De Beers and Corporate Social Responsibility

Introduction

Since 1980s, the corporate world has been changing and consumer and environment are becoming an important part in the operation of organizations.  This has led to the development of the concept of corporate social responsibility.  Organizations have found out they are a part of the community and rather than focusing on profits, organizations have become more concerned with the welfare of the community and the environment around them.

De Beers

De Beers was found in 1867 in South Africa by Cecil Rhodes who was managing the British protectorate in the South Africa.   The company came into being during the era of gold rush in at Kimberley.   The company started off by renting water pumps to small scale minor and profits from these operations were invested in buying claims from small mining operators.  The company soon expanded and in 1888, De Beers Consolidated Mines was founded through the merger of Barney Barnato and Cecil Rhodes Companies.  The company got exclusive right to mine diamond in South Africa and in 1889, Rhodes negotiated with London Diamond Syndicate to buy fixed quantity of diamond and at a fixed price which was intended to regulate the amount of gold output and maintenance of prices.  This agreement was very successful for the company since it was able to maintain fair prices of diamond through curtailing production (Colin 1989, 112)

However soon after, Cullinan mine was discovered and raised its production to a level of De Beers combined and instead of selling its diamond to London syndicate, the company sold its diamonds to independent deals. This had drastic effects on the price of diamond but after the First World War, both companies understood that the only way to keep diamond valued was to make it scarce (Colin 1989, 117). Cullinan miner was soon absorbed into De Beers ending years of rivalry.

Throughout the years, the company has absorbed other companies to its fold which   making it the largest operators in the diamond industry.  De Beer Investment is a private company which is registered in Luxemburg and comprises of three main shareholders including Anglo America plc owning 45%, Central holdings with 40% and the government of Botswana with 15%.   De Beers therefore bring together a family of different companies which include De Beer Canada, De Beer Consolidated mines, Debsana, Diamdel, Diamond Trading Company, Diamond Trading Company Botswana, Diamond Trading Company South Africa, Element six, Forever mark, Namdeb, Namibia Diamond Trading Company, and Williamson Diamonds. The companies are specialized either in mining or retailing of diamond. As an outlet, De Beers operates in different counties in all over the world retailing diamond. The company operates in more than 25 countries and employs around 22,000 people with more than 17,000 based in South Africa. De Beers produces more than 40% of the world rough diamond supply mainly from 15 mines in Botswana, Namibia, South Africa and Tanzania.

De Beers corporate social responsibility

Towards the end of the 20^th century, corporate social responsibility became the most important organizational practices. Corporate social responsibility entails different activities which ensure that the organization respond to various needs by the surrounding community including its workers, shareholders, those living around areas of its operation and the environment in general. (International Business Report 2008, p. 39)

The first theories so CSR were developed in 1950,1960s and 1970s where CSR was seen as an addition business factors. This followed the traditional conflict model. Under the traditional conflict model, tradeoff between the social corporate responsibilities, the environmental goals and the profits are not differentiated and at the same time inevitable.  Under this model, firms takes into consideration the marginal cost and therefore firms are likely to overproduce and operate in less social market equilibrium.  In this model, De Beers showed corporate social reasonability but this money was not from the firm’s profits but from illegal operations.

Over the years, De Beer has been criticized by its detractors for its business model which is near monopolizing the market and mainly geared towards price fixing.  Since the company was formed, it has strived to absorb any independent miner to ensure that it has control of the diamond trade in the world. The company supplies more than 40% of the world diamond which means its decisions have far reaching implications on diamond trade in the world (Leadership and Change, 2007).

In order to become the leading diamond supplier in the world, the company had pursued a strategy aimed at controlling not only large segment of diamond in the world but also the central point of supply. This means that every time a new mine is discovered, the company has used any means to acquire concession of that mine or absorb the company which his given the right to mine diamond on that site.   De Beers has therefore been branded a cartel or a cooperative since its single channel of market exchange of rough diamonds has ensured that the company controls all the rough diamond which is available in the open market and at the same time setting prices for the diamond. (Saunders, 2001)

Over the years, the company effort to control diamond trade has seen it pile diamond stock which was worth more than $5 billion. However, this strategy worked against the company as it failed to make profit out of the pile.  In the 1990s, De Beers had been a monopoly in diamond trade but out of this stockpile, the company did not make any profit.

The company was to suffer more woes as it was faced with antitrust law suits in the United States. Consequently the company was banned from trading in the United States (Leadership and Change, 2007).  Detractors argued that the huge accumulation of raw diamond was strategically used to assist the company to control the supply and ensure that ht price of diamond was kept high in the world.  This made diamond costly than the market price would be in a liberated market.  However, more independent diamond dealers were coming up and De Beer shrinking share of the market was making it difficult to control the price of gems.

Apart from the monopolistic cartel, De Beers has also been accused of trading in blood diamond. For more than 8 years, rebels tried to unseat a democratically elected Sierra Leone Government (Meredith 2007, p. 43). By then De Beers controlled more than 70% of the world diamond supply and although the company had reiterated that it would not be involved  in blood diamond, its officials were  seen traveling to Sierra Leone on the week the  rebel leaders was captures (Saunders, 2001).  Being the major supplier of diamond in the world De Beers has been associated with blood diamond not only from Sierra Leone but also from other parts of the world. However, documentary evidence in Sierra Leone could not escape the attention of the world regarding the dealings between De Beers and the Sierra Leone rebels.  This was practically unethical since De Beer operation supported rebels who used to chop off hands and other means of terrorizing community members (Leadership and Change, 2007).

Since the 1908s, theories of CSR have emphasized the responsibility of the company towards it stakeholders. In order to respond to the needs of the stakeholder theory of CSR, the company had to change its management and operation model. However, these models have not worked for the company and after one century of monopolistic practices, the company has changed its business model (International Business Report 2008, p. 49).

The new Director, Gareth Penny who took over the management of the company at the turn of the millennium has ensured strategic reform of the company operations which has been in line with the emerging market strategies. Penny decided to abandon the old supply side management and monopolistic practices in a bid to increase the global demand of diamond and at the same time increase its presence in the market (Leadership and Change, 2007). The new director has also seen the company abolish the third party contracts which lead to closure of more than 14 business offices and at the same time shifted from century supply driven system to demand driven business system.

The company continuously publishes stakeholder reports to ensure sustainability. The reports are printed by Maplecroft Consultants located in the UK.  The reports cover among other approach, economics, ethics, employees, community, environment, and others.  This was initiated in 2006 and it has be an important part in fulfilling stakeholder’s theory.  This follows the corporate social responsibility brings in cash model. Under this model, firms view integrity of the environment and healthy communities as a possible way for the firm to succeed and make more profits.  This model represents the ideology where many companies invest in corporate social responsibility portfolios.  In this approach companies chose to engage in corporate social responsibility for a number of reasons which are all profit oriented.  This can be due to profit related reasons including increased sales, greater innovation, decreased future risks, and may others.

Penny has restructured the business model of De Beers under this second CSR approach. The departure from the old trading model saw the firm increase in the   level of earnings (Leadership and Change, 2007).  The company watched its net profits growth and by 2006, it had reported a profit of $730 million.  It is believed that the company also changed its business model to challenge the civil class suits that had affected its operations in the United States. In order to maintain efficiency of its operation, the company is no longer holding large stock piles of diamond. The company holds a stock to maintain its operation for only two months. This has been one of the most important corporate social responsibilities the company has practiced in order to ensure sustainability in the diamond trade (Saunders, 2001). The change in business model of the company provided a turnaround not only in the company but in the industry as well.

Another important theory of CSR is the moral theory which calls for moral obligation of the firms towards the surrounding community and workers.  De Beers has also taken into consideration a number of corporate social responsibilities in order to live up to it policy of living up to diamond.  The company has given back to the society in areas where it has been carrying out mining operation. It has helped to build schools,  infrastructure, provision of health care services, and  fighting  calamities like HIV/Aids  which is  very rampant in  sub Saharan Africa where its operation are mainly based (Leadership and Change, 2007).

South Africa is one of the areas that are worst hit by HIV/Aids epidemic. With more than 17,000 of its employees in South Africa, the company has worked to do good to the community by extending its HIV education programs to the surrounding communities. By the end of 2004, approximately 10% of all its employees were affected by HIV/Aids. The company has therefore taken several steps to deal with these cases including Knowledge, Attitudes, and Practices (KAP) studies. The company also spends between US$1 200 and US$3 500 every years for its HIV positive employees. The company has also put in place De Beers Anti-Retroviral Treatment (DART) which is provides the infected people with ARVs

 From the corporate social responsibility activities of the company, there are more than five million people who are currently benefiting from its operations.  These services are provided through diamond revenues from the areas where it carries out mining activities. For example it is estimated that diamond revenues enable children in Botswana to access health care and free education up to the age of 13 years.  In advance, diamond industry is supporting more than 10 million people in the world.

CSR cannot be complete without taking environmental responsibility. De Beers has shifted from its age practices of leaving open mine sites and the company is taking more responsibility towards maintenance of the environment through collaboration with the community. The company has set aside more than 185 000 hectares of their land and property in order to carry out research on biodiversity. This is just one of the initiatives that the company has been taking towards environment conservation.

 Conclusion

De Beers is one of the oldest diamond companies in the world. Founded in 1888 in South Africa, the company engaged in practices which ensured monopolistic  control of diamond trade through controlling the most important supply and price of diamond. De Beer has also been criticized for its involvement in blood diamond trade in Sierra Leone.  This lead to anti trust laws against the company in US which led to its ban in US market.  However, since the turn of the millennium the company has changed its business model to become responsive to the corporate social responsibility. To the shareholders, the company publishes annual reports to all shareholders which informs of business operations of the company.  To its workers the company has taken initiatives to deal with thigh number of HIV patients working for the company. At the same time, it has invested in building schools and infrastructure to benefit the surrounding communities (De Beers, 2009).

Bibliography:

Colin, W 1989, Diamond ring, Oxford University Press

De Beers, 2009, Environment, Retrieved 18^th February 2009 from http://www.debeersgroup.com/en/Sustainability/

International Business Report, 2008, Corporate social responsibility: a necessity not a choice, Grant Thornton Publishers

Leadership and Change, 2007, How to succeed in the multifaceted diamond business: The gospel according to De Beers. Retrieved 18^th February 2009 from http://knowledge.wharton.upenn.edu/article.cfm?articleid=1714

Meredith, M 2007, Diamond gold and war, Simon & Schuster Limited, New York

Saunders, L 2001, Rich and rare are the gems they war: holding De Beers accountable for trading conflict diamonds. . Retrieved 18^th February 2009 fromhttp://www.globalpolicy.org/intljustice/atca/2001/debeers.htm