De Beers and Diamond Case Study
Category : Case Studies Samples, De Beers Corporation, Ethical Dilemmas, Ethical Dilemmas Assignments, Ethics Grid
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TABLE OF CONTENTS
Question 1 A 2
Ethical Grid 4
Five P’s 5
Ethics Check 5
Question 2 7
Current Legislative Requirements 8
Issues Surrounding Health and Safety 10
Commentaries on Code of Banking Practice 10
Consequences of Possible Breaches 10
Question 3 10
Role of Manager 11
Place of Sales Forecast 12
Role of Budget 12
A) De Beers is a privately-held company that is involved in various diamond-related activities such as rough diamond exploration, diamond mining and diamond-trading. De Beers executed several strenuous activities to eliminate threats on the stability of their monopoly and to ensure a market-leader status. However, not all of them fall under ‘responsible jewellery practices’ and are unacceptable. Some of the ethical dilemmas the company had experienced include:
· unreasonable pricing;
· aggressive and misleading promotional campaigns;
· alleged non-compliance to competition laws;
· non-disclosures of diamonds; and
· suspected hidden-hoarding of diamonds.
All of these issues are mainly attributed to a low level of transparency within the company and for its stakeholders. First, the pricing, dubbed as ‘scandalous’, is not being compensated through its function. According to Kate Reardon (2006), ‘diamonds are the ultimate feelgood purchase and it is their only function’. Second, the effort to increase the desire for diamonds through marketing is an initiative to build the image rather than the value of diamonds. Some of these advertising techniques include the: ‘Diamonds Are A Girl’s Bestfriend’, A Diamond is Forever’, ‘eternity ring’ and ‘right hand ring’. As such, the marketing tactics seek to discourage secondary market players and thus limiting the competition. The company is enjoying a monopoly; acquiring the highest control in the diamond industry. Third, there are no efforts from the company to report where do their diamonds are coming from. Most of De Beers’ diamonds are mined in Africa. They own about 70 % of diamond mines in the region. They had been suspected of trading diamonds from global diamond conflict areas. Perhaps this is also the reason why there is a presence of hidden hoarders within the cartel. Lastly, De Beers had deluded ‘consumer confidence’ through converging with buying and selling of blood/conflict diamonds versus conflict-free diamonds and natural, untreated diamonds versus man-made diamonds.
Aside from this, there are many implicitly stated ethical issues that underpin the above-mentioned. The main principal concern of ethics is the nature of human well-being. Derived from the Greek word ethos which means character and the Latin word mores that means customs, together, ethics is defined as how individuals interaction with each other. Philosophy defines ethics as ‘what is good for the individual and the society. Ethics establishes the nature of duties that individuals owe themselves and others (Curren 2003, p. 583). Therefore, De Beers has a responsibility to their stakeholders including clients, diamond-miners, employees and the immediate community to which they operate. However, the company is always criticized regarding environmental and legal issues, diamond-miners’ working conditions that include health and exploitation and the lack of concern for the communities. And their priorities are unevenly distributed and needs to address the most urgent organizational challenges as shown in Fig. 1.
B) Kant’s ethical theory will be used to evaluate and analyse the case of De Beers. Kant’s theory of right and wrong states that there are necessary conditions for right action. The theory claims that humans are rational beings because they are capable of following rules, reasoning to conclusions, generalizing and making free choices. Since human beings are imperfect, they are capable to be irrational. Morality requires man to act how perfectly rational beings would act. Morality is based on circumstances that are beyond our control. And since we cannot predict the consequences of our actions, we would not know whether our actions are right or wrong. Good will only applies to actions that are based on motives of respect to moral law. Notably, morally good actions are very different from morally right actions. Even if one does the morally right thing, his or her actions do not deserve moral credit unless he or she acts from a good will.
i. This philosophy applies to the actions of De Beers. The company has done things that are operationally right but ethically wrong. This was shown in the grid:
- Providing work for the people specially in the least developed country
- Exploiting the natural resources in host countries where mines are settled
- Consensus are realized but not implemented
- Reversing policies at the expense of small-scale entrepreneurs
- Converging into trading of conflict diamonds
We can also analyse the case using the three categorical imperatives Kant outlined. The categorical imperative is not conditional on the existence of certain desires. Every action commits to instruments to specific subjective rule of action or maxims. Since morality is unconditional, for that reason, all proper moral principles must be categorical imperatives.
The first formulation is: can at the same time will that it should become a universal law. The moral obligation of De Beers conforms to putting value to their product and to empower the people through their purchase. De Beers prides itself on the romantic symbolism of diamonds (Rebernak 2007). Though we cannot consider this as a deceitful promise, the mere fact the company sells products at a relatively expensive price based on its ‘brilliant’ image is illogical. In addition, their refusal to comply with the mandatory dust suppression method actually jeopardises the health of their mineworkers. Dust from the mines can hack and scar the lungs of these people (Roberts).
The second formulation is: always as an end and never as a mean only. These people are treated not as equals but as secondary class. Though the company is conforming to regulations of the governments; the littlest of people are not getting benefits from that. Instead they are tended to lose their livelihoods once lands are converted into mining areas and they are forced to work to sustain their living. De Beers, along its parent company Anglo American, is said to be profiting from the abuse of the people and their natural resources (War on want Organization).
The third formulation is: universally lawgiving. The very nature of the ‘diamond invention’ is morally questionable. It teaches the people how to be materialistic. According to Edward Epstein, [the invention] is ‘more than just scheming a monopoly of fixing prices as a mechanism to convert “tiny crystals of carbon” into universally-recognised tokens of power and romance’. But also on putting an intrinsic value to diamonds that will inhibit the reselling of the pieces; ‘diamonds are forever’ that is. De Beers had inculcated an illusion, distorts the attitude and manipulated the behaviour of the people.
ii. The five P’s of ethical power are purpose, pride, patience, persistence and perspective. The main purpose of De Beers is to ‘turn diamond dreams into lasting reality’ (De Beers Group). The purpose is the basis upon which the company builds its ethical behaviour. De Beers failed to comply. The paradox is De Beers are creating a mind set of attaining diamonds as an individualistic end and it does not encompass their role to be extended to the community. The company takes pride in diamonds. However, their confidence and complacency to vend diamonds is making the company irrational. Organizational pride makes every experience as a win-win reflection of their attitudes. However, De Beers is taking all the gains by means taking away the quality of life and depriving supposed-to-be rivals of the right to a level-playing industry. Patience demonstrates a virtue of trust to organizational values and beliefs. Though the strategic choices of De Beers brought them sustainable bottom-line results, values are not deeply inculcated to the people. One proof of this is the hidden hoarding which serves as the fastest way to acquire wealth. In addition, the company’s persistence is only apparent on creating and establishing their brand to the extent that they neglect their corporate responsibility to the people and the industry that they belonged with during those times. The company had an effective strategic plan that directly points to long-term goals as their perspective. However, the company lacks to evaluate the process with respect to universally-accepted moral/ethical standards. An example of this is the acquisition of conflict diamonds for which the company admitted that they are of such a tradeoff. Unfortunately, their policy only applies to buying of diamonds whether who or how those diamonds are accumulated (De Beers Groups 2005/6).
iii. The Ethics Check is consists of three questions for which a company can clarify different aspects of organizational decision-making and ethical standard adherence (Peale and Blanchard 1988). These are:
· Is it legal?
YES. There are no universal policies regarding control over the market and the debate is ongoing. Prior to the diamond mining proper, definitely, De Beers had secured different documents and permits from civil, federal, state and local laws. During those times, there are no company policies that guided De Beers regarding illicit diamond trading.
· Is it balanced?
NO. The decision does not create a win-win environment. There are people who suffer, who are enforced to work instead of plowing their own lands, who are forced to give their business since they cannot compete with a big company and who endangered their lives just to live a decent life. The decision makes De Beers the biggest winner and thus inequitable to other parties. In an effort to balance the decision and compensate with the losses at both ends, the company had engaged in different measures of “new order” rights and different human development initiatives (see Fig. 2).
· How will it make me feel about myself?
If I am working at De Beers, it will make me feel like an opportunist. It is not right to implement a decision that will endanger many lives of the people. If only De Beers had implemented it after a rigorous research and situational analysis. If I am a diamond-differ, it will make me feel like a prisoner. The decision is leaving me with no choice but to work regardless of the hazards. If I am diamond-savvy purchaser, it will make me feel good to have at least a piece from De Beers. But being aware of the many flaws prior to obtaining even a rough diamond, it will make me feel that I needed to divert my attention to more beneficial source of pleasure.
Recommendations for the Future
De Beers must converge into materiality analysis so that they can define their priorities and work from there. There are several issues identified including environmental and occupational health and safety issues. If the company is going to do this, then they could focus their energy and resources on most areas that are needed to be addressed. Decision-making must pass through consensus so that they will acquire reactions and responses from their stakeholders regarding their future plans that concern their main operation. In addition, internal policies must be reviewed so that De Beers could identify areas that are limiting their performance as an organization. Subsequently, they could address issues on corporate social responsibility and governance.
There are many applicable legislations, codes and regulations that the whole banking industry must abide by. There are consumer laws and ordinances in general such as General Agreement on Trade in Services (GATS) and Consumer Goods Safety Ordinance. There are also banking voluntary codes as Code of Banking Practice and telecommunication legislations as Telecommunications Ordinance. All of these laws ensure consumers of their rights and protection from unfair business practices like fraud, product quality, misinformation, misplaced advertising and unjust trading.
Current Legislative Requirement
This is the first and only set of multilateral rules that govern international trade in services. It covers internationally-traded services like banking, telecommunications, tourism and professional services. It stands that the government retains rights to set qualification requirements, to set standards that ensure consumer health and safety and to introduce new regulations to pursue other policy objectives albeit its domestic public service requirements to foreign suppliers. The agreement outlined four ways to deliver or trade a service: a) where services are supplied from one country to another (cross-border supply), b) where consumers or firms make use of a service in another country (consumption abroad), c) where a foreign company sets up subsidiaries or branches to provide services in another country (commercial presence) and d) where individuals travel from their own country to supply services in another country (movement of natural persons) (WTO 2005).
2 Consumer Goods Safety Ordinance
The ordinance imposes a dusty on manufacturers, importers and suppliers of certain consumer goods so that the goods supplied are ensured to be delivered safe and for the intended purpose. General safety standard include the manner in which the goods are marketed; they purpose for which they are marketed; the use of any mark, instructions or warnings; adherence to published safety standards by a standards institute or the like; and the existence of any reasonable mean that makes the consumer goods safer (Consumer Goods Safety Ordinance 1997).
3 Code of Banking Practice
The Code of Banking Practice is a voluntary code issued jointly by the Hong Kong Association of Banks (HKAB) and the DTC Association. It was endorsed by the Hong Kong Monetary Authority (HKMA) and was issued in July 1997. The code seeks to promote good banking practices while adhering to fair and transparent relationship between authorised institutions and their personal customers. It covers banking services such as current accounts, savings and other deposit accounts, loans and overdrafts and card services (Hong Kong Monetary Authority 2001).
4 Telecommunications Ordinance
The Telecom Ordinance was enacted to make better provision for the licensing and control of telecommunications, telecommunications services apparatus and equipment. The ordinance includes guidelines on delegation of authority and power, consultations, issues of license, permits, tariffs, price control, accounting practices, inspection of facilities and anti-competitive practices (Bilingual Laws Information System).
Issues Surrounding Health and Safety
The Hong Kong Occupational Safety & Health Association (HKOSHA) outlined various issues that surround health and safety in the workplace. It includes near-miss reporting, behavioural risk, quality control, fatigue and stress. The organization also addresses work injury prevention and occupational rehabilitation.
Commentaries on Code of Banking Practice
The code overlaps with other codes and legislations; hence there are possibilities of emerging conflict. These overlaps directly affect how staffs are to be trained and have inherent contrasting ideas with the Uniform Consumer Credit Code (UCCC). The code is also a challenge for one-off banking services where terms and conditions are not covered. The provision for third party guarantors further complicates lending activities.
Consequences of Possible Breaches
For GATS, possible braches are on transparency provisions, licensing requirements and procedures, qualification requirements and procedures and technical standards.
For Consumer Goods Safety Ordinance, possible breaches are on general safety standard compliance, consumerism within Hong Kong that includes the supply of goods as retailer and not supplying of goods as new goods.
For Code of Banking Practice, possible breaches are on drawing up the terms and conditions for card services, the liability of debts of card holders, conflict with exemptions issued by Money Lenders Ordinance, quoting annualised percentage rate of interest (APR) and cost indemnity provision.
For Telecommunication Ordinance, possible breaches are on exemptions from licensing order on the use of low power devices, closed-circuit television systems, control of interference and fixed telecommunications network services.
The Role of Sales Manager
Financial manager has their 5 major functions in any company or organization, they act as a: controller; treasurers and finance officers; credit managers; cash managers; and risk and insurance managers. As a controller, financial managers are responsible in preparing different financial reports like income statements, balance sheets and the different analyses of future earnings as well as expenses. In general, the financial managers are responsible in summarizing as well as forecasting the financial position of specific company (U.S. Department of Labor 2007).
Place of Sales Forecast
Financial manager can also be considered as the treasurers and finance officers who are responsible in directing the budget of the organization in order to meet the financial goals. This can be done by overseeing the different investment funds, managing the different associated risks, supervising various cash management activities, executing the different activities that will support capital-raising for future firm’s expansion, and dealing with the mergers and acquisition (U.S. Department of Labor 2007).
The Role of Budget
By overseeing the organization’s issuance of credit, establishments of different credit-rating criteria, decision about the credit ceilings as well as supervision of the past due accounts collection, the financial manager is handling the responsibility of a cash manager. They also act as a risk and insurance manager by overseeing the different program that can help to minimize various risks and losses that can be encountered from the different business transactions and operations. They also handle the insurance budget of a given company or organization (U.S. Department of Labor 2007).
De Beers has five areas that are ethically questionable – pricing, advertising, compliance, non-disclosures and hidden hoarding. Kant’s theory of right and wrong suggest the company’s decision is ethically wrong but operationally right and so they must create internal policies that are directly adhering to universally-accepted regulations.
There are four main laws that banks typically comply with. These are the GATS, the Consumer Goods Safety Ordinance, the Code of banking Practice and the Telecom Ordinance. There are inherent disadvantages on these laws and so the banking industry must comply appropriately. This can be done through regular reporting.
The typical role of sales manager is basically to function as financial overseers. They are one who also determines the financial capability and status of the company. The managers carry-out his duties via the necessary budget allocated for specific activities.
Bilingual Laws Information System retrieved on 25 January from http://www.legislation.gov.hk/blis_ind.nsf/CurAllengDoc?OpenView&Start=106&Count=25&Expand=106#106
Consumer Goods Safety Ordinance 1997, retrieved on 25 January 2008 from http://www.justice.gov.hk/eng/home.htm
Curren, R R 2003, A Companion to the Philosophy of Education. Blackwell Publishing.
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De Beers Group 2005/6, De Beers Report to Stakeholders 2005/6 – Ethics: Conflict and Instability’, retrieved on 25 January 2008 from http://www.debeersgroup.com/debeersweb/Investing+in+the+Future/Ethics/Conflict+and+instability.htm
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De Beers Group Purpose, Vision, Values and Principles, retrieved on 25 January 2008 from http://www.debeersgroup.com/debeersweb/About+De+Beers/De+Beers+Value+and+Culture/Purpose+vision+and+values.htm
Epstein, E J 1982, The Diamond Invention: An in-depth research into the history of De Beers as a Company and the development of the modern diamond market.
Financial Managers 2007, U.S. Department of Labor, Bureau of Labor Statistics, draft, viewed 25 January 2008, http://stats.bls.gov/oco/pdf/ocos010.pdf
Hong Kong Monetary Authority 2001, Review of the Code of Banking Practice, retrieved on 25 January 2008 from http://www.info.gov.hk/hkma/eng/guide/circu_date/attach/20011115e1a.pdf
Hong Kong Occupational Safety & Health Association (HKOSHA), retrieved on 25 January 2008 from http://www.hkosha.org.hk/
Peale, N V & Blanchard, K 1988, The Power of Ethical Management, William Morrow.
Roberts, J The Glitter and Greed: The Secret World of the Diamond Cartel.
War on Want Organization, Anglo American: The Alternative Report, retrieved on 25 January 2008 from http://www.waronwant.org/?lid=14777.
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