De Beers Consolidated Mines Ltd. has been in control over the supply of diamonds globally. For more than 50 years, it practiced mining and distribution of natural diamonds. However, in 1983, it was faced with great challenges. One of its suppliers has stopped selling to the company. Also, an increase in the annual supply due to new discoveries is foreseen to double in three years. The company is now in a dilemma on how to address these challenges.
Pankaj Ghemawat and Toby Lenk
Harvard Business Review (391076-PDF-ENG)
October 16, 1990
Case questions answered:
Provide a complete analysis of the ethical dilemmas facing De Beers Consolidated Mines Ltd. over time and the actions they have taken in the face of these challenges, as well as your personal assessment of the situation and the advice you would give to the board of directors moving forward.
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De Beers Consolidated Mines Ltd. (A) Case Answers
Ethical Dilemmas Posed by the De Beers Group or De Beers Consolidated Mines Ltd.
The De Beers Group, or the De Beers Consolidated Mines Ltd., is an international corporation specializing in diamond mining, trade, and sales. After gaining control in diamond-rich African regions, founder Cecil Rhodes monopolized the diamond industry through the force of location and price-fixing1.
To attract buyers, the group used marketing to convince the general public that diamonds were a necessary luxury and conflated them with ideas of love and romance3.
De Beers has ultimately been forced to address this unethical conduct to remain marketable. These issues include monopolizing and inflating diamond value, deceitful marketing, and conflict-diamond trade. The following will address these dilemmas in detail and provide insight into their resolutions and implications.
One of the major ethical issues facing the De Beers Group is the creation of a diamond monopoly. By buying out the majority of land in South Africa known or suspected to be diamond-rich, De Beers was able to successfully exploit a burgeoning diamond industry as this land was adjacent or close to each other. This streamlined workers’ ability to mine effectively and intensively.
To fully cement control, De Beers Consolidated Mines Ltd. created “The Diamond Syndicate,” which partnered with worldwide diamond distributors and investors to solely trade De Beers products. This artificially inflated diamond value as De Beers controlled 90% of trade and set arbitrarily high costs1.
This was also done by limiting product availability, thereby driving up costs. This type of total control and monopoly is thus largely unethical. It allows a single party to exaggerate the market value of goods with a low true value for the sole benefit of personal financial gain.
This behavior also eliminates fair trade competition, the essence of the free market. When a single group controls an industry, this often leads to corruption at both the government and citizen levels, increases poverty, and limits business growth and innovation4.
Thus, this indicates that the actions of the De Beers Group are largely unethical as they prioritize personal gain over the well-being of those supplying their product and society as a whole. This is a clear example of the principle of ethical egoism, in which a person or party acts solely to increase their own benefit in place of following a moral code6.
As a result of their conduct, De Beers Consolidated Mines Ltd. has been forced to plead guilty to price-fixing charges, which were brought to light due to collusion with General Electric to set prices for diamonds artificially. However, the group acknowledged this only to receive permission to do business in the United States.
To move forward from this, my advice to the board of directors would be to issue a formal apology, acknowledging that their actions were incorrect and unethical. To turn the company around, it would be beneficial to bring in a task force to monitor deals and operations to prevent such corruption in the future.
In addition to monopoly, another example of De Beers’ unethical actions is false advertising. Before De Beers became powerful in the late 1930s, engagement and wedding rings, especially for the middle class, were rare, and the diamond was only used 10% of the time.
The De Beers Group aimed to change this to create an artificial demand for diamonds. This was done by implementing the infamous marketing slogan “A Diamond is Forever,” suggesting that diamond jewelry was a symbol of love guaranteed to last a lifetime.
This was untrue, as diamonds were just as likely to splinter or become tarnished as other gemstones. They further spread this message by giving lectures in schools to young girls on the value of diamond engagement rings, thereby conflating diamonds with love and romance3.
This power of suggestion was also seen in Hollywood movies and advertisements, where affluent women or beautiful movie stars were seen wearing and appreciating their diamonds.
This behavior is extremely unethical as it relates to untrue or mythical information to generate business profit. This need for lavish engagement rings has also played into the formation of the wedding industry, which brought in $78 billion in 20195.
De Beers Consolidated Mines Ltd.’s conduct is extremely unethical, duping millions of everyday people into believing that diamonds were necessary to demonstrate love. This again exposes their ethical egoism in acting to secure maximum revenue for personal gain at the cost of explicit deception.
The De Beers Group has yet to come forward to acknowledge its deceptive marketing. Their official website continues to…
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