GOVERNANCE IN THE DIAMOND VALUE CHAIN: THE RESPONSIBLE JEWELLERY COUNCIL

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GOVERNANCE IN THE DIAMOND VALUE CHAIN:

THE RESPONSIBLE JEWELLERY COUNCIL

Author T.P.B.M. Schouteten Rijksuniversiteit Groningen

t.p.b.m.schouteten@student.rug.nl

Supervisor Prof. Dr. D.A. de Waard Rijksuniversiteit Groningen

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ABSTRACT

This exploratory research looks into the ways in which governance is organised within the diamond and diamond jewellery value chain. Specifically, this research deals with one of the relative up and coming standardisation and certification schemes for organisations within aforementioned value chain, namely the Responsible Jewellery Council (RJC). The influence the RJC has on her member-organisations regarding the sustainability of the diamond and diamond jewellery value chain is tested by interviewing experts within the chain on the subject of two academic theories: the institutional theory and the governance of global value chains (GVC) theory.

For the institutional theory, three sub-theories have been tested. Regarding coercive isomorphism, this research found that formalised pressure exists within and around the RJC via its standards. Regarding normative isomorphism and governance as a means of normalisation, this research concludes that in the process of setting norms within the diamond and diamond jewellery value chain the RJC definitely plays a role. Regarding mimetic isomorphism, this kind of influence is by a force that may well be described as peer pressure or a push effect. However, it is doubtful whether these influences are directly caused by the RJC’s doings. In other words, the RJC can be considered as being an enabler and facilitator of influencing instead of being a creator of influence. For the governance of GVC theory, two additional sub-theories have been tested. Governance as a driving mechanism seems somewhat in place when one looks into the workings of the RJC. Buyers tend to have more power to determine how resources are allocated within the diamond and diamond jewellery value chain and therefore within the RJC, but this power-asymmetry is limited. With regard to governance as coordination, the conclusion is that the value chain can be qualified as being market relations case, in which levels of explicit coordination and power asymmetry are low: there are no organisations that can exert a vast amount of power by themselves vis-à-vis the value chain.

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I. INTRODUCTION

“The predilection for adornment which has animated all nations throughout the history of the World will only disappear with humanity itself. Who does not wish to wear a modest diamond? Who does not wish to add a second one to the first? Who does not entertain the desire of possessing ever finer and grander stones? Who does not wish to give one of these marvels, in order to see joy sparkle in the eyes of the one beloved?”

Quote by Joseph Asscher, who in 1907, in Amsterdam, cleaved the world’s largest diamond crystal, the 3,106-carat Cullinan

As the above-depicted quote shows, diamonds possess many beautiful and admirable traits. Made out of pure carbon, they are archaeological wonders. Indeed, diamonds are formed within the earth’s centre and are hurled upward with tremendous force to the earth’s surface. After being excavated by explorers, whether it be in the Siberian permafrost or in the Kalahari Desert, the diamond in the rough is cut and polished by skilled sculptors. Their unparalleled beauty and seemingly indestructibility have led to the endowment of supernatural powers and to the creation of folklore and legend (1).

Elaborating on these qualities, the activities by which diamonds are mined, manufactured into jewellery and eventually sold also incorporate many admirable traits: over 5 million people globally have access to appropriate healthcare thanks to the revenues earned by the diamond industry, over 10 million people globally are either directly or indirectly supported by the diamond industry and the diamond mining industry generates a considerable amount of the gross domestic product of various African countries (2). It is for these reasons that the saying “Diamonds Do Good”, a catchphrase used by the Diamond Empowerment Fund in their campaign on youth education empowerment and leadership development (3), is rightfully used within the diamond industry.

However, both at present-day as well as in days long past, the drawbacks that come with the excavation and trade of diamonds and the sale of diamond jewellery have become clear at various occasions. Visible and well-known examples can be found in the civil wars that raged in the 1990’s in Angola and Sierra Leone, the latter one was depicted in the popular movie Blood Diamond, as well as in present-day issues such as the rumours that a torture camp is run in the Marange diamond field, Zimbabwe (4). Cases that are less visible or even invisible to the public include the rise of synthetic diamonds and possible threats they pose to demand for natural diamonds and the creditability of diamonds in general, as well as the financing of the diamond industry, which undergoes structural changes in the wake of the financial crisis. Both kinds of issues contribute to the challenges with which the diamond industry has to cope, both at this moment and in the future (5).

Background

In order to manage the looming challenges, including those mentioned in the previous section such as the Angola- and Sierra Leone-cases, various organisations have been founded and initiatives have been implemented by the diamond and diamond jewellery industry.

Amongst the initiatives employed, the Kimberley Process is considered to be one of the most appealing examples. The Kimberley Process was founded to discuss ways to stop the trade in so called ‘conflict diamonds', which are diamonds that fuel violent conflict and human rights abuses (Global Witness, 1998), and ensure that diamond purchases are not financing violence by rebel movements and their allies seeking to undermine legitimate governments (6). Apace with said initiatives, organisations such as the Diamond Empowerment Fund (DEF) have been established. The DEF supports transformative initiatives in diamond communities throughout the world by supporting educational programmes (7): organisations such as the DEF show that a willingness exists within diamond sector to improve its sustainability and its credibility.

Research question

In the course of this thesis and the research that it represents, this research focusses on one organisation in particular: the Responsible Jewellery Council (RJC). This organisation belongs to the group of relative new and rising bodies throughout the value chain. Founded in 2005, it offers standards and certifications by which sustainability and integrity are to be achieved throughout the diamond and diamond jewellery value chain (8). This organisation deservers further research for two reasons.

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The first reason comes from the significance of the organisations that are already a member of the RJC. Major players within the value chain such as De Beers, holding approximately 36% of the market of global rough diamond production (9), Rio Tinto, owning some of the world’s largest mines in Australia, Canada and Zimbabwe (10), and Cartier, employing over 300 diamond-boutiques worldwide (10), belong to the founding members, whilst some 500 organisations are a member of the RJC momentarily. As mentioned before, this shows that an urge to increase sustainability and integrity exists throughout the value chain. However, the question that remains to be answered is what the role of the RJC is in achieving this goal and whether it succeeds in fulfilling its argued role. The second and final reason that is imperative to mention here, lies in the conversations that I’ve had upfront with various persons in the diamond industry. There appears to be a positive attitude towards the RJC and the goals it strives to achieve. However, there has also been some negative media exposure regarding the ways in which the RJC follows up on rumours that its member-organisations do not comply with the RJC-standards (12, 13). These reasons and the accompanying conclusion sparked my interest: knowing that the RJC exists, knowing what its purposes are and being aware of the issues the diamond and diamond jewellery sector is dealing with, I am keen on getting to know what the role of the RJC is in these value chain-wide developments and whether or not it succeeds in fulfilling this role. The afore-mentioned interest leads to the following main research question, which I will try to answer in the remainder of this thesis:

How does the Responsible Jewellery Council influence its member-organisations, regarding the sustainability of the diamond and diamond jewellery value chain?

For a further elaboration on this reasoning, I refer to the theory section of this thesis. Specifications & limitations of this research

Before stating an overview of the remainder of this thesis, it is important to mention and explain some of the choices made in executing this research.

Firstly, this research only looks into the diamonds and diamond jewellery sector. The RJC does focus on other materials as well, such as platinum and gold (14). However, due to time constraints and data resources available during the course of this research, the primary focus of the subsequent chapters is on the diamond-affiliated part of the value chain.

Secondly, the wording “value chain” is being used throughout this thesis instead of the term “supply chain”. The reason for the usage of the former term instead of the latter one can be found in the clear distinction that exists between the two: the supply chain exhibits a focus on improving efficiency and reducing waste, whilst the value chain is more focussed on creating value in the eyes of the customer (Feller et al., 2006). In other words, whilst the prevention of issues such as child labour and forced labour are valuable in the eyes of the customer and therefore included in the scope of the value chain, they are not necessarily improving efficiency or reducing waste and therefore not included in the supply chain. It is for this relatively broad range of the term “value chain” and the relevancy of this term that it is used as a basic concept throughout this thesis.

Thirdly, the definition of a global value chain that is used throughout this thesis refers to a set of intra-sectoral linkages between firms and other actors, through which the geographical and organisational reconfiguration of global production is taking place (Gibbon, Bair & Ponte, 2008).

Overview

In the following chapters of this thesis, I attempt to provide an answer to the main research question posed in this thesis. First of all, a theoretical framework is outlined by which the research question can be explained. This framework is based on the knowledge that is currently available within the academic literature. The third chapter exemplifies the methodology and the accompanying ways in which I have acquired my data. The conversion of these data into information, by which it’s possible to answer the main research posed in this thesis, is put to shown in the fourth chapter. The fifth and final chapter consists of two section: the first section draws a conclusion to the aforementioned research question, whilst the second section poses the discussion points which arise as a consequence of the research that I have performed. Finally, an overview of the literature and references used in this research have been included in the appendix at the end of this thesis.

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II. THE RJC: A BACKGROUND

CSR & governance

Before venturing into the specifics of the organisation under investigation, namely the Responsible Jewellery Council, a further elaboration is needed on why corporate-social responsibility (CSR) is a significant factor within the diamond and diamond jewellery value chain.

CSR has been defined by the United Nations as “a management concept whereby companies integrate social and environmental concerns in their business operations and interactions with their stakeholders”. Additionally, the United Nations state that CSR is “the way through which a company achieves a balance of economic, environmental and social imperatives” (1).

Following this definition, it is clear that various instances of non-compliance to CSR have occurred throughout the history of the diamond sector; refer to the examples mentioned in Chapter I. These examples show why CSR is of extra importance to the value chain under investigation in this thesis: CSR is essential to all enterprises, whether it is in an ethical or financial sense and regardless of the business in which they operate (Crane et al., 2009). However, responsibility for corporate actions is of an extraordinary importance to the diamond and diamond jewellery value chain because of the consequences of non-compliance to this responsibility. These consequences are relatively far-reaching: examples include civil wars which have been prolonged because of the financial resources that both rebels and governments obtained by dealing in conflict diamonds (2) and the instances in which both children and adults are forced to excavate diamonds in several African countries (3). Many deeds, including those mentioned in this chapter and in the previous chapter, would have been virtually impossible if influential actors within the value chain did adhere to the principles of CSR (Lujala et al., 2005; Ross, 2007; Zack-Williams, 1999). It is for this reasoning that the ideas of CSR and compliance to these ideas are of great importance to the diamond and diamond jewellery sector.

Continuing on said exceptional importance of CSR to the diamond and diamond jewellery value chain, the ways in which adherence to CSR can be achieved throughout the value chain are meaningful to the actors within the value chain.

First of all, in a broad sense, issues such as globalisation and corporate scandals have shown the need to embed CSR in corporate values, corporate strategies and corporate governance mechanisms. Academic literature has recently highlighted that the theme of CSR is positively correlated with the implementation of specific governance practices of firms, by which firms can deal with issues such as the ones mentioned afore (Sharma & Khanna, 2014; Stuebs & Sun, 2015).

For the diamond and diamond jewellery sector in particular, both corporate scandals and globalisation have had and still have a tremendous impact on the ins and outs of the sector. Research has shown that one of the major causes for corporate scandals to come into existence within the diamond sector is the lack of governance by private and/or public entities (Claasen & Roloff, 2012), whilst a lack of public governance of globalisation issues within the diamond and diamond jewellery value chain causes the rise of private governance in tackling said issues (Richman, 2008). In a practical sense, this need for governance, whether it be public or private, causes the emergence of organisations and initiatives that are entrusted with the promotion and overview of said governance. The organisation under investigation in this thesis is also striving to improve governance throughout the diamond and diamond jewellery value chain. In the next section, I will provide a background regarding the RJC after which the RJC is positioned within the academic literature and an attempt is made to give a first glance into the role it has within the aforesaid sector-wide governance-movement.

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7 The RJC: a background

The Responsible Jewellery Council is a private entity founded in 2005 as the Council for Responsible Jewellery Practices. At the time, it was comprised of 15 organisations which included several major actors within the diamond and diamond jewellery value chain. Organisations active in mining and retail, such as Rio Tinto, Tiffany & Co and Cartier, trade organisations such as Jewellers of America and other major actors such as ABN AMRO (4) belong to the group of founding members. Nowadays, the RJC focusses on the gold, platinum and diamond sectors and over 400 businesses are part of the RJC-accredited group of organisations, representing over $50 billion of annual jewellery sales (5).

The RJC wants to build a community of confidence for both internal and external actors of the diamond and diamond jewellery value chain. The Council strives to do so by setting standards on behalf of its members, with input from civil society organisations and other interested parties (6). This possibility for stakeholders to deliver input exists throughout the structure of the Council, which becomes apparent by looking into the diverse composition of vital organs such as the board of directors and the standards committee. A first distinct connection to the relevant academic literature, namely the stakeholder theory, appears at this point: it is further explained in the section regarding the academic background of this research.

In an attempt to try and answer the main question of this thesis, namely the ways in which the RJC influences its member-organisations regarding the sustainability of the diamond and diamond jewellery chain, it is important to state the direction in which the following theoretical paragraphs head. The RJC consists of a group of interconnected organs, which cooperate to “advance responsible ethical, social and environmental practices, which respect human rights, throughout the diamond and gold jewellery supply chain, from mine to retail” (6). However, the most vital parts of this group of organs for this thesis are the standards committee and the board of directors. The reason for this lies in their respective functions: the proposal of changes in the RJC standards and the approval of said proposals. These standards create the basis of which the RJC can influence its member-organisations in effectively fulfilling their role in advocating sustainability of the value chain. Next to this, said standards need to be complied to by member-organisations in order to achieve actual RJC-influence. Member-organisations and candidate member-organisations are therefore assessed by independent external auditors.

In summary, notwithstanding the fact that other actors and processes within and surrounding the RJC are of a vital importance to its functioning, two processes are relevant for the matter under question in this thesis: the way in which the RJC standards are composed and the way in which compliance to these standards is achieved. The following sections thoroughly describe both processes.

The RJC: setting of standards

Amongst the standards that the RJC issues and periodically updates, the RJC Code of Practices is the first and foremost combination of rules, regulations and procedures which establishes the relevance and authority of the RJC within the diamond and diamond jewellery value chain (7). The Code aims to provide a common standard that builds on international standards for responsible business practices, to set out expectations regarding policies, procedures and practices in order to manage issues within a member’s control, to establish provisions that can be independently audited and to drive improvement of business practices for the diamond and diamond jewellery chain. On an operational level, the Code aims to improve the sustainability of various parts of the value chain: exploration and mining; diamond trading and wholesaling; diamond cutting and polishing; and jewellery manufacturing and retailing.

The Code is set by the standards committee (6), which comprises of two kinds of members: a maximum of 14 persons who are elected to represent the member-organisations and a maximum of 12 persons who are appointed by the RJC board of directors to represent the major stakeholders of the RJC. Relevant stakeholders include, but are not limited to, non-governmental organisations (NGO’s), standards-setting organisations with harmonisation interests, academic and research institutions and auditors. The manning of the committee is based on the idea that a balance of interested parties is to be maintained by the RJC.

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In adopting a revision of the Code of Practices, the RJC aims to operate in conformance with the ISEAL Code of Good Practice for Setting Social and Environmental Standards (8) and as a consequence, decisions are to be taken in consensus. However, consensus in this case is characterised by the absence of sustained opposition to substantial issues by any important stakeholder group: it is not necessarily unanimity. A majority vote will take place amongst the committee members in case a consensus cannot be reached. Interested parties may attend the committees meetings and are eligible to propose input, but they are not allowed to cast a vote. Once an adaptation of the Code has been approved by the standards committee, the executive committee will formally approve it. This merely an authorisation and is therefore not included in the research model used in this thesis.

The proposed adaptation is then forwarded to the RJC board of directors, which carries the supreme authority and responsibility within the RJC. The board reflects the entire value chain and is elected by the RJC member-organisations. Any final decision regarding changes of the Code are to be made by the board. As is mentioned before, the board appoints major stakeholders, so that they officially may cast their vote. Next to this, approved stakeholders are able to file proposals regarding revisions of the Code of Practices. This leads to the assumption that the approved stakeholders and other supporters, although they have no formal influence in the RJC board, can influence the modifications in the Code via the board by obtaining informal influence by obtaining an official status within the RJC (9).

In the end, this leads to an updated and approved version of the RJC Code of Practices, which can then be used in assessing both member-organisations and candidate member-organisations. An overview of the processes which lead to a new version of the Code of Practices is included in Figure 1.

Figure 1: Setting of Standards (6)

The RJC: assessment process

Based on the Code of Practices, the RJC employs an Assessment Manual (10). This manual shows the ways in which adherence to the Code of Practices can be achieved and explains the roles in doing so for RJC Members as well as auditors. This manual depicts two intertwined processes, namely the process for achieving RJC Certification by candidate members, as well as the process of periodic assessments of certified members. The former process puts forward a standard which parties should live up to in order to be accredited by the RJC, whilst the latter process aims to drive continual improvement within and throughout the RJC member-base. In assuring that the two processes are functioning effectively, the RJC employs an assessment process in which three actors can be identified.

The RJC is responsible for the design of the RJC Code of Practices and the governance and operation of the RJC certification process. This responsibility includes reviewing and updating the RJC Code of Practices, so that they are current, relevant and that they meet the needs of member-organisations and stakeholders. Amongst the other responsibilities that the RJC has to cope with, the most notable ones are the accreditation of third party auditors to conduct Certification Audits and the creation of awareness with stakeholders of the value that the RJC adds to the diamond and diamond jewellery chains.

Approved stakeholders RJC Board RJC Code of Practices Standards committee Supporters

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Said functions are put into practice by a duo of RJC-organs, as is mentioned in the section regarding the setting of standards. On the one hand, the standards committee is tasked with the design, implementation and continuous improvement of RJC Certification and the accompanying changes to formal documentation, whilst on the other hand the RJC board is entrusted with the ultimate responsibility for the management of the RJC and therefore has a final say in approving changes of the RJC Code of Practices.

The members or candidate-members are responsible for operating their businesses in conformance with the Code of Practice. Moreover, both members and candidate-members need to engage a RJC-accredited auditor to conduct the certification audits. By doing so, a third party mechanism is put into effect. The RJC proposes the RJC Code of Practices, but it lacks the resources to audit all of its members on a continuing base. The audits are therefore performed by an external, accredited auditor, whilst the RJC explicitly states that it does not act as an auditor, nor undertake the certification of members in its own right.

Next to the aforementioned responsibilities, the RJC member-organisations are expected to promote responsible business practices within their supply chain. An easy overseen, though very important characteristic of this expectation is that the wording “promotion” is employed: the members are not obliged nor asked by the RJC to only deal with RJC-accredited organisations. As a consequence, there is a possibility that, whilst its suppliers and customers are not eligible to be a part of the group of RJC-accredited organisations, an organisation can still be part of this group in case its business is in line with the Code of Practice.

The auditors are responsible for verifying whether a Member’s systems are in conformance with the RJC Code of Practices being assessed and providing a Statement of Conformance. In particular, this means that non-conformances which require corrective actions are to be identified, unattainable audit objectives are to be recognised and Statements of Conformance are to be drafted. An important feature of the auditor’s role is its legal relationship with the two other actors: the auditor is related with the member that has engaged them, not with the RJC, whilst the auditor cannot advise nor assist the member in its self-assessment because this might cause a conflict of interest. These facts provide an insight in the independent roles that the RJC tries to employ between the various actors of the RJC-member-auditor triangle.

The above mentioned process regarding admittance to the RJC and the continual auditing after admittance leads to an overview of the assessment process, which is depicted in Figure 2.

Figure 2: Assessment Process (7)

Auditors Certified members RJC Board RJC Code of Practices Candidate members Standards committee

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10 The RJC: research framework

In combining the process by which the RJC Code of Practices is established and the process by which this Code of Practice is employed in a practical sense, an overview of the framework that is under investigation in this thesis can be drafted; it is included in Figure 3. In drafting said framework, one party needs to be included to show a comprehensive overview of the RJC processes, namely the management team. The management team functions as the RJC and works with the RJC board, committees and a wide range of external stakeholders to support the design and implementation of a credible certification program for the jewellery supply (11). It is included in the framework because it functions as an indispensable link between the standard-setting process and the assessment process.

Figure 3: Structure of the RJC processes (7)

It is important to note that several limitations become apparent by looking into the specifics of the RJC’s structure. The main focus within the RJC is on business-to-business value, whilst the RJC model allows members to show that steps are undertaken in order to increase the percentage of the supply of target minerals and metals that adhere to the RJC standards. It is for this reason that the RJC, as mentioned before, cannot oblige nor suggest its members to merely do business with RJC-certified organisations in the value chain. Next to this, material differences exist between the various parts of the diamond and diamond jewellery value chain. This leads to challenges regarding the implementation of the RJC standards: the environmental and social issues are much larger, much more complex and much more disputable at a large-scale mine than they are at a small retail jewellery store (12).

The RJC is aware of these issues and followed up by initiating its Chain-of Custody (CoC) Certification, which is a tool by which RJC member-organisations can strive to achieve responsible production at each step of the value chain (13). Due to limited resources available during the course of this research, the CoC Certification is not included in this thesis and its underlying research: only the RJC Code of Practices is under investigation in the course of this research. An elaboration of the practical implications of said limits is provided in Chapter III, Data Collection.

In an attempt to connect the ideas behind the RJC processes with the academic literature, two applicable theories are proposed in this thesis: the governance of global value chains (GVC’s) and the institutional theory, both of which will be presented in the subsequent sections.

Auditors Certified members Approved stakeholders RJC Board RJC Code of Practices Standards committee Candidate members Supporters Management team

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III. THEORETICAL BACKGROUND

This chapter consists of the proposition of two academic theories, containing six sub-theories, which will make up the academic background of this research. Additionally, the relevancy of said theories in connection with the issues under question in this research will be stated.

Governance of GVC’s

The origins of the literature built around governance of GVC’s can be found in the world-systems theory. The world-systems theory is of a macro-sociological nature and seeks to explain the dynamics of the capitalist world economy as a total social system by looking into historic evidence (Martínez-Vela, 2001). It is relevant to note for this research that the world systems theory views the commodity chain as a network of labour and production processes, whose end result is a finished commodity (Hopkins & Wallerstein, 1994). In the case of this thesis, the diamond and diamond jewellery value chain can be interpreted as a network that leads to the finished commodity, namely diamonds and diamond jewellery.

GVC analysis has developed over the course of the recent decades and moved away from its world-systems theory roots. Instead of focusing on commodity chains that are driven by capitalist intentions or systemic logic, a firm-centered conceptualisation of governance was increasingly used. Moreover, the role that particularly powerful companies—so-called lead firms—play in global economic governance has been viewed upon in a drastically different way: instead of the influencing of international organisations by said firms in order to change or impose regulations that enable capital accumulation, lead firms are viewed upon as being the core actors in a segmented system of global economic governance (Gibbon, Bair & Ponte, 2008).

At this point, it is possible to identify a first, broad connection between the theoretical background of governing global value chains and its practical implications. The RJC has been founded by several lead firms within the diamond and diamond jewellery industry, in order to deal with the challenges that the diamond and diamond jewellery value chain was and still is facing. Considering that the RJC is a private organisation and therefore has no legal basis to impose regulations throughout the value chain, the Council can be viewed upon as being a core actor in striving for economic governance in the global diamond and diamond jewellery value chain.

By taking a further look into the governance of GVC’s theory, it distinguishes itself by its approach to economic globalisation or, to be more precise and in the context of this thesis, the globalisation of production (Gibbon, Bair & Ponte, 2008). Two aspects of this trend show why it is relevant for the evermore globalising diamond and diamond jewellery industry.

The current globalisation of production is associated with increased levels of specialisation. Economic activity in developed countries increasingly focuses upon product design and development, on financing of production and consumption and on marketing and retailing. Oppositely, some developing countries are increasingly devoted to manufacturing per se, and to the provision of some manufacturing-related services. At the same time, however, industrial production of even a basic variety has failed to take off in a large number of developing countries, which remain dominated by agricultural and resource extractive activities (Gibbon, Bair & Ponte, 2008).

Said increase of specialisation is a prominent characteristic of the diamond and diamond jewellery industry. In order to oversee the specialisation within the industry, first an overview of the value chain is needed. Based on the Global Diamond Report, drafted by Baines & Co., the Diamond Fact Chart, provided by the World Diamond Council, the Sustainable Jewellery Guide, composed by ABN AMRO, and various preliminary interviews with experts throughout the value chain, an overview of the core activities in the diamond and diamond jewellery value chain is included in Figure 4 (1, 2, 3). The three tiers put forward in Figure 4 are the lines according to which the geographical and economic specialisation takes place within the industry.

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Regarding the geographical specialisation, the activities mentioned in Tier 1 are mainly taking place in so-called third world countries or in remote areas of second and first world countries. The biggest producers of rough diamonds between 2008 and 2013 were in descending order Congo, Russia, Botswana, Canada, Angola and Zimbabwe (3, 4). By moving further upstream the diamond and diamond jewellery value chain, a significant notion is to be made: the geographic spread of the activities is moving away from areas that are economically less developed and therefore more focussed on resource extractive activities. Instead, upstream activities are undertaken in areas that are economic abundant and therefore more focussed on manufacturing and retailing. This is supported by the fact that activities that take place in Tier 2 are mainly employed in India, Southern Africa and Israel, whilst the activities in Tier 3 are put into practice in Europe, China and again India. These findings support the case that a significant geographical specialisation takes place within the value chain and that the governance of GVC’s theory is applicable to this particular case.

The applicability of the theory is further supported by the amount of economic specialisation within the value chain. In particular, the amounts of companies that are involved in the various Tiers are extremely diverse. Less than 100 companies are involved in the exploration and mining activities worldwide, with the top five players providing approximately 70% of the traded volume and 85% of the traded value. In contrast, roughly 5000 businesses are occupied with the trade in rough diamonds, sorting activities and cutting and polishing, whilst circa 10.000 companies are involved in the jewellery manufacturing activities and about 200.000 businesses focus on the retail sales of diamond jewellery (1). Again, these findings support the assumption that the use of GVS’s theory is valid. To make the governance of GVC’s theory a major part of the theoretical backbone of this thesis: specialisation per economic activity in general and employing economies of scale in particular are prominent aspects of the diamond and diamond jewellery value chain.

Now that the relevance of the governance of GVC’s theory is clarified, an in-depth look into the specifics of the theory is possible. Three interpretations of the governance of GVC have chronologically emerged in the literature in recent decades.

Governance as a driving mechanism

For this interpretation, governance has been defined as “the authority and power relationships that determine how financial, material, and human resources are allocated and flow within a chain”. This type of governance can be divided in two categories: driven by producers and driven by buyers. If governance is a function employed by a lead firm type, then the first category of value chains is driven by manufacturers/industrial capital and the second category is driven by retailers and marketers/commercial capital (Gereffi, 1994). However, several criticisms have been posed regarding this view of governance: the producer-driven versus buyer-driven distinction was not applicable to many value chains, e.g. both producers and buyers are major influencers within the chain and because external parties, those not directly supplying a product or service, can have an important say in the governance of the chain (Daviron & Ponte, 2005; Ponte, 2008). It is because of these criticisms that new interpretations of governance of GVC have been put forth in academic literature.

Exploration

Mining _Sorting

Cutting & polishing

Jewellery manufacturing

Retailing Rough diamond

trading

Tier 1

Tier 2

Tier 3

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13 Governance as a way of coordination

In this interpretation, the buyer-driven versus producer-driven dichotomy is abandoned. Rather, a governance typology in which the governance of GVC can be characterized in one of five segments. These segments are dependent on three variables: (1) the complexity of the information and knowledge required to sustain a particular transaction; (2) the ease with which this information can be codified and efficiently transmitted between the parties; and (3) the existing capacities of potential supply bases in relation to the requirements of the transaction (Gereffi, Humphrey, & Sturgeon, 2005).

The five segments are, in order from low to high levels of explicit coordination and power asymmetry: (i) market relations, in which transactions are easily codified or standardised, product specifications are simple and supplies have the ability to produce, regardless of buyer-demands; (ii) modular value chains, in which even complex products can be codified and suppliers can use generic manufacturing competences. This latter point is of importance because the need for buyers to closely monitor and control design production processes is relatively low; (iii) relational value chains, in which products are complex, codification of products is not possible and suppliers have high capabilities. Frequent communication between buyers and suppliers is therefore necessary; intangible regulation then occurs through reputation, social ties and/or spatial proximity; (iv) captive value chains, in which complex products can be codified, but the suppliers have a low capability. Monitoring and intervention by buyers is therefore necessary and a transactional dependence of the supplier and the buyer; (v) hierarchy, in which products are complex and cannot be codified. Next to this, supplies are competent to a limited degree. Design and productions skills therefore need to be developed in-house by the buyer. As a consequence, the power asymmetry between actors and the level of explicit coordination increase (Gereffi et al., 2005; Sturgeon, 2001; Sturgeon, 2002).

As a consequence of the rigid break with the view that governance of GVC is a driving mechanism, this interpretation provoked many reactions and criticisms. Gibbon and Ponte (2005) stated that by conceptualising governance strictly in terms of forms of coordination, the main advantage of conceptualising economic relations in terms of chains is lost: decisions made at any point in the value chain, as a consequence of coordination, will cause so called ripple-effects or broader framework implications for a wide range of actors upstream and downstream in the value chain. Next to this, it is questioned whether the constraint shaping coordination forms are as structural as is proposed by Gereffi et al. Ponte (2008) found that the complexity and codifiability of transactions are strongly influenced by social constructs. These findings lead to a third interpretation of the governance of GVG’s theory within the academic literature.

Governance as a means of “normalisation”

Normalization is in this context not meant as a way of making things “normal”, but rather as a way of re-aligning a given practice so that it is in accordance with a standard or norm. In situating and analysing the many dynamics of buyer-seller relations in wider normative contexts, the convention theory is used. By using the convention theory, both the immediate normative environment of value chain actors, in their role as buyers and/or suppliers, and the broader normative framework context, which influences the designed purposes of products and services, are taken into account (Daviron & Ponte, 2005; Ponte, 2002; Ponte & Gibbon, 2005).

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14 Institutional theory

In explaining the role of the RJC within and throughout the diamond and diamond jewellery value chain, the institutional theory provides a valuable addition by its vision that it is expected by society that organisations adhere to the standards that are imposed on them (Deegan, 2002). This vision is put into practice by the works of institutional isomorphism, as proposed by DiMaggio & Powell (1983). According to their propositions, organisations implement similar processes or structures, whether it be the result of imitation or the result of independent development under similar constraints. This copying behaviour can be divided into three main types. Coercive isomorphism, which states that organisations implement changes within their structures or processes as a result of pressure from organisations on which they are dependent and by societal expectations. In many instances, this pressure is formalised in governmental mandates, contract law or financial requirements (DiMaggio & Powell, 1983; Bik & De Waard, 2012).

Normative isomorphism, which states that changes come about as a consequence of educational achievements and the norms that these achievements incorporate on the one hand and the norms that arise as a consequence of inter-organisational networks and in particular inter-hiring between firms on the other hand (DiMaggio & Powell, 1983). In short, educational backgrounds create norms within a certain profession and the norms put forward on the job further increase the like-mindedness of professionals within a group or within an industry (Bik & De Waard, 2012). Mimetic isomorphism, which states that as a consequence of uncertainty, standard responses are developed within an industry and mimicked by organisations that do not initially come up with or implemented said responses (DiMaggio & Powell, 1983). Institutional pressure therefore results into institutional isomorphism by the evermore increasing pressure for organisations to behave evermore conform the best-practice examples (De Waard, 2011). The three aforementioned mechanisms influence the expectations or norms, whether they are formalised or not, about what is acceptable and therefore legitimate. As a result of these expectations or norms, organisations are inclined to adapt their decisions to meet the external expectations and norms (Deegan, 2002).

Theoretical connection to data collection

Based on the theoretical background of this thesis, it is possible to design a questionnaire that is relevant in an academic perspective. This connection will be put forward in the subsequent chapter. An overview of the sub-theories is depicted in Table 1, which also depicts the statements that are used in the data collection process and to which sub-theory they apply.

Table 1: Application of theory in statements

Theory Questions

Governance as a driving mechanism Q5a, Q5b

Governance as coordination Q6a, Q6b, Q6c

Governance as normalisation Q3

Coercive isomorphism Q2

Normative isomorphism Q3

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IV. METHODOLOGY

With the practical background of the RJC explained and the placement of the RJC within the available academic literature completed, the search for an answer to respond to the main research question posed in Chapter I can begin. This chapter provides an overview of the ways in which this search is carried out. More precisely, the selection of the sources of data is explained as well as the ways in which said data is collected.

Sources of data

The goal of this research is to find out in what ways the RJC influences its member-organisations regarding the sustainability of the diamond and diamond jewellery value chain. As I have posed in the previous chapter, two processes are adamant in determining aforementioned influence: the process by which standards are set and the process by which both candidate and certified members are assessed. Figure 1 and Figure 2 show both processes, whilst Figure 3 proposes a combination of the two. The connections between the various actors show how they influence one another, how they influence either one of two processes and therefore how they influence the RJC workings as a total.

The best way to evaluate said influence would be by a direct assessment of the aforementioned connections. For example, the connection between the standards committee and the RJC code of practices and the connection between the code and the auditors could be assessed by respectively looking into the minutes of the standards committee and by looking into the auditors’ report. However, even for these two relatively straightforward connections an intangible element would easily be overlooked, let alone the intangible elements of the less apparent connections within the RJC and the connections surrounding the RJC.

For instance, the connection between the supporters and other approved stakeholders on the one hand and the standards committee on the other hand is almost impossible to materialise in a direct way. The minutes of the standards committee might be a way to achieve this materialisation, but these are not publicly available and, moreover, these would not include the “soft” processes that take place within the committee by which it is influenced by the stakeholders. Since the committee meetings are composed of 6 to 26 people and these meetings take place biannually (1), it is reasonable to assume that a major part, if not the largest part of the influencing process between the stakeholders and the committee happens via informal communication outside the committee meetings. The same sort of non-materialised communication is to be expected between the board and the standards committee, the management team and the board and the management team and the auditors because of the non-public nature of internal RJC communication. In order to grasp the intangible elements of these connections, a different means of collecting data than the use of official available documents is required.

Collection of data

By concluding that a direct way of materialising the relations between the various actors depicted in Figure 3 is not feasible, these relations should be made apparent by another method. Continuing on this reasoning, it is relevant to introduce a qualitative means of collecting data at this point. In particular, interviews can prove to be the most efficient and effective way to collect data, and thereby formulate an answer to the question asked throughout this thesis, because they offer a range of possibilities between thoroughly structured ways of acquiring data and fully open means of data-collection.

Various ways to conduct interviews have appeared throughout the academic literature. The most renowned options include the semi-standardised interview and the expert interview (Flick, 2009). The semi-standardised interview is known for its open way of questioning, its confrontational questions, its suggestions for explicating implicit knowledge and, perhaps most important for this thesis, the use of subjective theories. This last trait refers to the assumption that interviewees have a complex stock of knowledge about the topic under investigation and that this knowledge can be expressed spontaneously by the interviewees in answering an open and confrontational question (Groeben, 1990). Subjective theories are very applicable in conducting research on the areas of the value chain and the RJC: the interviewees are core actors in the model proposed in Figure 3 and their knowledge is likely to become apparent by giving them an opportunity to ventilate their experiences and assumptions regarding the functioning of the Responsible Jewellery Council.

In addition, the expert interview can be viewed upon as being a specific form of applying semi-structured interviews (Meuser & Nagel, 2002). Experts in this case have knowledge regarding technical processes, as well as interpretative knowledge regarding their professional sphere of activity (Bogner & Menz, 2002). This means that

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expert knowledge not only pertains to systematised specialised knowledge, but also to practical knowledge. One of the most common aims in using expert interviews is to explore and orient within a new field of knowledge. This aim is very applicable regarding the object under investigation throughout this thesis: little academic knowledge has been acquired regarding the sustainability of the diamond and diamond jewellery value chain, let alone the role of an organisation such as the RJC regarding stated sustainability. In exploring and understanding these fields of knowledge, the use of expert interviews is therefore particularly suitable.

This research will use a combination between the semi-standardised interview and the expert interview. The reasoning behind this is that, taking into account the lack of directly accessible information, the use of confrontational questions in interviewing experts throughout the value chain and giving opportunity to the experts to showcase their complex stock of knowledge of the topic under investigation, a comprehensive image regarding the RJC and the ways in which it influences its members can be drawn.

In conclusion, the data for this research will be acquired through interviewing the data-sources i.e. the actors in both the standard-setting process and the assessment process employed by the Responsible Jewellery Council. Composition of questions

In order to obtain as much information as possible, whilst keeping the data-acquisition structured and therefore academically relevant, I propose a set-up per question in which a brief explanation of the topic dealt with is stated. This clarification will be followed by a question, to which the interviewee can answer by both filling in a 5-point Likert scale (Likert, 1932), thus achieving a structured interview, and by giving additional comments, thus obtaining further qualitative data. The list of questions that are posed throughout the course of the interviews is included in Addendum I. The following paragraphs state the posed questions and the elements of the theoretical background leading up to said questions.

In order to get confirmation regarding the position of the interviewees, the first question of the interview will refer to the category or categories of actors to which the interviewees relate themselves.

Q1. Which of the following category/categories of actors do you consider yourself or your organisation part of? Based on the institutional theory and in particular on its sub-theories, namely coercive, normative and mimetic isomorphism, the following questions have been respectively included in the questionnaire.

Q2. The RJC employs a Code of Practices, to which certification is compulsory for all RJC Members. To what extent do you think that the RJC influences its Members via the formalised rules and regulations mentioned in the Code?

Q3. The RJC employs a vision in which a responsible diamond and diamond jewellery value chain promotes trust in the global diamond industry. To what extent do you think that the RJC influences its Members by setting norms for the diamond and diamond jewellery value chain?

Q4. Since its beginnings in 2005, the RJC has grown from 15 organisations to over 400 member-organisations. To what extent do you think the RJC is influential vis-à-vis its Members, as a consequence of imitating behaviour within the diamond and diamond jewellery value chain?

Based on the governance of GVC theory, two questions have been included. Question 5 pertains to the governance as a driving theory and is divided in two sub-questions, whilst question 6 refers to the governance as coordination theory and is divided into three sub-questions. It is important to note that no separate question has been included regarding the governance as a means of normalisation theory. Regarding the setting of norms, question 3 has already been included.

Q5a. To what extent do you think that, within the RJC, authority and power relationships are producer driven? In other words, to what extent do organisations involved in upstream activities such as exploration and mining hold authority and power within the RJC?

Q5b. To what extent do you think that, within the RJC, authority and power relationships are buyer driven? In other words, to what extent do organisations involved in downstream activities such as manufacturing and retailing hold authority and power within the RJC?

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Q6a. To what extent are complex information and complex knowledge required to sustain transactions within the diamond and diamond jewellery value chain?

Q6b. To what extent can information regarding transactions be codified and efficiently transmitted between parties within the diamond and diamond jewellery value chain?

Q6c. To what extent do suppliers within the diamond and diamond jewellery value chain possess capacity to meet the needs required by transactions?

All of the previous questions are related to the theoretical background against which this research is conducted. By looking into the specifics of the RJC, based on the documents publicly available and based on preliminary and informal conversations held with various persons throughout the value chain, a noteworthy trait regarding the RJC-structure should be included in the questionnaire as well. Supporters and stakeholders can propose adaptions in the Code of Practices via the Standards Committee, but they cannot formally approve these proposals because they have no position in the RJC Board. As I have stated in Chapter II, supporters and other approved stakeholder can make up for their lack of formal influence in the RJC board by obtaining a formal status within the RJC and thereby make use of possibilities to influence the workings of the RJC in an informal way. However, this assumption should be tested and for that reason question 7 has been included.

Q7. Supporters and other approved stakeholders have no position in the RJC board and have therefore no final say in approving changes in the RJC Code of Practices. To what extent do you think both supporters and other approved stakeholders have sufficient influence on RJC-policies?

Interviewees

Regarding the sample size of this research, I introduce the concept of saturation and explain when it is reached. According to this concept, there is a point of diminishing return to a qualitative sample. As a study in which qualitative data is used goes on, more data does not necessarily lead to more information. The reason for this is that one occurrence of data is potentially as useful as many in understanding the process behind a topic. Of course in any research area, and especially in a case of relatively new area of academic research such as governance in the diamond and diamond jewellery value chain, different interviewees can have different opinions. It is therefore important to keep the sample large enough to discover important opinions and perceptions, whilst also preventing a too large basis of data in order to prevent repetitive and eventually superfluous data of being included (Glaser & Strauss, 1967; Richie, Lewis & Elam, 2003; Mason, 2010).

In an attempt to gain the most conclusive data possible, keeping in mind concept of saturation as well as the time and other resources available during the course of this research, I strive to get in touch with 15 interviewees. The vast majority of this group of interviewees will be contacted via the president of the World Diamond Council, Edward Asscher.

It is important to note that it is reasonable to assume that the group of interviewees will represent more than one role in taking part in my research. The reason for this is that I will contact those persons who have experience within the diamond and diamond jewellery value chain and who have in most cases a clear opinion on various issues in said value chain. It is the same kind of people that are nominated and elected to take part in one or more organs that are part of the RJC, thus leading to a situation in which they do not only answer as e.g. the CEO of a certified member-organisation, but also as a member of the RJC Board and as a member of the Standards Committee, thus representing three actors within the model mentioned in Figure 3.

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V. RESULTS

During the course of this research, 15 interviews have been conducted with a combined length of time of 5.5 hours. The group of interviewees is diverse in a geographical sense, as well as with regard to the different roles they occupy. Regarding the geographical dispersion, the interviewees were located in the Netherlands, Belgium, France, Italy, Switzerland, the UK, the USA and Kenya at the time of the interview. Regarding the dispersion of roles, the interviewees occupy a total of 24 roles. The subsequent sections will analyse this latter dispersion in detail. In the following sections, I will present the findings per question of this explanatory. These findings include the ratings that the interviewees gave to said question, as well as their explanation why they did so. Said findings have been graphically represented in Addendum II. Using these findings, an attempt will be made to discover a connection between the theories described in Chapter III and the practical situation in the diamond and diamond jewellery value chain, as viewed upon by the experts that I spoke to during the course of this research. In doing so, I will attempt to answer the main research question regarding the ways in which the RJC influences its member-organisations.

List of actors

The first question of my questionnaire concerns the category or categories of actors to which the interviewees relate themselves. An overview of these actors or roles mentioned in Question 1 has been included in Table 2. It is important to note that whilst 15 interviews have been conducted during the course of this research, the interviewees occupy 24 roles with regard to the RJC. The reason for this is the expert-oriented structure of the interviews, mentioned at the end of the previous chapter. The sampling method was based on actors with a firm basis of experience and therefore with a high probability of being nominated and elected in RJC-organs, leading to separate interviewees that occupy more than one role in my model.

In addition to the results of Question 1 depicted in Table 2, a separate column has been included in order to indicate whether a certain role is positioned internally or externally vis-à-vis the RJC. The reason for this is to check whether there is no imbalance between the number of internal sources of data and the number of external sources of data. Since 8 internal sources of data and 12 external sources of data are included according to Table 2, there seems to be a slight imbalance in the internal-external division of sources of data. However, this imbalance is neutralised by looking into the specifics of the “Other” category. Three of the four reactions pertain to roles within the RJC, namely chair of the Communications Committee, non-industry representative on the Executive Committee and the Treasurer of the RJC Officers. Finally, one of the interviewees indicated that her organisation is a Trade Association and that therefore she occupies an external position. In conclusion, 11 internal sources of data and 13 external sources of data have been consulted during the course of this research, which leads to the assumption that there is no material imbalance in the sources of data.

Table 2: Results Question 1

Actor Position with regard to the RJC Nr. of interviewees

RJC Board Internal 3

RJC Management Team Internal 1

Standards Committee Internal 4

Certified Members External 3

Candidate Members External 1

Auditors External 4

Supporters External 2

Stakeholders External 2

Other Both 4

Total 24

Next to the geographical dispersion, mentioned at the beginning of this chapter, and the internal-external dispersion, depicted in Table 2, the group of interviewees also represents a broad representation of the value chain as a whole. For example, several of the major mining and retail companies have been included in my database, whilst a number of small and medium (SME) enterprises has also been interviewed. Also, several of the leading auditors, supporters and stakeholders, as well as their SME counterparts belong to the group of interviewees.

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19 Coercive isomorphism

With regard to Question 2, there appears to be a rather strong belief within the group of interviewed experts that the RJC is influential via its documented standards, in particular the Code of Practices: the interviewees think that the RJC somewhat influences its Members via the formalised rules and regulations mentioned in the Code, represented by an average rating of 4.13.

The rating mentioned above is backed by the explanations given by the interviewees. Firstly, there is a pure economic reasoning behind adherence to the Code, adjustment of business practices and thereby being influenced by the RJC. As one Supporter puts it, the two year period between joining the RJC and becoming RJC-accredited “not only requires but also encourages Members to look at their management systems”. Moreover, it is necessary for companies to live up to the Code’s requirements “if they want their head to stay above water in doing business” according to a Certified Member.

Secondly, a basic reasoning follows from the gathered information: no adherence to the Code of Practices means that a Member does not get certified. In order to become RJC-accredited and thereby be able to advocate certified membership towards both suppliers and vendors, a company needs to successfully pass through the external audit process by meeting the requirements indicated by the RJC.

However, several remarks regarding the Code have been made during the interviews. One Supporter states that “the Code of Practices does influence Members, but it does not show the entire picture. There are no numeric limitations or requirements within the RJC standards, because it is more of a management-based system”. Several examples of this absence of numerical requirements are put forward, such as the fact that emissions that cause pollution are not limited or capped by the standards. The standards refer to local legislation in such cases and many other cases. However, in said cases there often are no local laws which state requirements with regard to pollution. Next to the reservation mentioned in the previous paragraph, one Stakeholder adds that the diamond and diamond jewellery sector is known for its group-company structure. Indeed, “RJC-certification often pertains to separate entities within a group-company. However, once one of these entities becomes a Certified Member, the entire group-company presents itself as if it were audited and certified as a whole”.

Taking into account both the above-mentioned findings as well as the specifics of coercive isomorphism, one can conclude that this form of isomorphism indeed can be found with regard to the RJC. As explained in Chapter III, coercive isomorphism implies that organisations implement changes as a result of pressure from other organisations and societal expectations, with this pressure often being formalised in governmental mandates, contract law or other requirements. As one can see throughout the previous chapters, such requirements exist with regard to the RJC, namely the Code of Practices. Members do adhere to the Code, whether it is as a consequence of economic reasons or because RJC-membership automatically leads to influence because of the compulsory nature of its standards.

However, as the doubts mentioned in this section show, the RJC influences its Members by its standards to the letter but it remains to be questioned whether this influence relates to the spirit of the Members as well. As one Auditor puts it, “there’s a certain change in behaviour due to compliance requirements and a verification of the Members practices that takes place on a regular basis. There is a shift in the major gap between the Code of Practices and the current practices of Members. However, I don’t think it necessarily causes a change in the mentality of Members, but more a change of the practices of the Members. They change their systems in order to be compliant, but a full change in mentality does not take place.”

In conclusion for this part of the theoretical background of my thesis, formalised pressure exists within and around the RJC via its standards. Whether this pressure and the accompanying influence of the RJC extends beyond its written requirements, is doubtful according to both internal and external RJC-actors. So coercive isomorphism exists regarding the RJC to the letter, but not necessarily to the spirit.

GOVERNANCE IN THE DIAMOND VALUE CHAIN: THE RESPONSIBLE JEWELLERY COUNCIL