Privileged Access

“Why are you keeping silent about the GIA certification scandals – are you scared?” This is only one of a few similar e-mails in my inbox. Scared? No. “Reluctant” probably describes it better. I vividly remember (no pun intended) that a few years ago, when preparing a story on the then persistent market talk about GIA’s downgrading or upgrading (I forgot what it was), due to an overload of work or an underload of staff, or whatever, I routinely asked the GIA for comments.

This led to a phone call from Bill Boyajian, the president. [I got the call in a restaurant and the proprietor was quite upset about my raised voice disturbing the peace of other guests.] In my post-mortem on the call at the time, I identified four elements, or sequential phases in the rather unequivocal message. It started with denial. “We categorically deny the story.” This was followed by an explicit threat. “If you publish this it would damage the good name and reputation of the GIA and we would not hesitate to sue you for defamation and damages.” Then came the reasonable explanation. “Grading is a subjective exercise; there are always borderline cases; you’ll never be able to prove the allegations in court.” The next phase probably explains why Bill is such a good president and a consummate communicator; it is the phase of the “happy ending”. “You have an open invitation to come and visit our facilities and laboratories so we can show you how we operate.”

The happy ending, of course, was related to the conversation’s outcome. I refrained from writing the story -- partly because a possible “GIA versus Even-Zohar” was not an enticing thought, as it would require a multi-million endowment fund just to meet court costs. Regrettably, I didn’t have such a fund, nor did I want to lose my “no-claim” bonus with my insurers. The fact that there are always borderline cases and that the certification business is still prone to human error will always play in a laboratory’s favor in any litigation. The other reason for not writing was my inclination to allow the GIA the benefit of the doubt. And, of course, there was also a practical problem: reliable and respected industry sources who swear that they told me the truth would probably never testify in court. They need the labs more than they need me. Integrity comes with a price tag. 

From perusing some of the GIA reactions to the recent GIA stories I can see that the policy to ferociously deny any suggestion of any wrongdoing or misconduct is still very much alive. It is not our intention to rehash again the details on the present court case or to cleverly quote the charges and facts from the court documents to avoid violating sub judice conventions – and we leave it up to the judge or jury to give their verdict.

What we want to do very much is to urge GIA management to descend from its ivory towers and come down to earth – and recognize and publicly admit that the organization faces some serious credibility problems in the market. Splendid League of Honors dinners make it easy to be blinded – and to conclude that all is well. Not all is well. A cloud above the GIA is not good for anyone – not even for the competing laboratories.

A European diamond bourse president put it rather subtly: “If one of the last pillars of trust in this business, the GIA certificate, also becomes tainted – what is left?” The gentleman’s pain was genuine. The GIA certification doesn’t belong solely to the GIA – it has become a standard of integrity (“the ultimate grade”) in the market. Diamonds with GIA certificates secure a market premium – by virtue of the certificate.

Kate, Bill and the GIA Membership
In order to protect that standard the GIA must do far more than it is seen to be doing. Earlier this week, the stunningly beautiful super model Kate Moss, slated to become the photographic face of the Hennes & Mauritz clothing chain fall collection, was tossed out of the ad campaign because of an innocuous press item reporting that she had been seen snorting cocaine. One act – and Kate’s face lost its brand equity – or parts of it. The GIA may be as vulnerable as Kate Moss. There has been too much talk for far too long a period to ignore. We believe it is high time that the GIA launch a massive overhaul of some the archaic grading practices.

The GIA certification business can be divided in two categories. The “mass production” producing tens of thousands of certificates (let’s say up to one caraters) and the special market of the larger goods. This group includes the “specials”. In the latter category a few grade levels can be translated in hundreds of thousands of dollars – so every grade counts. A system is in place for review of such stones by multiple teams reporting to a supervisor.  

Many of those submitting large stones are so called “members” of the GIA. They pay an annual membership fee and their goods are “fast tracked” – and the owners have a special access direct line to the supervisors at the laboratory. Needless to say that this membership costs money – but it is a good investment. Many large companies will employ a specific person (preferably ex-GIA) that maintains the sole liaison with the GIA lab – only he/she will submit the stones to be certified. In some instances the submission may be followed or preceded by discussions with the relevant GIA lab supervisors (sometimes even during the cutting process itself the owner may be getting advice) and contacts are maintained during the grading process. Then there is this whole process of “second opinions” – additional submissions (more money), preview of certain grades on clarity, color etc. Opportunity to make comments (without costs) or resubmission (with costs).

The GIA will argue that the process is totally “name-blind”, that those who are doing the grading don’t know the identity of the stone. Said one frequent client to us: “if they wouldn’t know, why would we spend so much money on having people on our payroll for liaison with the GIA? Why would relationships be developed with lab supervisors and others? Why would we make so many donations?”

I have always found the concept of “membership” a kind of oddity. It makes sense that large volume users would get a better price. But privileged access? Knowing the supervisor of the team that will review the larger goods? Inviting him or her for a friendly luncheon to discuss the special to be submitted or that has been submitted?

The membership, like some other aspects of the system, seems to me a historical development – something from the days when the certification volumes were lower.

Reviewing some of the trade press comments in the past few weeks, the presumed link between large donors to the non-profit charity called GIA and the volume of stones submitted to the GIA lab is – in the eyes of the GIA – non-existent, claiming Chinese walls between these donations and grading activities. Mindful of my past experience, suggesting such links may well again trigger “the four responses”, or at least the first two (“denial” and “threat”) so we are careful not to suggest such a link. We’ll gladly give the GIA (once more) the benefit of the doubt – provided they take this to heart in the constructive manner intended.

The GIA must understand that, at some point, “the facts” (proven or not) themselves cease to be the issue – and perceptions take over. Journalists don’t invent stories – they report sentiments expressed in the market, they report on what people truly believe. In many aspects the GIA has become like De Beers in the “good old days”: you are reluctant to tell the company the truth (i.e. “your” truth) out of anxiety for the consequences and prefer to say what you know the organization wants to hear. It is safer that way.

Indeed, in the past few years the GIA has become immensely powerful – and treatments and synthetics have increased the dependency by the market on the organizations. That wasn’t always the case. It should not be forgotten that it wasn’t so long ago (a decade?) that the GIA had secured premises and manpower to open an office in Antwerp. The diamond trading community in New York went berserk, threatening the GIA that the New York industry would open its own laboratory if it would go ahead. At that time I wrote an editorial congratulating Bill for making that move – and, thereafter, I was quite disappointed that he “backed down”. I am recalling that episode as it was the last time that I editorialized about the GIA. My appeal to Bill to stand behind his own legitimate (and correct) decision went unheeded – and I am not sure whether this time this editorial will not meet a similar fate.

The senders of the earlier mentioned e-mails seem to expect some raving comments on the lawsuits, the rumored FBI investigation, etc. To me these events are actually less pertinent. The possibility that in a huge organization that employs about 1,000 people (of which some 750 in its laboratories), producing hundreds of thousands of certificates, there are some rotten apples should not be dismissed. In any bureaucracy where there are people who possess discretionary power to make decisions which impact the clients’ wealth or ability to make wealth, some aberrations may happen. That’s not the issue – and that is not the subject of this article. Rather, I remain concerned with the constant and automatic Pavlov dog-type responses by the GIA that they are beyond reproach – everything is in order.

Governors Launch Investigation and are Reinventing the GIA
What has not been widely reported in the market, however, is that those who aired or reported various allegations, suddenly got support from an unexpected corner: the GIA’s very own Board of Governors. After enjoying for many years the honor and privilege of governership, the Governors – some five months ago – started to take each and every market report and rumors very seriously. It launched its very own investigation. The Governors brought in an outside consultancy to suggest remedies. [A “professional” that has experience in these type of problems.] Very quietly and behind closed doors there is a process of “reinventing” the GIA taking place. This process is board driven, though my sources stress that management (i.e. Bill) is fully cooperating.

“Within several weeks the first visible signs of the remedial steps we are taking will become noticeable. Some measures will become apparent quickly; others may take some more time. But what was is not what will be,” says one GIA source privy to the measures which are being contemplated. Clearly, the “membership” practice will be discontinued. But that is only a small part of the changes.

“One of our biggest challenges is how you fix the problems without causing harm throughout the industry – to avoid that innocent people get hurt,” says another industry leader involved in the exercise. “There are not going to be cover-ups; we’ll delve into all aspects.”

When I queried whether a “recall” of certificates would be one of the options, I couldn’t get an answer. There is no doubt that the current lawsuits involving the GIA are very much complicating the work of the Governors. If some of the alleged practices turn out to be true – and we don’t suggest that this is the case – it may be difficult to publicly acknowledge this for as long as court proceedings are taking place.

The GIA must realize that any lingering doubts, any ill-feeling about the process, any talk that the certificate “may not be kosher” to remain in that jargon, is as uncomfortable to the players in the market as it should be to the GIA. “Attacking” journalists who write such lines doesn’t serve any purpose; dealing with the problem will.

The Board of Governors and Bill Boyajian recognize that traders WANT to believe in the GIA, as it is this trust that enables them to pay and/or charge a premium on goods accompanied by a GIA certificate. With all the complaints that the per carat cutting costs of a stone is about half the per carat certification costs, somehow it seems to be worth to pay that money – and the fact is that the GIA not only provides a certificate, it also produces value – it actually adds value to the stone.

I would urge the GIA to widen the “reinvention” process. The President may wish to consider announcing to all stakeholders that “the GIA’s rapid growth in the service of the industry has revealed the need for a system review or system overhaul.” The GIA should publicly admit that “we have become aware that there are voices in the market that question the integrity of the grading system, that imply influence peddling to secure better grading reports, imply positioning through donations, and various other charges. Though we traditionally deny all such things – and that is not a tradition we are changing today, if anything, because of legal reasons – we recognize our obligation to our stakeholders to preserve the highest confidence in our brand – in our name – and we will not ignore such market sentiments. We take them to heart.

“We are announcing today,” the President might consider announcing “the launch of a comprehensive review of all our structures, the layers of review and control in our grading systems, the robustness of Chinese walls and maybe the erection of different walls – or their abolition. We are bringing in outside experts who will report to management and to the Board of Governors. We will not hesitate to make changes – or draw painful conclusions.”

As the Board of Governors is already doing many of these things, we would further suggest to the Board of Governors to confirm publicly that an investigation and revaluation of systems is taking place. The Board ought to secure the active cooperation of all GIA stakeholders in learning and finding out what they think should or could be done to improve the service and enhance the certificate’s added value – to the GIA as well as to them.

I would like the Board and Management to declare that “we owe it to ourselves and to our stakeholders to be critical of our operations and responsive to the concerns that are being aired. We promise to listen, to learn and to act.”

That would point to a reborn GIA – and not a day too early.

Enjoy a pleasant weekend.