Will Diamdel Become A Mini-Enron?
June 21, 07Forget the so-called Diamdel restructuring. The genuine exercise of aligning and down-sizing the operation in line with the reduced future rough supplies has been put on hold. Why? Depending on who you talk to, it seems that two months ago, a potential Baring- or Enron-type situation came to light among De Beers top management, and it is rapidly turning into a major De Beers embarrassment. Since the crisis in Diamdel is still evolving and De Beers is still investigating, we’ll refrain from disclosing at this time all of the information we have already gathered.
That being said, this Diamdel crisis is major. In any corporation, when the head of finance gets fired “with immediate effect,” and when it is announced that the managing director is replaced by an interim managing director with immediate effect, it is clear that there must have been a “triggering event.” When, at the same time, all employees are unequivocally instructed not to have any contact with these key ex-employees on business matters, one starts to wonder.
The management of crises requires talent – and mismanagement exacerbates the problem. When De Beers in
Violating Fiduciary Responsibilities?
The heads of Diamdel are supposed to advance the best interest of the company that employs them, avoid conflict of interests, and refrain from activity that would weaken or could lead to the collapse of the company. De Beers management in London (i.e. Group Managing Director
Colao wasn’t going to go into business just by himself. In presentations made to other mining companies and other investors, assurances were given that the new rough dealership would bring its clients and suppliers some 120 years of De Beers experience. Colao, himself, brings 30 years. The Head of Finance, Simon MacFarland, who was also going to join him, is a newcomer with merely two years of experience. This gives reason to believe that there may be some three to five additional current (or ex) De Beers employees planning to join the new dealership. A Diamdel colleague who had been approached by Colao says that “he didn’t offer us a position. He merely said that if and when Diamdel is closed, it would be a good idea to use our skills in a new company. It was all left open.” Trying to do my 120 years arithmetic, it seemed that the number represents the cumulative experience of present Diamdel
Revision of De Beers Policy Decisions
The discomfort in
Sources close to Colao maintain that he, together with MacFarland, had created a business model for Diamdel which would leverage all the skills, infrastructure, experience available and also market rough from outside producers and thus become a more formidable player in the secondary market. In 2005 this worked very well. In 2006, the strategy was further developed, more people were hired, and MacFarland – in the middle of the Israel-Lebanon war- moved with his family to
In any event, confronted with huge losses, in January 2007, De Beers management decided not to continue with the strategy of leveraging skills, etc. Instead, it was decided to restructure and, in this context, Diamdel
But, and that is crucial to understand, say inside sources, “the management of Diamdel, and virtually all of the staff, was working in the understanding that they all would be fired.” Is there anything wrong, one should ask, that managers who believe that the business they are managing will close, would be looking for other work? Colao, MacFarland and colleagues, however, knew already in January 2007 that none of them would have a future at Diamdel.
Was it not “suspicious” or strange that Mark Colao had supported the decision to close Diamdel way back in January? His friends say that Colao was committed to the strategy he had developed. If that business model was dropped, he, indeed, didn’t believe that Diamdel Israel would be viable and, in this context, he supported the closing. De Beers, apparently, thinks otherwise.
Was there a breach of fiduciary duties? Sources close to De Beers seem adamant about this. They claim that the De Beers IT systems, its travel budgets, its resources were used to plan and adjust the various business plans for the newly established competing company. That ostensibly seems wrong, though sources close to Colao deny this. There may have been other things – but we’ll leave that for future articles.
What will happen next? It is clear that the least De Beers management can – and should – do is put all decisions related to
Trying to Retain Control of Cash-Flow
Brown, who is responsible for Diamdel at the De Beers level, and who didn’t want to comment on is
Says Brown: “De Beers is restructuring the Diamdel operations to reflect the reality of the 21st Century diamond market. With the end of the Russian contract, DTC market share will be around 40%, with the majority of diamonds entering the cutting centers provided by other suppliers. In addition, DTC London will have fewer gem stones to sell as these will increasingly be sold through the local DTC offices in producer countries. The Diamdel restructuring is actually part of a Group-wide review of operations.”
Brown, who is probably the “second in command” at De Beers after Penny, makes the restructuring appear as if it is purely a supply is
It was explained to the employees that these measures “are typical of a turnaround plan and are necessary to help regain control of our cash flows in Diamdel.” The instructions applied “to all employees, irrespective of title or position.” Restructuring? These are steps representing “crisis containment management” and cannot be considered “typical” for a diamond trading company, which, in normal days, would have a $500 million-plus annual turnover. There is an is
Since the internal investigations are still being conducted as we write these lines, we merely want to say that London management is also taking a look at some of the concrete trading deals made in the past few years, the terms of these deals, the parties to deals, etc. In an investigation, all kinds of is
Finding a New Business Model for Diamdel
If De Beers were still a public company, it might have been obligated to report details of the management crisis – and the yet unknown consequences – to the respective stock exchanges. De Beers, in its new credo, states “we will always listen first, then act with openness, honesty and integrity so that our relationships flourish…” The proper thing to do would have been to is
Diamdel generally has excellent people – and they are a great asset to De Beers, while fulfilling an important task in serving the secondary market. As such, there may not have been a compelling reason to close down such a large part of the operations. Throughout the staff consultation period during the restructuring process, the “integrity” problems were not mentioned; they emerged gradually. Naturally, one needs to be cautious when proceeding – as some findings may also have legal implications.
Brown has appointed Neil Ventura the next Managing Director of Diamdel, effective
Brown has given