Picking Him May Actually Have Been the Easy Part, The Tough Part is “Now What?”

What should we expect from the new CEO of De Beers? What is now at stake for the Sightholders? What does the diamond trade think about the selection? What is the truth about Penny's hasty departure now that a successor has been chosen?

Say what you want, Nicky Oppenheimer's CEO pick is bold. We understand that a few in the company were interested in the job, considered along with a few others from the industry as well, yet Oppenheimer decided to take a different route.

Philippe Mellier, as we know, does not have experience in any of De Beers' core businesses: mining, diamonds or retail. He does bring experience in leading large companies with global operations. At Alstom Transport they provide train infrastructure, operation systems, as well as trains and trams – projects familiar to those who visited Chennai or Jerusalem where Alstom is building metro systems. However, Mellier's greatest strength could be his experience in negotiating with governments, as one diamond industry member pointed out. This is crucial for De Beers.

The expectations for Mellier are not only from the De Beers' board; the responses in the market to the selection included "odd," "great" and "the business will be run by a bullet train," as some are already joking. Jokes are the refuge of the nervous. A long time concern in the market is that De Beers will join the tender frenzy and change its sales model. While DTC CEO Varda Shine and Oppenheimer denied this repeatedly, the question on many Sightholders' minds is how De Beers will supply the market under a new management. Further, what is the planned future of De Beers? 

"The industry needs clarity" one Sightholder told us, adding that the industry is not used to a lack of clarity from De Beers. "They have fewer mines, with less production and prices are out of control. What will Mellier do about that?" asked another. One person expressed a fear that Mellier will initiate sweeping changes bringing disaster to the industry – simply out of lack of familiarity with the diamond sector.

So what should Mellier do? Even though the custodian role was discarded, the head of De Beers needs to talk clearly and openly to the market. No one wants De Beers to interfere with their businesses, but most want a beacon. He should layout his vision as clearly as possible on marketing to consumers: (Will De Beers invest in it or not?), mining plans (Shed more mines or create a leaner operation that can handle smaller mines? – governments as well as mid-tier miners like Petra want to know this.) Will Mellier stick by the current distribution system or ask to revise it? (The very thought gives Sightholders the willies, especially now that they are busy applying for new three-year Sight contracts.) What are Mellier's views on lab-made diamonds (protect the notion of a natural product, or generate extra income by giving Element 6 a green light to start commercial production of gem quality product?)

These are hefty issues that need to be addressed early on. Mellier's first opportunity will be at a DTC cocktail party in London next month when he will be introduced to Sightholders.

There is one last issue to address – how did we get here? Why did Penny leave the way he did? The sad ugly truth is that Penny was asked to resign. He irked the shareholders enough to make it happen and the issue that brought this to a head, as we understand it, was Penny's interest in taking De Beers public again. It seems that he felt that he had the blessing of one of the shareholders. Penny found that he did not when he pitched the idea to another shareholder, only to be sharply refused. 

In a meeting with Chairman Oppenheimer a short time afterwards, on Wednesday July 21, 2010, Penny was surprised to learn that his long run with De Beers had came to an abrupt end. That evening he spoke with senior staff, breaking to them the news. About 36 hours later, on Friday morning, the company reported Penny's forced resignation together with the first half of the year financial results. It was a sad, and unworthy, end to a brilliant career at the group.

Don't look for a moral to this story. There is no hidden message for Penny's successor, only that he will need to cultivate relationships, not only with stakeholders, but also with shareholders. We wish him good luck, a long honeymoon period, and a real opportunity to succeed, because much is at stake for all of us.