Today (Friday), in the Park Plaza Riverbank’s ballroom #1 in London, some forty diamond producers and some select influential industry players are holding another St. Petersburg Steering Committee meeting. One may recall that this whole St. Petersburg concept was conceived out of a growing industry consensus for the need for global generic diamond promotion.

This initiative enjoys and deserves as much support as possible. As these “by invitation only” meetings have so far been of a rather secretive nature, not much has leaked out about the true intentions of the initiators, which, apparently, go far beyond just generic marketing aims.

What the meeting’s participants are discussing today is the creation of a new Global Diamond Association (GDA) that will complement and/or replace many of the existing industry bodies. It endeavors to become the industry’s pre-eminent spokes body, lobbyist and “single point of contact” for governments, NGOs and others.

The St. Petersburg committee’s aspirations are extremely ambitious, and huge financial resources are allocated to make them happen. So far, three external consulting companies have already done preparatory work for the new body. Generic diamond advertising would be merely one of the multiple tasks of the GDA, and may be just a marginal aim.

If a new organization is going to represent all of us in the entire diamond value chain, i.e. producers, traders, manufacturers, dealers, jewelers, etc., the committee’s first order of business should be to gather as wide a support base as possible. You just don’t simply create a new representative industry organization. You need to earn and garner the support of those you claim to represent (We don’t need a repeat of The London Communications Group exercise, where a body was created to ostensibly represent a non-existing and non-supportive constituency to get new European synthetics nomenclature under the guise of promoting consumer confidence.)

The need for this new global association is justified, according to one of the consultant group’s documents. “The diamond industry is in a period of critical change. The sector therefore needs to pursue proactive policies on a range of important business issues. These policies, if they existed, would unite the industry and further its interests in the most powerful way available.” It is not immediately clear to me what “proactive policies” mean, but the document provides an inkling as to what it is all about. More about that later.

Indictment against Existing Bodies?

Says the document: “Unfortunately current arrangements for putting the diamond industry’s case are not properly planned or coordinated and the result is an industry that is reactive and insufficiently rigorous in the way it seeks to enhance its own competitiveness.”

Then it gives some concrete examples to stress “the need for firm collective action: the lack of any generic marketing, declining regional demand, the threat posed by blood diamonds, a mediocre retail experience in jewelry, the dire impact the credit crunch is having on all players in the sector. The [St. Petersburg] Working Group is convinced that a new umbrella industry body is essential and would, over time, make a very worthwhile contribution to the success of the diamond sector.” 

I couldn’t help but smile at the stated objective to enhance “the industry’s competitiveness,” whatever that means, and reflect on how far the producers have come in just one decade. Indeed, we just celebrated the tenth anniversary of De Beers Chairman Nicky Oppenheimer’s famous Harvard Alumni speech in which he boldly declared: “We make no pretense that we are not seeking to manage the diamond market, to control supply, to manage prices and to act collusively with our partners.”

That seems light years ago, but one cannot escape the feeling that some things haven’t changed, and that the producers, including the erstwhile partners to which Chairman Oppenheimer referred, are still determined to set the agenda for all of us and not necessarily with all of us. It’s probably not intentional – they may simply not know “how” to do so or “with whom.” The answer to this is not always self-evident.

Clearly, the St. Petersburg committee members are dissatisfied with the performance of the current industry bodies. Indeed, there are bodies whose leaders have anchored themselves into positions, spending more time in avoiding bylaws that would allow rejuvenation and leadership succession than in actually advancing their organization’s missions. A case in point: the New York Supreme Court has been asked to rule whether a certain industry organization’s presidential and board elections were fraudulent or not.

There are a number of industry associations that have the potential to make a difference, but are certainly not utilizing that capacity. Many associations are underfinanced, lack professional staff, and have members that give strong verbal support – but keep the purse tight. Changes are imperative, and the new association seems to be jumping into a partial vacuum. Will it do something or will it just become “one of the bunch,” in which case it will be a waste of efforts? 

I have some difficulty writing these words because I have a lot of sympathy for many organizations and bodies that emerged in spite of the “controls” of the past to which Nicky Oppenheimer referred. There are industry organizations that were created and financed by the producers and then, at some point, they lost control of them. Others were “tolerated” and occasionally supported.

So, there may well be the need for this new truly representative association. Actually, I’m in favor of it – if it has worthwhile policies to pursue and meaningful tasks to perform. There isn’t any clarity on this as of yet. And the producers should know: just because they have the rough, doesn’t mean that they also enjoy the value chain’s sympathy and trust.

Potential Conflicts of Interest

There is a need to explore whether having one representative industry body will present some major conflicts of interest within the value chain. What is good for the producer or Sightholder may not necessarily be good for the diamond or jewelry manufacturer, the traders or the retailers. The diamond value chain is not comparable to gold or meat producers for that matter. The downstream consists of fiercely competing entities and regions.

I can imagine what the producers’ instinctive answer is. “We’ll be the main sponsors, so really we should have the major say.” One trader said to me that though this point is true, “the entire income of the producers comes from the monies paid by the downstream players – every cent of it. And everything they do comes from the excess funds that they have taken from us. If they didn’t have excess funds, they wouldn’t spend them.” This is an interesting angle.

The St. Petersburg committee hired an Antwerp-based company, Gemdax Consultants, to look into the funding of the new body. I guess that the committee will today spend considerable time discussing two key documents:  “Funding Workstream – Working Group Workshop Discussion Notes” and “Longer-Term Funding Mechanism Internal Memo.”

DTC Sightholders: Contribute 0.3% of Rough Purchases

The membership of the new group isn’t clear yet either. If it represents the entire value chain, should there be nominal contributions or a service fee? Should membership dues be a percentage of diamond sales? Clearly, there is a lot to be ironed out.

At the London meeting, where De Beers is clearly expected to take the lead, it will propose that its clients will pay 0.3 percent of their Sight purchases as a contribution towards the new global association. Other producers (Rio Tinto, BHP-Billiton, and most probably also Alrosa) are expected to concur. Some leading DTC clients, such as Dilip Mehta, Kaushik Mehta, Elliot Tannenbaum, Moti Ganz, and others are at the meeting and they are not expected to disagree with the proposal.

We were made to understand that the St. Petersburg people seek the genuine input and representation of the entire value chain. At the same time, they hesitate to deal with bodies they quietly loathe or, to say it politely, “for which they may well hold the minimum of high regards.”

A highly respected and experienced international consultancy, Gorham and Partners, has been entrusted with drafting the new association’s organizational framework and draft laws and bylaws. Gorham and Partners came in after McKinsey had been hired to see whether an association is needed to begin with. The consultant firm is familiar with other global industry associations and with the various advocacy roles pursued.

“This means having a carefully organized professional activity of influence and persuasion aimed at reaching defined business goals for the diamond sector. Industry advocacy is a coordinated unified voice that supports and defends the industry. Within advocacy there are two areas,” says a Gorham and Partners document. “Namely lobbying and stakeholder communications.” 

Gorham and Partners tried to elicit views from within the industry on the performance of existing organizations in advancing issues such as import tariffs, market access, labor, environmental laws, diamond nomenclature, tax issues, etc. This shows the width and depth of the consultant’s mandate.

The new industry association will not just operate with its face to the external world but will also become an internal forum in which to discuss critical issues and provide guidance on behavior and practices. It’s difficult to see whether the millions of dollars already spent by the producers on the Responsible Jewellery Council would be duplicated or whether one organization simply would be absorbed into another.

Governance Issues

The St. Petersburg people, or, preferably, the future members of the new association, need to decide in advance how it will be managed. The governance framework that is presently being designed by Gorham and Partners will therefore be a key ingredient in the association’s foundation. Says a Gorham and Partners document: “Getting this right will contribute to the future success of the organization.”

Getting it right is only one worry. The real question is whether the St. Petersburg people will be able to embrace the value chain as a whole or whether it might backfire. It doesn’t matter how one looks at it. This new association will step on many toes in actual or perceived spheres of other organizations.

Undoubtedly, the producers hold leverage. Just imagine what would happen if they would cease funding of all or any of the existing organizations and, instead, channel all their resources only to the new umbrella. It’s hard to predict how the other organizations will react. It actually may galvanize them into action to try to do more themselves for no other reason than to protect their own territory. This would not be a bad side effect.

We don’t know how this London meeting will conclude today. We expect some kind of announcement on the appointment of a chief executive officer. I know what the St. Petersburg people should do. They should, in the widest way possible, communicate to all stakeholders what this new industry association is all about. The last thing that should happen is to present the exercise as merely a global generic promotion effort, as most people believe it is, while, in effect, it is far and far more.  

Have a nice weekend.