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Crisis Mismanagement

Field Notes

Apr 7, 2022 5:37 AM   By Avi Krawitz
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RAPAPORT... The Responsible Jewellery Council (RJC) finally broke its silence on Alrosa’s membership. The organization was forced to respond after such prominent members including Richemont, Kering, Pandora and Watches of Switzerland withdrew from the organization in protest of the Russian company’s continued involvement. Executive director Iris Van der Veken quit her job over the issue.

Alrosa itself broke the news of its exile. In an uncharacteristically carefully worded statement on April 1, the miner announced it was suspending its membership “due to the current unprecedented realities.” A few hours later, the RJC put out a typically cautious statement saying its board had voted to accept Alrosa’s suspension. Alluding to its silence over the past month, the RJC explained it had embarked on a third-party legal process to ensure it had the authority to act.

But in the meantime, dissent over the organization’s apparent inaction had started to grow, both among RJC staff and its members. That dissatisfaction reflected the frustration within the trade over the global industry’s response to Russia’s invasion of Ukraine and the role that Alrosa plays in funding its government, which owns 33% of the miner.

The industry has walked a fine line between the 28% of global rough supply it gets from Alrosa and the ethics of buying Russian goods since the country’s February 24 incursion into Ukraine. The US placed sanctions on diamond imports from Russia but allowed for purchases of polished manufactured from Russian rough in other centers.

As a result, the sanctions didn’t widely affect the industry, since the US — a polished trading and consumer market — imports relatively few diamonds directly from Russia — predominantly a rough exporter. Had rough centers such as Belgium, India and the United Arab Emirates (UAE) implemented the same policy it would have had a far greater impact. That they – particularly Belgium – haven’t has come under increased scrutiny, including by Ukraine President Volodymyr Zelensky. Furthermore, a change in the US government’s interpretation of origin, as some members of Congress have urged, would also have more far-reaching consequences for the trade.

Market split

For now, the ability to evade the sanctions has left jewelry retailers and brands to make their own ethical decisions. The likes of Brilliant Earth, Signet Jewelers, and Tiffany & Co., along with the European luxury jewelry houses, said they wouldn’t buy Russian diamonds regardless of where they were polished, urging their suppliers to ensure they didn’t sell them such goods.

This has raised the stakes for the industry’s source-verification efforts and highlights the importance of knowing your supplier — and your supplier’s supplier. Furthermore, it has fast-tracked the bifurcation of the diamond trade into two streams, between kosher diamonds and non-kosher ones, whether from Russia, the Marange diamond fields in Zimbabwe, or other problematic sources. (see What Should We Do About Blood Diamonds, published in the March issue of Rapaport Magazine).

The RJC is important because it is best positioned to facilitate what and who is kosher. It verifies members’ responsible-sourcing practices via audits that ensure the company is meeting its chain-of-custody and code-of-practice standards.

With over 1,500 members, the RJC encourages members to do business with other members. Signet Jewelers, for example, sources most of its supply from RJC members and encourages its partners to do the same. That’s not a bad thing, as it results in a streamlined supply chain of RJC-compliant companies and motivates others to join the kosher aisle. Smaller dealers, manufacturers and mom and pops argue it is leaving them behind and empowering the larger players to take market share.

Signet, whose corporate affairs vice president, David Bouffard, serves as RJC chairman, didn’t need the RJC to enact a policy regarding Alrosa. The jeweler distanced itself from Russian supply in an earlier statement, in accordance with its Responsible Sourcing Protocols. Tiffany & Co. did the same, and Chopard and other jewelry maisons have followed suit.

Besides, there are various traceability programs that aim to facilitate supply-chain integrity through source verification. Those are gaining importance, as outlined recently in this column (see The Diamond Origin Dilemma published on March 16).

But they can’t replace or replicate what the RJC does. Those programs track the journey of individual stones, whereas the RJC works to ensure companies follow proper business practice — relating to human rights, labor rights, environmental concerns, or gender equality. The RJC plays a unique and vital role in setting compliance standards from which the industry can build a sustainable supply chain. Alrosa’s withdrawal, along with the protest exits and the way the drama unfolded, therefore has wider implications.

Unable to act

The fact that it was a self-suspension rather than an imposed one is noteworthy. The RJC has yet to state that Alrosa was not compliant with its standards. It seems that it cannot do so. Once submitted, on March 30, “the legal review validated the board’s earlier concern that it did not have the authority to vote on Alrosa’s membership suspension or termination without following due process stipulated in the RJC’s Articles of Association,” Bouffard wrote in a letter to members, seen by Rapaport News.

That the brands and Van der Veken withdrew prior to the legal review was submitted suggest they foresaw the conclusion and disagreed with it.

Perhaps Alrosa should have suspended its membership when it resigned from the RJC board shortly after the conflict began on March 3. One can assume that was the intention since legal due process began on the same date. From Bouffard’s letter, the articles of association require a vote on the matter, and it wasn’t clear if the board could take action. “The legal documents governing the RJC did not anticipate a situation such as that in which we find ourselves regarding Alrosa,” the letter stated.

Still, it did raise the question if Alrosa was refusing to quit or if it was threatening to sue over the issue. Or perhaps there was a difference of opinion within the board over whether it was at all necessary. After all, the industry is facing a serious supply challenge, and the US jewelers who are implementing their own Russian boycotts might not be able to fill their inventory requirements without the vast Alrosa goods.

Another possibility is that the board was genuinely stumped. It hadn’t faced such a challenge before, and it had never been clear if suspension was indeed the consequence of noncompliance.

In hindsight, the RJC’s biggest misstep related to its communication. It simply withdrew in the month between Alrosa’s resignation from the board and its self-exile as the crisis was broiling. It could have disclosed that it had initiated the legal review and the challenges it faced.

Furthermore, when it did speak, its messaging treaded legal and technical lines, while missing the human spirit of the industry. And now with the suspension, further questions arise. What would the consequence be of an RJC member sourcing from Alrosa? After all, it is legal to do so in such key rough-trading centers: Belgium, India and the UAE, where many of its midstream members reside.

A call to return

Admittedly, it is easy to point fingers at the RJC and side with the brands that seemingly took the moral high ground by withdrawing their membership. But the industry cannot discount the organization’s role and must also respect the due process it did indeed have to take.

From the outside, it also appears that the brands were grandstanding at the industry’s expense. After all, they have their own responsible-sourcing programs that underpin their brand message. Others in the industry don’t — and many of those companies rely on the RJC.

It is worth noting that it was only the brands that withdrew — not the manufacturers, dealers or other miners. That is because the stakes are higher for businesses in those segments of the market. Without the same branding at their disposal, they need the RJC to underscore their ethical and sustainability credentials.

The RJC was steadily developing a brand presence of its own under the guidance of Van der Veken and Bouffard. That their partnership ended so abruptly, and with apparent animosity, is a shame.

Over the past three years, the RJC has transformed from a technocratic, audit-centric organization to one deeply engaged in the industry, taking a leading role to make a true difference. As the organization’s “Create Beautiful” campaign states, “The jewelry and watch industry has a larger ambition to contribute to a better world.” The RJC was facilitating that path.

The campaign video has understandably been removed from all platforms. It featured the CEOs of some of the brands that in the past week resigned — and most significantly that of Alrosa. Regardless, it was an authentic display of unity within the trade, setting out a clear route toward sustainability, and demonstrating just how far the RJC has come.

That all unraveled in a few short weeks. But the withdrawals also demonstrated a yearning within the industry for leadership on the Russian supply issue. The sanctions and the RJC’s seemingly vague messaging have created confusion and uncertainty in the trade. The real danger lies in the possibility that all will affect consumer confidence to buy jewelry.

Indeed, the real issue is Russia, not the RJC. Ultimately, it’s left to each business to use the tools at their disposal to underline their promise of ethical supply.

It would be best for the industry if the brands return to the organization and work to improve it. As Bouffard emphasized, “We will continue striving to create an environment in which those members who have resigned feel confident in the RJC and become members again in the future,” he wrote.

The organization can and must still play a leading role in the industry’s sustainability and responsible-sourcing effort. It’s time to create beautiful again — and for the RJC to step up as it has in recent years with clear and effective messaging.
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Tags: Alrosa, Avi Krawitz, Brilliant Earth, Chopard, De Beers, diamonds, jewellery, Jewelry, Pandora, Pomellato, Rapaport, Responsible Jewellery Council, Richemont, RJC, Signet Jewelers, Tiffany & CO., Watches of Switzerland
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