particularly today, when it takes only seconds for information to travel around the world, thanks to social media.”

The RJC helps manage the conversation on these issues, he points out.

Addressing the so-called “resource curse,” Bone counters that resources are neutral.

“It’s an issue of governance, not the resource. We can point to Botswana and the prosperity that the diamond industry has brought to what was one of the world’s poorest countries,” he says. “Or look what Norway’s oil reserves have done for that country, with the royalties being used to fund old-age care there.”

There have been conflicting reports over whether or not the issue of conflict diamonds has dampened consumer demand for them in the U.S. and other Western consumer markets. While many surveys of diamond shoppers say they are not extremely concerned about the issue, Bone doesn’t believe such polls tell the whole story because such shoppers are a tiny minority of the greater population and no one is asking what they think.

“There’s no sure way of really knowing, but why invite the risk?” he points out. The real point is that membership in the RJC gives companies a strong talking point that they are taking action in a very real way – we can certify the integrity of their supply chains and their own business practices. So, if the issue arises, they can point to the fact that their business operations are fully audited in an open and transparent manner.”  

Bone says that the “marketing invention” notion is something the entire industry needs to address, not just the RJC.

“On the one hand, yes, diamonds are an invention. But the invention happened 4,000 years ago when people first began valuing them,” says Bone, who also worked in De Beers marketing department in his two decades with the firm. “Today, diamonds have a story − unique attributes that convey things we cannot articulate. And, yes, value is perception and luxury is perception of value. It is all interconnected.”

Risk 3: Financing – banks obliged to avoid industries that do not practice full disclosure

The diamond industry already has seen a significant number of lenders leave the industry. Some of this is because many companies do not operate to the degree of transparency required under a set of international regulations known as Basel III.

Bone again points out that the transparency requirements for joining the RJC offers banks the assurance that their clients are pre-vetted in regard to their business practices, which should make obtaining and keeping financing much easier.

Bone acknowledges that much of the talk about best practices has focused on “doing the right thing” for its own sake without taking business interests into account.

“Yes, it’s doing the right thing,” he stresses. “But adhering to these practices makes good commercial sense in today’s environment where information (and misinformation) travels around the world in seconds and governments are growing ever more concerned about the dealings of international businesses large and small.”