Doing Unto Others

Enron. Tyco. WorldCom. Adelphia. The names of these once-respected companies now have become synonymous with treachery and deceit. Highly publicized misdeeds at such corporations have fueled media speculation that dishonesty has become an accepted fact of life in the American workplace. In The Cheating Culture: Why More Americans Are Doing Wrong to Get Ahead, author David Callahan contends that cheating isn’t just for criminals anymore; everyone’s doing it, he asserts, and the average Joes and Janes keep on doing it because they see everyone else doing it—and because they’re afraid they’ll fall behind if they don’t.

In a nationwide study last January of small and mid-sized business owners in a variety of industries (including retail) by the George S. May International Co., a management consulting firm in Park Ridge, Ill., two-thirds of the 253 respondents said they are more concerned about ethical business practices today than they were in the past. (Of the other third, more than half said their lack of concern was because ethical problems have always existed. More than a quarter said ethical problems did not affect their business; 16% said ethics did not matter to them.)

Interestingly, the May Co. study found that the business owners’ actions didn’t match their words when it comes to taking steps to improve workplace ethics. Though 66% of the respondents expressed growing concern about ethics, only 39% had some type of formal ethics training program.

Ethics in the industry. How does our industry compare? The jewelry industry has always taken pride in its adherence to ethical principles. The Jewelers Vigilance Committee, whose mission is to maintain the industry’s ethical standards, was established in 1912. The Federal Trade Commission’s Guides for the Jewelry Industry, a set of standards for proper trade practices, are among the oldest of the Commission’s business guides and have existed in some form since 1918.

But history and tradition notwithstanding, many people in the industry acknowledge that there is no shortage of miscreants lurking within in its ranks. “They’ll do whatever they can to make a buck,” says Steven Bartle of Bartle Jewelers, Mukwonago, Wis. “I don’t think you can stop it. Greed will win out in the end.”

The industry’s many trade associations have developed their own codes of ethical conduct and over the years have revised them to accommodate newly arising issues such as conflict diamonds and advancements in gem treatments and synthetics. But skeptics wonder if these codes are sufficiently strong to stop the scoundrels who are determined to rip off a customer or a colleague. “I think there are those out there who use memberships to make themselves look better and hide behind,” says Barry Peterson of Barry J. Peterson Jeweler, Ketchum, Idaho.

JVC executive director and general counsel Cecilia Gardner says that while she can speak only for her own association, she believes JVC’s code of conduct sends an important message to consumers and the industry. “Our code of conduct talks about compliance with the law,” Gardner says. “Our members pledge that they are up-to-date and knowledgeable about the law, and that they follow it. That’s a very powerful pledge to make.”

At the American Gem Society—which reports that only a small percentage of those who apply are awarded membership—any member found to be in violation of the society’s code of ethics is subject to investigation and possible expulsion. The grievance-and-review procedure involves an investigation by a jeweler’s AGS peers. In September 1999, AGS expelled three retail member firms because “their business practices were not within AGS standards,” says the society’s executive director, Ruth Batson.

According to an AGS press release issued at the time, one of the three expelled firms had misrepresented gemstones in an appraisal and failed to reimburse a fellow jeweler for costs incurred in rectifying the misappraisal, although it had promised to do so. Another multi-store firm was expelled for misrepresentation of membership, AGS said. Although some of this firm’s stores were AGS members, one was not. The non-AGS store was found upon investigation to be using AGS signage. The principal of the firm was informed of the violation and asked to discontinue use of the signs, but failed to do so. A third firm, expelled for false advertising, announced a “retirement” sale that was found to be untruthful and deceptive to prospective purchasers, according to the AGS statement.

At Jewelers of America, “Our goal is not to be a selective society; our goal is to be as inclusive as possible,” notes president and CEO Matt Runci. Each year when they renew their membership, Runci says, JA members are asked to sign off on the JA code of ethics, which has been broadened to incorporate environmental protection as well as social issues like human rights, labor rights, and equitable economic development. “We haven’t expelled a member” for violations of the code, he notes, “but we can.”

Survey results. How do retailers feel about these issues? JCK conducted an informal survey of our Retail Panel to assess the extent to which they think “the cheating culture” has infected the jewelry industry. Of 178 jewelers who responded to the question, 47.2% believe the industry as a whole is less ethical than it was a generation ago, 20.8% think it’s more ethical, and 23.6% say it’s about the same, while 8.4% say they don’t know.

Our panelists’ opinion of association codes of conduct is virtually evenly divided—50.6% of 178 respondents say the codes are effective in helping to make the industry more ethical; 49.4% say they’re ineffective.

Most panel members say they’ve seen misconduct firsthand. Of 154 jewelers who answered the question, 79.2% say they’ve witnessed an ethical violation by another independent retailer within the past four years; 75.3% have observed wrongdoing by a discount or department store; 47.4% say they’ve encountered a supplier’s violation; and 25.3% say they’ve witnessed an infraction by an employee or co-worker.

Most panelists apparently do not fear speaking up in such circumstances: Of 112 respondents, 59.8% say that over the course of their careers, they have confronted an alleged violator directly; 54.5% say they reported the person to a trade association; 34.8% say they’ve fired someone for an ethical violation; 27.7% have reported an alleged wrongdoer to a government authority; and 5.4% have reported an alleged violator to their boss or the owner of the store where they worked. (In both of the preceding questions, percentages do not add up to 100 because of multiple responses.)

But in many cases, an “ethical violation” is in the eye of the beholder. For example, nearly half of respondents say that selling diamonds “back of Rap” to consumers is ethical, but an equal number say it’s either unethical or “wrong—but everyone does it.” One panelist calls the practice “dumb, stupid, unbelievable,” and another says, “The fact that the consumer even knows what ‘Rap’ is, is shameful.” Opinion also is divided on other potential ethical breaches (see table on p. 63).

A question of ethics. In light of these differences of opinion, the potential for confusion and misunderstanding is high. JVC’s Gardner says that her office receives “several hundred inquiries a year” from jewelers with questions about the law. Many manufacturers’ queries involve marking of their goods, while retailers tend to ask about the extent of their liability on warranties, anti-money-laundering programs, or legal issues pertaining to abandoned property. About 60% of the calls JVC receives are from the trade, and 40% from consumers, she says. Consumers tend to call when a store fails to comply with its stated policies on returns and other matters. Gardner says that while most of the jewelers who call JVC can be characterized as “confused” about an issue, most consumers who call are “upset.”

Gardner adds that many of the misconduct cases JVC pursues stem from ignorance of the law. “The vast majority of the people we deal with are delighted to become educated” about what is and isn’t legal, she says. “The cases are very varied,” Gardner notes: Recent issues have included deceptive appraisal practices, Internet sales, misrepresentation of goods, failure to disclose treatments, and contract disputes. The number of cases spiked sharply upward about three years ago and since then have remained steady at about 500 a year, she says.

JA’s Runci says his experience is similar to Gardner’s: When someone reports alleged misconduct to his office, “The practices in question have been based more on ignorance or lack of understanding of what should legally or ethically be done rather than on willful determination to deceive.” The number of calls JA receives has “remained pretty much constant at a couple of hundred calls a year,” he says, with most coming from the trade rather than consumers. Complaints have been received about “businesses of all sizes—without exception,” he says.

When a complaint comes in, the first challenge is to determine whether it’s legitimate or merely a ploy to stifle a competitor, Runci notes. Complainants are asked to identify themselves and state the problem in writing. Runci says JA follows up on all legitimate complaints. “The frequency of follow-up and the degree of pursuit,” he says, “depends on the response of the party that we contact. Most of these things go away fairly quickly.” Under JA’s policy, cases are referred to JVC if the violator continues the unethical practice and refuses to acknowledge JA’s intervention, Runci says.

AGS’s Batson says the majority of the grievances her office receives involve non-members misrepresenting themselves as AGS members. Complaints from consumers come “very rarely” she says; she estimates that her office receives only five such calls per year.

Ethics education. The Gemological Institute of America’s Jewelry Business Management program is attempting to combat ignorance of legal and ethical principles through its required “Ethics and Law” course. “Although the law attempts to reflect and codify many of our society’s values, it often fails to provide answers to a number of ethical questions,” the course description states. “As a result, simply obeying the law does not fulfill all ethical obligations.”

The course includes case studies of real-world ethical quandaries and their long- and short-term consequences, says Vilma Vallillee, an assistant professor in the GIA School of Business. Discussion of these cases is based on students’ own experiences as well as what they’ve learned from guest speakers and reading materials, which are drawn from textbooks as well as news reports. Case studies, for example, have centered on whether it’s permissible to divulge the name of a customer (for example, when a curious client asks who purchased an expensive item) and when it’s appropriate to refer to an item as “one-of-a-kind.” Students also explore philosophical views on ethics, study the FTC Guides, identify deceptive advertising practices and how to avoid them, and examine the use of gem treatments and disclosure issues.

Because GIA students come from all over the world, cultural differences often become apparent, and debates ensue, Vallilee notes. For example, she says, a lively discussion arose when a guest speaker noted that in some countries it’s acceptable to “tip” a vendor to ensure that one’s business runs smoothly. “Students who travel internationally should be aware of this,” she says.

In developing the ethics curriculum, “We felt that it was critically important that students not only have a consciousness of these situations but also have the tools to make the right decisions,” says Bill Herberts, GIA’s director of education operations.

Tough decisions. Even industry veterans can get tripped up by new ethical considerations, such as those involving conflict diamonds. “Businesses are being held accountable by consumers, and held accountable by advocacy groups, not only for their own business practices, but the practices of those from whom they buy, and of those from whom those people buy, all the way up the supply chain,” says JA’s Runci. “There are still ethical businesses, but what they need to do to maintain their reputations of integrity has become more challenging.”

Today, he notes, a jeweler’s reputation could be sullied “not as a result of something they have done [like misrepresenting a product, a practice that ethical jewelers avoid] but as a result of something they may not have done [e.g., developing a response to the conflict diamond issue, which some well-meaning store owners may not realize they have to do]. That’s where we see the game changing.”

Two recent developments in the industry—the conflict diamond issue plus the new, hard-to-detect gem treatments and synthetics—have the potential to taint the image of jewelry products, rather than the image of the jewelry industry, which has been based on individual jewelers’ business practices, Runci points out. “We are an industry selling discretionary items,” he cautions. “If we want to preserve demand for the product, we have to be careful about what we do. The jeweler has to think to the higher standard—going beyond what’s legal to think about how to be responsible to the customer. It’s hard work, and it’s long-term work—and it’s now gone into a very proactive phase.”

Many retailers are taking these warnings to heart. “I feel that my customers expect me to know the answers from my side of the counter,” says David Mazer of Steven Singer Jewelers in Philadelphia. “It’s my job to be well-read and knowledgeable.”

JVC’s Gardner is optimistic about the industry’s response to media attention over the conflict diamond issue. “I think the industry has made it clear that they don’t want to be associated with supporting conflict in Africa and supporting terrorism,” she says.

“I think the industry is more transparent today than it was 10 years ago,” Gardner says. Each new advance in gemstone treatments has been well publicized, she notes. “There has been a very proactive approach to making sure people understand what’s legally required and that they’re prepared to meet these challenges,” she says. “There is a tremendous amount of very effective communication. We know about this stuff at a very early stage.”

Over the years, ethics research has been ramped up after a major scandal (such as Watergate) or rapid technological advances (as have occurred in medicine), notes Robert P. Lawry, a law professor who heads the Center for Professional Ethics at Case Western Reserve University in Ohio. In such cases, Lawry says, “There’s a lot of rethinking that needs to be done immediately, and we’re usually lagging behind.”

Meet the press. Most of JCK‘s retail panelists report that traditional ethical issues are more pressing for them than the newer quandaries. For example, 67.5% of respondents rank “phony discounts” as the most important ethical issue they confront, vs. 31.7% who cite “gem treatments/synthetics that are increasingly difficult to detect” and 7.2% who cite “conflict diamonds” as the most important issue.

Of 181 respondents, 30.9% say that mainstream news accounts about unscrupulous jewelers adversely affect their business because “they scare customers away from all jewelry stores in my region, including mine.” On the other hand, 53.1% say these reports have a positive effect: “They are actually good for my business because they increase customers’ trust in me.” Another 16% say the news reports have no effect on their businesses.

Karen Fitzpatrick of Harris Jewelers in Rio Rancho, N.M., says she’s heard many a customer repeat the urban legend about diamonds being switched by an unethical jeweler. Yet she notes that most customers wouldn’t know whether their diamonds were switched or not. “It’s amazing how many people have never seen their diamond under a microscope,” she says. “They spend all that money on a diamond, and they have no idea what it looks like.”

Educating the consumer “reaffirms our position as a leader in the community,” Fitzpatrick says. “It affirms people’s trust in us when we show them their diamond under a microscope.”

But sometimes it’s a challenge to win the trust of a skeptical customer, she adds. “We have to disarm them in a friendly way before we can even work on their jewelry. My response is, ‘Your diamond’s not worth my reputation.'”

Ethicist Lawry contends that media reports—both positive and negative—can help maintain ethical standards in an industry. “Publicity is always a good thing if it’s measured,” Lawry says. Bad press, he notes, “keeps people on the straight and narrow simply by exhortation.” But such reports are usually done in a quick-and-dirty way, with insufficient context provided, he says. The most effective news reports “give the public a sense of what the realities are,” he says. “The more we know about what goes on, the better off we are.”

Feel-good stories about those who behave honorably offer examples of high standards to which others can aspire, Lawry says. Industry awards serve the same purpose, he notes. “I think those ways of patting people on the back are useful to have,” he says. “It reinforces the right message.”

“I know how hard many jewelers are working to establish and maintain their integrity,” says JVC’s Cecilia Gardner. “I see a lot of people trying to do the right thing. They’re trying to understand their obligations and liabilities.

“To the extent that people think jewelers are crooks—they’re wrong.”

Jewelers’ Opinions of Potential Ethical Violations*

Ethical violation Ethical Unethical Wrong, but everyone does it Illegal
* Data are based on a recent survey of the JCK Retail Panel. Number of respondents ranged from 153 to 165, depending on question.
Jewelers’ opinions
Selling goods at much lower markup than competitors 66.1% 12.7% 21.2%
Selling diamonds “back of Rap” 49.4% 23.5% 25.9% 1.2%
Buying Asian-made look-alike of European style 38.8% 25.5% 23% 12.7%
Doing fast appraisal for insurance purposes 25.3% 44.3% 26% 4.4%
Comparing “regular retail price” with “our price” 28.2% 49.1% 19.6% 3.1%
Claiming to match any competitor’s price 65.4% 15.7% 18.9%
Demanding payment terms beyond a supplier’s policy 41.2% 30.1% 24.2% 4.5%
Swapping branded product with a jeweler who doesn’t have the line 16.9% 47.6% 30.1% 5.4%
Trying to get an exclusive line away from a competitor 30.5% 55.7% 13.2%