“Socking” Thy Colleagues Into Action…
October 02, 03A few weeks ago we mused in this column about a hypothetical Mr. Disgruntled and about the strategies he might follow to achieve his objectives - provided such objectives are well defined. It was implied that if "creating fear" on the other side is intended, then a "controlled irrationality" could do wonders. Now, we have a real-life Mr. Disgruntled. There are actually two of them - and they seem to have read our article. As their actions indeed border the irrational and are seemingly well planned - but any objective may have become fuzzy - at least to outside observers. The two Disgruntleds are two otherwise most amicable, respected and seasoned diamantaires - Isi and Daniel Horowitz. (I like them - but that is not relevant at all). These Antwerp brothers filed a complaint against De Beers at the European Commission, as they explain it in a letter to diamond bourse presidents, "related to the implementation of the Supplier of Choice initiative and is prompted by a DTC decision concerning [our company] IDH. However we want to emphasize that we have resorted to the European Commission because we believe our case is illustrative of a broader picture."
Within days of filing the complaint, they took further action. Aiming at creating maximum damage to De Beers - at least this is the impression one gets - they are now rallying support from several industry leaders against De Beers. This is both a fascinating and unprecedented development. Previously, there have been very few attempts to do something similar: in the 1980's, in a protest against the prices, the Indian sightholders one month refused collectively to take the country's sight allocation, though the sightholders were shielding behind a miraculous convenient government decree that postponed rough imports. When Israelis once decided to take similar action, every individual sightholder rushed to the privacy of one's own offices and quietly doubled their individual application - counting on the fact that there would be no goods on the market. That "refused" sight became a historic large one…
In the mid 1990's there was the Singapore decision by the World Federation of Diamond Bourses, complaining about lack of profitability in the industry, threatening to withdraw support for the single channel marketing system. The International Diamond Manufacturers Association agreed on a watered down version of the same. Ranks were broken within days following the decision and the only tangible result was that the then president of the World Federation may well have forfeited his chances for a DTC Sight for decades to come - paying the price of "leadership".
The diamond downstream industry - the manufacturers and the traders - as a group have never been able to (or maybe never been willing) to take concerted action against a producer - against De Beers or anyone else for that matter. Though this industry counts many fabulous personalities, in this specific respect they are a sorry bunch - any tiny European or Israeli port worker or professional guild would do better.
The Horowitzs' now want to split the ranks and solicit support from diamond bourse presidents who have gone on public record with their severe criticism of Supplier of Choice. In letters to HRD's chairman Charles Bornstein, and to bourse presidents Shmuel Schnitzer, David Wahl, Arthur Beller, Willy Rotty and Julien Drijbooms, the brothers recall and recite statements made at recent industry meetings against Supplier of Choice.
And then the brothers pose the question, phrased in awkward English translation, 'gentlemen, what have you done or what are you doing to turn your criticism into concrete steps or actions?'
The complaint filed by the brothers was initiated on their own behest, on their own expense and for their own selfish objectives. Now they are seemingly trying to turn it into a class action - as if they serve a higher purpose. Is that a "change of direction" or a part of the original "fear" tactic? People taking class action are generally multi-class oriented: first class, economy class and cargo. Economy and cargo provides the support to First…. [A few years ago, top New York lawyers initiated a class action against De Beers charging that the cartel had caused diamond jewelry prices to rise thus injuring the consumers. The New York court was sympathetic, De Beers never showed up, judgments were made in favor of the plaintiffs - and then the case was suddenly withdrawn. The unconfirmed word in the street is that First class is happy. We are still checking the details.]
To quote the Horowitzs' from the above mentioned letter: "Over and above our position as established diamond dealers we have a track record of consulting on behalf of world class mining companies, which gives us a perspective that few diamantaires enjoy. IDH's consulting to major mining corporations was aimed at assisting them to operate in a fair, competitive and transparent manner. It is beyond any doubt that IDH has significantly contributed in making the diamond market a more competitive place over the years. Therefore, not only do we believe our complaint is well founded for ourselves, but we are convinced it is relevant for the trade, the people it employs and the consumers."
Wow - that last addition is a "good one". The complaint should lead to improve the plight of these anonymous miserables: the consumers. How the complaint to the EC will benefit the consumers is still a mystery to me. Actually, we are increasingly more puzzled and fail to comprehend what the Horowitzs' hope to get out of it. It is implied that, just as they helped other mining companies, they now want to contribute to get De Beers' "to operate in a fair, competitive and transparent manner."
That's an objective De Beers would probably embrace happily - and they'll be the first to say so to the EC.
With all the greatest of respect for the president of the HRD, the president of the World Federation of Diamond Bourses, and the other bourse presidents, there is no great likelihood that they will go beyond verbal assaults and actually take action. Not because they don't want to: but also - and I will explain this later - there are not many things they could do which would not backfire on those on whose behalf action would be taken. The Disgruntleds probably hope that these individuals will send letters of support to the EC - or something similar. I wouldn't bet on it.
If the brothers would have gone to court, they might have been able to request affidavits or subpoena those industry leaders to testify. The EC Competition Authorities, especially after having been ticked on the fingers by the European Court of First Instance on not following due process, will probably not do much - and it can't do much - without substantial proof of illegal actions or other wrongdoings by De Beers. Let there be no misunderstanding, this is not a "democratic process" where the piles of letters have great impact. What the EC needs is solid proof of any alleged misconduct. Few people would be willing to do so, as many would intuitively recognize the futility of the exercise.
It is not the task of journalists or the role of newsletters or magazines to call upon the industry to unite, to organize and to take legal action against an industry player. Any news organization doing so forfeits any future claim to objectivity or impartiality and it undoubtedly colors the content of anything it writes in the future. We see our role as trying to be thought provoking, raising questions, occasionally annoying a segment of the industry to make a point, and we never ignore that we can also be wrong - or assess a situation incorrectly. As trade journalists we should never incite.
What we must do is "report". And when reviewing the Horowitz complaint, we can't help but think of the other pending EC action - the trade agreement between Alrosa and De Beers. Let's be blunt: De Beers needs the trade agreement because it wants to balance its assortments - Alrosa fills the gaps. De Beers needs the trade agreement because it will help pay for the huge DTC overhead and provides the rough supplier with economies of scale. There are half a dozen more reasons - but those mentioned are sufficient to make a point: the trade agreement provides De Beers with a greater comparative edge; it makes the dominant supplier even more dominant.
So why aren't BHP-Billiton, Rio Tinto, Aber, Trans Hex, Leviev, Aber, and others queuing up in Brussels protesting that an EC approval would be anti-competitive, would make it harder for them to compete with De Beers? The answer is a very simple one: all others are so-called "fringe producers" enjoying the benefits the dominant producer creates for itself. When De Beers succeeds in raising rough prices to ever-higher skies, all their competitors benefit. Whether the dominant producer's (or the "market leader" as it prefers to call itself now) behavior is or isn't anti-competitive, legal or not legal - it isn't relevant. The "fringe producers" like to bask in the glory of being the "underdog" - getting basically the same benefits, which the Top Dog generates. The chances that any of the competitors of De Beers will take any concrete action to prevent an EC approval of the Alrosa-De Beers trade agreement are zero.
And this gets me back to the Horowitzs'. They mention, in their letter to bourse presidents, the "interest of the consumer." That phrase is right, as the EC competition authorities aim at protecting consumers. The damage a "cartel" (or "monopoly") inflicts on the consumers is, mostly, as the New York class action eloquently states, causing him to pay too much for their diamonds.
Any successful action by any anti-trust authority that will diminish the power of the dominant producer (i.e. De Beers) would eventually lead to a weakening of prices. Between De Beers and the consumers - in the diamond pipeline - there is a rough and polished inventory of some $30 billion (at polished wholesale prices). How long will any of the bourse presidents or the HRD chairman remain in office - remain in the diamond business at all - if they are seen contributing to a fall in prices?
"De Beers bashing" can be a nice sport (and some in Charterhouse Street would probably say that this must be the only sport in which this somewhat overweight writer has long ceased to be an amateur) - but, in reality, every industry player indulges in this bashing "pro forma" and not in "earnest". Lip service - yes. Anything beyond that - no. That makes it so important to have clearly defined objectives and a thorough appreciation of opportunities when going to Brussels.
We don't think that presenting the IDH complaint as benefiting the industry as a whole - and even the consumer - would budge anyone into any action. Certainly no politically-attuned bourse president - whom would mostly be embarrassed by the very question about what they have done, or are doing, about Supplier of Choice. Maybe they are truly puzzled about what they can do - but they know darned well what they cannot.