GIA Symposium 2006 - Consumer Confidence: It's All About Trust

One of the most heavily attended sessions at GIA's Symposium was the panel discussion on ‘Consumer Confidence: It’s All About Trust.”

GIA delayed selecting topics until the last minute to be sure the most current issues were in play. Appropriately, Cecilia Gardner, president, CEO and general counsel for the Jeweler’s Vigilance Committee (JVC) was the moderator. The other panelists were John Calnon of the World Gold Council, Jeffrey Fisher of the World Diamond Council, Esther Fortunoff Green of the Fortunoff retail chain, Sally Morrison of the Diamond Trading Company, Tom Moses of GIA, Michael Rae of the Council for Responsible Jewelry Practices and Chaim Even-Zohar of Tacy Ltd.

John Calnon discussed perspective on metals and the environment; the mining of gold in particular. He said The World Gold Council represents only 45% of global production currently; primarily larger manufacturers. He urged members of the trade not to be complacent. There are NGOs targeting consumers and retailers with media ads cautioning about “dirty” mining. For example, last February - coinciding with Valentine's Day - the No Dirty Gold organization renewed its fight against both mining practices and jewelers. He went on to say we all know that gold is extracted from the environment, so mining will have an effect, and industry is responsible for addressing that. Calnon urged attendees to promote the positive effects of mining. Some poor countries derive much of their income, development of infrastructure and skilled work force from mining. Rigorous safeties and standards are enforced in most of the world’s mining operations; North America is the largest area of production and has some of the most stringent laws. Calnon said the CRJP and International Council of Mining and Metals are both taking steps to raise awareness of those practices. At this time environmental NGOs, including Earthworks, have agreed to participate with other bodies in setting agreed-upon standards by 2007. He believes this gold mining industry initiative and the CRJP promise to be the best route for mutual understanding.

After his lecture, Calnon was asked if he believes closed mines will be opening now that prices are skyrocketing. He said that mining companies are re-visiting such possibilities. Another question addressed the mining ratio of earth to gold (approximately 2000 tons of rock for 1 oz of gold), and asked if Calnon thought it was even possible to mine in a manner the NGOs will approve. Calnon replied that we will never be able to mine in a way that is not destructive, but we can find ways to improve processes. Michael Rae of the CRJP added that we will never be able to put back a mountaintop, for instance, but industry is exploring what can be done to improve the condition of the land thereafter. The answer, for all concerned parties, is what the net result will be: There will not be a sum 0, but companies like Rio-Tinto are working to see what can happen after mining so that the legacy of the mine is a net positive environmentally and socially, not just economically.

Jeffrey Fisher addressed the issue of synthetic diamonds and their relationship to consumer confidence. He speculated on why synthetics have recently become a hot topic; since the significance of consumer confidence is a constant he believes it is because awareness has changed. Fischer said the challenge before us is as it has always been: The three Ds of synthetics and treatments are “detection, disclosure and differentiation.” The burden of detection falls on the research labs. Stakes are being raised by technology, which makes disclosure by sellers more important now than ever; ignorance and error are simply not acceptable. Differentiation is based on the pillars of detection and disclosure. Nomenclature and marketing will be key elements in keeping or losing consumer confidence: How will these things be described to the public? How to the trade? Fisher said “cultured” is an inappropriate description for gemstones. It is confusing and misunderstood and needs to be left to pearls. He went on to say that if marketers want to call a diamond man-made or lab-grown so be it, but he feels that synthetic is the most appropriate description for these man-made creations. One thing is clear: Every respectable jewelry industry organization accepts the right of synthetic diamond sellers to compete for the consumer’s attention. Therefore it is our responsibility to allow each other to compete without denigration.

Esther Fortunoff Green has overseen the jewelry buying, manufacturing and quality control departments for the Fortunoff jewelry chain. She told attendees that retailers and their interaction with consumers represent the ‘final frontier.’ We work with consumers each day, and in order to walk in the door they must trust us. Recently, she said, she overheard a client ask a sales associate; “This is a good diamond, isn’t it?” The sales person responded “Oh sure, I’ll tell you about it later – let’s pick out the mounting.” Green said this was inappropriate and unfortunately very common. She went on to say that an apparent lack of knowledge among members of the retail trade allows abundant mis-grading of diamonds to occur. Sales associates often don’t test what their supplier is telling them. She said we have to trust people in the pipeline, but work with them to understand what our ethics, our vision and our standards are. She was asked about the viability of any grading report, since they are widely advertised as subjective and ‘not a science.’ She replied that every store should become educated so that they know the different reports and the strictness of different labs, and that every store should agree with the grading on the reports they carry. When asked about synthetics, treatments and less-regulated colored stones (amethysts in particular), Green urged retailers to hold their sources accountable in this case too; for instance, every retailer must make a decision about whether to carry true amethyst or not. She commented that ‘making all the labs more ethical’ would be a next step for ethical retailers.

Sally Morrison has a strong background in public affairs and publicity, and oversees “generic” public relations on behalf of the DTC; the marketing arm of DeBeers. She addressed the upcoming movie “The Blood Diamond,” commenting that the Diamond Information Center is helping shape response about that film for the world. Morrison advised the audience that a major motion picture like this has huge impact beyond the people who go to see it, because many more people will see the marketing for it and draw conclusions from trailers, TV commercials, etc. Upwards of $30-40,000,000 worth of TV and print advertising will occur. The media blitzes will hit in the middle of the annual holiday season for jewelers and could possibly turn a relatively defined small issue into a hot topic quickly. She cited The DaVinci Code and Munich as examples of movies which generated abundant talk before they actually opened, in some cases causing more discussion before than after. The DIC’s job is trying to ease any misunderstanding. She cautioned everyone to remember that media abhor a vacuum. If retailers won’t talk about the issues the media will get the story from someone else. She encouraged all trade members to always respond. The facts do not speak for themselves; we know them and must put them forward. Morrison cautions that Warner Brothers will insist their film is not political and will portray any attempt by the trade to give different perspective as political. They may refute the idea that KPCS is working. They will highlight things in the film that will create a buzz. Additionally, with rumors about a great performance by DiCaprio we may expect more around February-March when the Oscars approach. Morrison says our response must be to tell the story truthfully and factually. An education campaign has been launched at www.diamondfacts.org. There is a tremendous amount of training there for sales professionals and information for consumers. Additionally, there are entities doing work in Hollywood to educate people about products, origins, long-standing ethical solutions and new ones taking place now.

Not too long ago the Minister of Botswana said that ‘to the rest of the world diamonds are a luxury, but to us they are bread and butter.’ Morrison was asked what can be done to get Botswana, Angola, the DRC and Sierra Leone to help amplify the good that can be done for the trade. She replied that the sentiment was on target, and those heads of state are being consulted. It is her hope that some of the leaders of these countries will make keynote addresses on the issue. When asked what she thought about Martin Rapaport’s comments and the concept of Fair Trade Diamonds, Morrison replied that we must simultaneously educate about our history, the status quo and new initiatives being taken. She said that the World Diamond Council is especially active; supporting the Diamond Development Initiative (DDI), working with the World Bank and the United Nations as well. Another question asked whether the trade’s concern about the movie was fueling media speculation. Morrison said it doesn’t matter, as we can’t control the media in any event. We can only be transparent and honest. She stated that this is an opportunity to address these things in the media. Michael Rae of the CRJP added that it is a good time to put “conflict-free” in perspective: “To ignore the people of Africa and buy elsewhere would be a disaster,” he said. “We need to find solutions for clean mining and manufacturing. “This is not an us versus them proposition - it is an US proposition.”

Tom Moses, head of the GIA Laboratory, also addressed synthetics and treatments. He said that a fundamental tenet of a lab is to set standards and maintain them with proper quality controls. According to Moses, consistency is vital and challenges exist because the gemstone industry is not static. He said responsible labs need to do several things: (1) Invest in instrumentation and technical staff who can consistently ID treatments and synthetics. (2) Maintain a program to inform the lab’s constituency about the issues and pertinent changes. (3) Also inform the industry about the issues. Moses gave an example of a past problem with natural emeralds. He said that although treatments were recognized in 1990 not enough was done to inform the consumers and industry in the mainstream, thus there was a loss of confidence: “In the end it worked out, but this will not always be the case.” With regard to synthetics, Moses said GIA is about to issue more detailed reports about synthetic and lab-grown diamonds. A number of bodies are approaching this in a thoughtful way. “Not everyone is going to agree, but we need to do the responsible thing for the end-user” he said. He believes labs must increase awareness about synthetics and treatments and have proper tools for identification. Fragmented solutions will only create confusion and a loss of confidence. Proper ID and terminology are vital for the marketplace, and new technologies will not go away, they will continue to present challenges. Moses was asked if there was a concern that labs are misleading consumers by asserting that a subjective opinion is science. He replied by saying he challenges subjectivity a bit; the GIA uses visual observation with instrumental measurement to support color grading. Moses closed by saying that what the labs are doing today is not perfect but it is far better than the situation that existed a few decades ago.

Michael Rae, CEO of the Council for Responsible Jewelry Practices has had extensive experience in international mining, and even led the World Wildlife Fund (WWF) Mining Certification Evaluation Project. He stated that he has had no criticism from his NGO colleagues for taking up his position with the CRJP. Additionally, Earthworks and other NGOs are willing to work with organizations, and this industry needs trust to be able to exist. Rae’s observations were based on the emotional aspect of jewelry to the buying pubic. He said that if you taint the dreams with ethical issues those dreams become a nightmare. Jewelry must respond to challenges if jewelry is to be a repository for consumers’ dreams. Each link in the chain, from mine to retail, must add value, both environmentally and on humanitarian levels. Mines that operate in a clean, fair fashion and manufacturing processes which are safe, clean and fair will do this, he says. We must have worthy representation of peoples’ dreams. Rae discussed a litany of services that show what we can do, such as schools in India and HIV clinics in Africa. He announced his agreement with Rapaport’s statement that “diamonds are crap unless they reflect value.” Rae says ethical issues, destroying the environment and atrocities are the stuff of nightmares and have no place in consumers’ dreams. His organization, the CRJP, believes independent 3rd party monitoring is the current benchmark for trust - and offers that to the industry. Rae addressed the question; “I am just trying to run a business, why should I be concerned about anti-money laundering or all this?” He reinforced that people are interested in their purchase beyond the grading report and hallmark. They want to know, “what is the provenance?” By way of support of this sentiment, Jeffrey Fisher added “This is a reason I never refer to a diamond as a ‘stone.’ People want romance and we who are used to calling it a stone have acclimated, but I always call it a diamond.”

Chaim Evan Zohar is one of the industry’s foremost analysts. Noted contributor to Idex online, he discussed anti-money laundering and combating the finance of terrorism. Zohar was quick to point out that countries of the world are fighting money laundering and terrorism in all markets, not just in the diamond trade. In the USA the Patriot Act and other actions are in place to find suspicious activity and harshly penalize violations. In recent years more stringent requirements have been put in place abroad, with many of our overseas trading partners having stricter scrutiny and penalties than in the US. Still, it is a complex issue and there are global problems with harmonization. For instance, very strict systems exist in Israel and Belgium, but what is forbidden in Belgium is allowed in Holland. Zohar said that governments must make up their minds. What is not helping is that the media reports erroneous problems. In actuality most problems at the trade level are with governments, not consumers. When asked what our response should be to consumers who express concerns, Zohar pointed out that such problems in our industry revolve around cash transactions. Therefore, these laundering issues are not typically in our stores and retailers should make it clear they are dealing with a bank. They can rely on the banks to patrol this - we cannot do any better than our banks are doing. As for self-patrolling, Zohar said “Hey, if someone is giving you a check and her name is Isabel Bin Laden then check!/diamonds_info.but for the most part you’re ok.” He also made a point to praise what the JVC has done as ‘unprecedented’ in any other country.

Cecilia Gardner fielded questions about those who violate ethics on a smaller scale, such as inflated appraisals used in insurance situations. She encouraged anyone with proof or knowledge of this to call the JVC, as such practices are a violation of FTC regulations. For larger issues, Gardner encouraged people to fill out a Department of the Treasury SAR (suspicious activity report) if they see suspicious financial activity. There are laws to protect the reporter so that people are encouraged to come forward. JVC also protects the confidentiality of reports. Concern was expressed about situations where retailers and diamontaires have behaved unethically but nothing was done to “name and shame” the culprits. Gardner said they cannot be named publicly in each case because of secrecy requirements in connection with investigations. Furthermore, allegations must be fully substantiated before ‘naming and shaming’ can be done in order to be protected from liability. All panelists agreed that for ethical violations we, as a trade, should be more strict.

The capacity audience was attentive for the 90 minute presentation. Many attendees remained to meet with panelists one on one following the session.