undertaking at the organization, it has construed an elaborate “selection framework” within which selection activities related to this major downsizing in London is taking place.

It is clear that the worldwide “pain” within the diamond value chain has now hit London as well – and, in the process, many current activities of the Diamond Trading Company (DTC), De Beers, Forevermark marketing, etc. will be greatly modified or dropped altogether. Employees have been advised that 110 out 418 employees (i.e. 25 percent of London-based staff) will be made redundant.

All changes are expected to be completed before the end of June 2009 – but most people will either have been reassigned or made redundant well before that date. As is common practice, the first wave will be the “Voluntary Severances” (VS). The decision of whose VS applications will be accepted will be made next week, by January 19. Except for those incumbent individuals whose job description has not been changed, most other employees will be classified as “Individuals at Risk” (IAR) – individuals who may simply be made redundant if no other job opportunity has been found within the organization.

By pure coincidence, the management contract between Nicky Oppenheimer’s Central Holdings and De Beers, which gives Oppenheimer almost a free hand in the appointment of De Beers’ senior executives and directors, will expire on the 4th of June 2009. The Oppenheimer future (or possible departure) is relevant to old-time employees, some of whom prefer an early retirement rather than working under different management. Needless to say, Oppenheimer is not categorized as an “Individual at Risk,” but the scope of his responsibilities may be revised.  

To ensure that the selection principles in deciding which “Individuals at Risk” will be sent home are objective, fair, legally compliant and values driven – i.e. to ensure that this unpleasant process is legally robust – De Beers has set well-defined objectives for the exercise: to achieve a sharp reduction in its cost base whilst maintaining diamond and brand equity and a viable employee value proposition for the future. Presently, De Beers is engaged in a legally compulsory “consultation period” of three months with all staff. Though some of the redundancies might be dismissed as just an internal De Beers cost-cutting exercise, the implications will be felt throughout the industry.

The main issue preoccupying workers is whether the 25 percent staff redundancies will be “the end of it,” or whether there will be an additional round of staff cuts a few months down the road. The remaining dozen or so diamond sorters will still be needed – the DTC may have postponed its transfer to Botswana of the aggregation of goods (the mixing of the productions and preparation of sight boxes), but this will still happen, eventually.

The survival of De Beers – in its present form – has also become an issue since various employees believe that the mines will simply become part of the Anglo American stable, the DTC will be disbanded, and the De Beers Diamond Jewellers (which is viewed by some as an unmitigated disaster) and Element 6 (synthetics) will be owned by Jonathan Oppenheimer. Department and division heads, which have been tasked with downsizing their respective businesses, must base their new plans on a two-year horizon, to the end of 2010. De Beers certainly doesn’t eye a speedy recovery.  

New Organograms for Each Division

Let’s first look at the immediate timetable. A few days before Christmas, employees received the initial notice that jobs would be cut. Each divisional manager (DTC, Legal, HR, External Affairs, Forevermark, etc.) has been asked to redefine the relevant department’s tasks to cover solely the “essential business.” A new organizational chart for the still-required essential positions and their appropriate job descriptions will be formulated, no later than January 19. Then, all these positions will be announced by January 23, 2009, from which date any employee can apply for any of the positions.

Needless to say, many jobs will be tailor-made for the existing office holders to minimize staff turbulence and unrest. After the positions are announced, a three-month consultation process will commence during which all staff will have the option to opt for voluntary early retirement or to apply for one of the advertised jobs.

Most redundancies are expected in the various administrative areas. The Forevermark division is top-heavy on the management side. Some believe that the economic crisis provides an opportunity not only to downsize that division – but to rethink the concept as well. As we foresee that the DTC will reduce its sales by slightly over 50 percent in 2009, it is expected that there will also be dismissals in that division. Are the Best Practice Principles (BPP) and Value Added Services (VAS) people vital? Does the DTC need all of its eight Key Account Managers (KAMs)? What about the Sales Director – will the “Last In – First Out” rule apply also in redundancy prioritization?

The consultation process on which De Beers/DTC is now embarking is required by law. Legal experts say that fair consultation usually means consultation whilst the proposals are still at a formative stage and requires adequate information to be provided to the employees, who need to be provided with sufficient time to respond. There should then be proper consideration of the concerns raised by the employees, rather than their responses being simply rejected or passed over.

So the 25 percent staff reduction may not be the end result; it depends on whether the DTC/De Beers will consider various alternatives to redundancy – such as reduced hours, reduced pays or other “deliverables” by staff. Legal experts tell us that though negotiations form part of this firing process, in the absence of agreement, an employer is entitled to implement redundancy procedures that it considers necessary to secure the profitability, and sometimes the very future, of its business. The staff’s options are limited.

De Beers has announced a matrix containing a formula (based on years of service and employee age) for calculating severance pay. The matrix is capped by 20 years of service. Some long-term employees, electing voluntary retirement, may walk away with more than 80 weeks of pay, plus three months of notice period. Under British labor laws, certainly people (depending on whether one is born before or after April 1960) are entitled to early retirement at the age of 50, with others needing to wait for 55. It is problematic, however, when people with unique diamond knowledge leave the organization.

The source of most employee uncertainty and anxiety is the fact that roles and jobs are being redefined. Where a role disappears in its entirety, the affected employees will automatically be in a redundancy situation, unless somehow an alternative position will be found. Where a role does not significantly change, but an overall reduction in the number of employees performing the role is needed, all affected employees will be automatically placed in a “selection pool” of “Individuals at Risk.” It is expected that most employees will find themselves in this category, as an “across the board” cutback is part of the exercise.

Where a new role has been identified that combines a number of previous roles – i.e. various tasks now being assumed by a single person –  a shortlist of “Individuals at Risk” will be identified, which will include those whose current role is similar or comparable to the new role. However, when a completely new role is identified that bears little or no resemblance to any previous roles, it will be advertised across the organization. Anyone will be able to apply for this role, but preference will be given to those “Individuals at Risk.” Yeah, 17 Charterhouse Street has definitely become a high-risk area.

The Future of the Oppenheimers

That gets us to the Oppenheimers. On or around June 4, 2008, Central Holdings Ltd. (CHL) received notice from the shareholders of De Beers, i.e. Anglo American acting through De Beers Investments (DBI), to the effect that the management contract that CHL has with DBI will be terminated or materially changed on June 4, 2009. Though this fact has already been publicized in the De Beers 2007 Financial Report, the nature of the change that will occur in June 2009 has not been made clear.

One might remember that the shareholders of DBI entered into a Shareholders Agreement on 30 January 2002 that defined the way directors and executives at De Beers are appointed. CHL, through a company called Central Management Services Ltd (CMSL)., entered into an open-ended “evergreen” management contract, retroactive to June 2001 (the completion of the privatization transaction), through which CHL contributes to the strategic development and growth of DBI and to the general marketing initiatives of De Beers and the relationships with key customers and suppliers. In addition, CHL (again, through CMSL) became responsible for the appointment of senior executives and directors of De Beers. Thus, under the present arrangements, the Oppenheimers decide on all senior appointments within De Beers. This has been a source of comfort and stability to many stakeholders, especially employees.

For this activity, CHL receives management fees of $5 million per annum in respect to each of the years from 2001 to 2007. DBI has the right to terminate the management contract on 12 months’ written notice given at any time after the seventh anniversary of completion of the transaction and Anglo American will have the right to require DBI to give such notice (subject to prior consultation with Debswana) at any time after such seventh anniversary.

In its 2007 Financial Report (page 27), De Beers says that this management contract “lasts in its current form until 4 June 2009.” An “evergreen” contract (i.e. an agreement between two parties that is automatically renewed/rolled over after each completion or maturity period, until canceled by either party) should have lasted without changes in its current form. Anglo American’s James Wyatt-Tilby, in charge of Group Media Relations in the Investor and Corporate Affairs department, confirmed that “the management contract comes up for renewal in June 2009.” He added that “Anglo American continues to fully support the existing management team and sees no need to change the arrangements at this time.”

Though this is reassuring, there are some who believe that Anglo American will assert its right to participate in a more meaningful (decisive) manner in the decision-making process regarding the appointment of executives at De Beers in line with its position as the single largest shareholder. It certainly would be helpful – and enhance staff comfort level – if both Anglo American and the Oppenheimers would go public on this issue.

It had been assumed that the heavily indebted De Beers would have been able to reduce this leverage by 2011, which would have been a logical time for certain shareholders to contemplate selling their holdings. That date is obviously not attainable in the present scenario. Does this impact the decision-making and planning at the top echelons of both De Beers and Anglo American?

The End of the Diamond Dream

Many of these issues are almost of esoteric nature and don’t help those De Beers employees that now will have to decide whether or not they have a future with the company. In all fairness, it must be recognized that the cost-cutting exercise had been in the planning in any event – the global crisis just accelerated the process and may have broadened its scope. De Beers, which basically sees itself as a business built for growth – with ambitious exploration and mine expansion plans and dreams of enormous downstream activities – now finds itself having a surplus staff.

Given its high degree of leverage, De Beers recognizes that it may not be able, or prepared, to successfully ride out the economic slowdown with these overheads in place. Cost control is a key factor – and reducing employment costs is the most effective way to achieve this quickly – and to continue to deliver healthy profits to its shareholders. In the next few months, for many of the people devoted to advancing the Diamond Dream, their personal dreams will come to an end. They will discover, however, what many of their colleagues have found out in recent years: there is life beyond De Beers.