The DTC’s Iron Lady and the Politics on the Way to the Top
September 02, 05If De Beers were still a public company, the announcement of the appointment of Varda Shine as Managing Director of the DTC would have been a reason to conduct a “road show” among shareholding financial institutions, an opportunity to make a “buy” recommendation for the company shares, and an opportunity to stress that this appointment will not only add value to the company, but also greatly improves the chances that De Beers will actual deliver its BHAG’s (Big Hairy Audacious Goals) set for the 2005-2009 five year period – goals which include raising the value of the company to well above $12 billion.
Management of De Beers is a team effort, directed by its board. Why would one person make that much of a difference? There is a short answer and a long answer. The short answer is that the DTC has been turned into a computerized scorecard-based performance system in which management awaits with trepidation the results of computer output for client selection, rough allocation decisions, etc. The DTC managers have just completed the best five years ever at De Beers when it turned out that the performance targets set by Bain & Co. for the 2000-2004 period were so easily attainable that individual performance bonuses had never been higher. No wonder that the performance based remuneration methods motivates going by the book. The DTC has become so system-oriented, that its rising management stars, such as Alan Campbell, Des Cavanaugh, and Jonathan Kendall, have all become exceedingly proficient in the understanding of the performance driven scorecard – and playing it “safe” means going by the systems.
However, almost from the very beginning of Supplier of Choice, the DTC has been encountering ever more serious “bugs” in the system. It has tremendous systemic faults which, if they are not addressed, may have serious negative consequences. Actually, it has become very much a “roulette system” in which clients find themselves in a virtual casino, forcing them to apply for goods they may not need at all – but will have a greater chance of actually getting. A system in which Sightholders who know how to manipulate the computer inputs (artificial growth rates, profits, equity creation, marketing data) are being handsomely rewarded. A system that, unwittingly and unintentionally, has turned the DTC into a Diamond Trading Casino.
At this stage these bugs are only impacting clients. The DTC is enjoying top sales. But that is a short term view. In the short term the extensive trading in boxes etc. can be ignored. Over the long term – if not remedied, the DTC will end up with the “wrong clients” (more speculators, fewer manufacturers, and even fewer parties committed to implementation of marketing programs). Innovative, “out-of-the-box”, non-conformist thinking might be needed to address the problems – to solve the fundamental bugs in the system.
That almost dictates the qualification requirements for the next DTC Managing Director. Among all the top contenders for the top job at the DTC, Varda Shine brings a rare entrepreneurial instinct, a few decades of diamond trading experience, and a remarkable dependence on healthy common sense and intuition. Utterly loyal to the company she represents, she is not likely to air her criticisms publicly – but anyone watching her since assuming responsibility for DTC rough sales recognizes her passionate preoccupation with debugging the SoC system.
Varda understands her clients, understands their frustrations and also appreciates that there is still quite a lot of reluctance by clients to complain too loudly. Through her unassuming, accessible and down-to-earth eye-level communications with clients and colleagues – Varda has been restoring much of the needed personal and professional environment in the Sales Department which somehow seemed to be disappearing in the early years of SoC. These are great attributes for a DTC Managing Director. If, purely hypothetically, the systems would crash, Varda would still be able to manage a sight allocation system. She thoroughly understands the business.
Varda’s appointment represents a victory of common (commercial) sense and personal skills over theoretical scorecard and automated decision systems. It is an appointment that will strengthen (some may say restore) the human element in the implementation of corporate strategies. Varda is deeply respected by clients for her professionalism. She knows diamonds. She understands diamantaires. She is easy going with colleagues – but knows precisely what she wants and how to get there. She has just proven that beyond any doubt.
In her interaction with superiors in the hierarchy, she is not afraid to challenge other views. She is not a “yes-man”. To quote one elated stakeholder: “She is a woman with balls”. [Without any disrespect, in a “man’s world” such phrases are supposed to be a lofty compliment.] She represents a choice which the other shareholders, Anglo-American and the Botswana government, also warmly endorsed.
The Decision-Making Process
We have learned that there were a number of outstanding candidates. So why Varda? That is already part of the longer answer. It is our information that all the candidates were quietly assessed by an outside party. The assessment also included extensive personal interviews. Apart from enjoying the advantage of family ties and seniority, Stephen Lussier was actually never a realistic choice – mostly because of his success record in polished diamond promotion and marketing which represent his great strength – however, he has little, or actually no, experience on the rough diamond side.
It is a tribute to Stephen that the DTC faces few major problems on the marketing and promotion side; the new DTC chief needs to concentrate on rough marketing and on human resource (HR) problems (facing issues such as the moving of the sorting facilities to southern African countries and solving the pension deficit problems of a few hundred million dollars. The appointment of Stephen Lussier to External and Corporate Relations is far more commensurate with his skills, his experience and represents an area in which he will produce the greatest value added to the company.
What about Alan Campbell? Some insiders had viewed him as Gareth’s favorite first choice. Alan has sometimes been described as the only person at the DTC who truly understands the SoC computer systems. The assessment process, however, gave him a lower score. “A great and reliable executive without much original thought”, was one description we picked up. From Gareth’s perspective – as Group Managing Director designate – macro-managing Alan would be easier than having Varda at the helm. Varda, however, would be better for the company – and, at the end of the day, that is what counted most.
Jonathan Kendall was also an exceedingly worthy candidate – with great strength in marketing. He misses the in-depth rough diamond knowledge that has become so important to manage the DTC at this critical juncture. Jonathan had aspired to the Sales Department job when he lost out to Varda in August 2003. With Stephen’s moving to De Beers, Jonathan may now well become a leading contender for the World Wide Marketing Director slot. He isn’t, however, the sole candidate – and the chances are that this position will go the very experienced Dominic Brand. It isn’t clear how Jonathan would take an “additional” defeat – we have conjectured in the past that he would leave. He hasn’t.
Way back in 2003, Alan Campbell had also eyed the Sales Director’s job and had also been bypassed by Varda. Colleagues say that Alan had not swallowed that “defeat” easily and that, subsequently, there wasn’t “great interaction” between him and Varda. Now it will be up to Varda to decide whether he should get the position this time around. As we already pointed out, Alan’s understanding of the SoC scoring system is probably unmatched within the DTC; other qualities, such as personal relations, would give him lower scores. Clients may not be enthusiastic – and Varda is certainly expected to take stakeholder views into consideration. Alan is a valuable executive – being passed over again may trigger his departure, which would be an undesirable outcome of the process. That is also something that must be taken into account.
Unlike the Marketing Department position, the present jockeying for the DTC Sales Director job is more crowded. Des Cavanaugh would also make a very able candidate – he is well liked by clients, inspires trust and knows diamonds. We don’t rule him out. However, if we have to make an intelligent guess, the “winner” will most likely be Mark Calao, who has a long history with Diamdel and Diatrada.
With Diatrada being slowly phased out, he is probably the only executive who “needs” another job. Mark has all the right qualifications to become a great Sales Director – and he has been on the “shortlist” before. He isn’t perfect either. [When under pressure, he may talk before he thinks. Legend has it that at a meeting between Gary Ralfe and clients, in which clients complained about a DTC price increase, Mark “volunteered” the view that prices should actually have been reduced. We weren’t able to verify this story – but it sounds authentic.]
We expect Mark to become the next Sales Director.
What about Jonathan Oppenheimer?
His name had been mentioned for the top DTC job – to move him from South Africa to London. But that was probably more gossip than substance. Born in November 1969, Nicky’s son will soon be 36-years old. It will certainly not escape Jonathan that his father was appointed Deputy Chairman of De Beers at the age of 40. With Black Economic Empowerment well under way in South Africa, the Oppenheimer’s family’s holding in De Beers Consolidated Mines [DBCM] may be diluted to below 30%. We can expect that within the next few years Jonathan will follow in his father’s footsteps and become Deputy Chairman. It is almost a matter of deduction: there are no other slots left.
With Stephen Lussier accepting a position that was viewed as reserved for a black executive, and after Gareth was appointed Group Managing Director, the pressures will be mounting to appoint a “historically disadvantaged person” as Managing Director of DBCM. For Jonathan to become Deputy Chairman is simply the claiming of a birthright. We believe this appointment will come well before 2007.
Varda, Gareth, Stephen and other directors are most likely to be allowed to stay in their positions for at least five years – to demonstrate that they can meet the group’s targets. These goals are well known: to build up to an EBITDA of $2 billion and above, to build up to a ROCE of 20% and above; and to build up the value of De Beers. And, to quote outgoing Group Managing Director Gary Ralfe, “I've got great confidence that under Gareth's leadership, this is what De Beers will be able to do over the next five years.”
Varda, welcome on board. You “only” have to increase sales by some 15% on average for each of the next five years to reach the hairy goals. A piece of cake – or simply just another woman’s job?
Have a nice weekend.