Gareth Penny is a different kind of De Beers executive. Where predecessors talked mostly about mining, allocations, and international politics, Penny, 41, is drawn more toward brands and jewelry and the latest in diamond ads. He’s candid where they were cagey, approachable where they were intimidating, and forward thinking in a company steeped in tradition.
So it’s not surprising that he’s been instrumental in turning De Beers into a different kind of company. In 1999, Penny, then 36, was tapped to run De Beers’ “strategic review.” The yearlong review ultimately brought about the strategy known as Supplier of Choice (known internally as SOC, pronounced like the footwear).
Along the way Penny has become Supplier of Choice’s chief salesman, mouthpiece, and lighting rod. He’s pitched the policy to everyone from industry to the European Union—and soon, maybe, the U.S. Justice Department. And he’s been called everything from the industry’s savior to an overzealous administrator of too much shock therapy.
It’s easy to see why he was given the assignment. Penny has a genius for clear thinking. In presentations, he lays logical brick upon brick until they form an impressively tidy little house. And even when discussing/defending/selling SOC for what must be the millionth time, he radiates a striking enthusiasm. Sitting in his office at De Beers’ (or rather DTC’s) London headquarters, he leafs through magazines, pausing at the diamond ads that have sprung up in the wake of SOC.
“Find me one price-based advertisement in this book,” he says, displaying an upscale magazine that several years ago had no diamond ads—and now is stuffed with them. “They aren’t screaming ’20 days until Christmas! 95% off!’ They are offering compelling propositions. … When I look at what this industry has done in just three years and track that out to five years, I am absolutely staggered by it.”
Born in the old SA. If anyone was fated to work at DTC, it was Gareth Penny. Born in the company’s home base of South Africa, he is the godson of former De Beers chairman Julian Ogilvie Thompson, who knew Penny’s father from school. JOT (De Beers executives are commonly referred to by their initials) told Penny he would some day join the company. Later, Penny followed in JOT’s footsteps by becoming a Rhodes scholar—an honor named, of course, for the founder of De Beers, Cecil Rhodes.
Penny toyed with getting an MBA, but after college he performed community service, helping to establish black-owned businesses in the waning days of apartheid. That led De Beers to hire him to establish its Botswanan factory Teemane (since sold). Penny spent two years in Serowe, a Botswanan village, learned a little of the local language, and developed a deep “empathy with the country and its people”—helpful experience now that Botswana is the backbone of De Beers’ empire. Teemane also is a sightholder, which gave Penny a chance to see the other side of the sightholder-De Beers relationship.
From there, he hopped the fence again and joined the De Beers sales department, where he looked after the politically delicate South African industry. He later became personal assistant to JOT, who once was personal assistant to chairman Harry Oppenheimer. At the time, JOT headed not only De Beers but also sister companies Anglo-American and Minorco (later merged into Anglo). The De Beers/Anglo combo assumed new importance as South Africa made the transition from apartheid. “It was an absolutely fascinating time to be in the chairman’s office,” Penny says.
In 1998, JOT handed the chairman’s seat to Nicky Oppenheimer, the third generation of his famed family to run De Beers. Oppenheimer and Gary Ralfe, his choice for managing director (the European equivalent of company president), sought to remake the company. In 1999, Oppenheimer launched the strategic review with Penny at the helm.
From the get-go, there was the sense that something big was afoot, beginning with the uncharacteristic decision to seek outside help in the form of Boston consulting firm Bain and Co. “When you are in an industry for a long time, it can be difficult to step back from it,” Penny says now. “You need an outside perspective. You always think you are unique, and then you see that many people have dealt with the same issues you have.”
And clearly, De Beers had issues. Its stock price was falling, its stockpile was growing, and sales were stagnant. Penny calls 1990s De Beers “one of the best-disguised charities the world of economics had ever seen. We absolutely destroyed shareholder value.”
Much has been written on the strategic review and on De Beers’ shift in focus from supply to demand. Most of this is now accepted dogma in the industry, but Penny says at first people were resistant. “Three and a half years ago [when Supplier of Choice was first proposed], people found this difficult to comprehend,” he says. “We had some heated discussions. I heard things like, ‘Diamonds sell themselves’ and ‘Marketing is De Beers’ job.’ ” Yet considering what a break Supplier of Choice was from the past, the industry proved surprisingly receptive—until this summer.
Cast off at the kickoff. This summer saw the official launch of Supplier of Choice, but it will forever be known not as a beginning but an end. In July, De Beers cut nearly a third of its sightholder list, its most dramatic winnowing in years. What shocked people was not just the number of sightholders slashed—some had predicted deeper cuts—but the names on the list. Among them were two industry legends: New York’s William Goldberg and Israel’s M. Schnitzer and Co., home of local icon Moshe Schnitzer and son Shmuel, current president of the World Federation of Diamond Bourses.
To many, the dramatic shearing—and the ham-fisted run-up to it—was more reminiscent of the old De Beers than the new one. It was almost as if the company had dropped its modern mask to reveal the old scary “Syndicate” lurking underneath.
Penny says the company simply had no choice. “Today our market share is about 60%,” he says. “That is likely to decline to about 50% sometime in the future. So when your market share declines, your stockpile declines, and your availability declines, naturally the list of sightholders also has to decline. And at some point we had to make tough choices. The only other alternative was to give less to all our clients, and you can’t be Supplier of Choice and tell everyone they have to take 20% less.”
That isn’t the only controversy that’s popped up around Supplier of Choice. Many worry about De Beers’ insistence that sightholders take “efficient routes to market”—which is widely taken to mean eliminating middlemen. Penny defends this policy with logic that’s typically elegant, if not exactly comforting to diamond dealers worried about their future.
He notes that a shorter pipeline will loosen the $6 billion to $7 billion worth of goods caught in the current structure. He says it’s vital to De Beers’ efforts to control treated, synthetic, and conflict diamonds. And in the end, he argues, it comes down to efficiency: “If you have a layer of cost without any obvious value added, it means the consumer is paying for inefficiency,” Penny says. “This doesn’t mean there won’t be a role for wholesalers. But there has to be value added.”
DTC changes. Supplier of Choice also has meant psychological changes, particularly at the DTC itself. For one, the company is more “transparent”—more so, ironically, than when it was public. While De Beers used to be populated solely with “diamond men” who worked at the company for life, today one sees the same turnover as in other firms, and the company recruits from varied businesses like soft drinks and perfume. There are even a few more “diamond women.”
“We are a more humble company today,” Penny says. “We don’t think we can do everything on our own, and we have no desire to do so.” He feels people’s perceptions of De Beers are outdated. “We are not a cartel in any way, shape, or form,” he says, no doubt aware that we’ll soon see if the U.S. government agrees. “A cartel today is commercially not viable and legally undoable.”
Despite all that’s changed at De Beers—not the least of which is that it now wants to be known in the trade as the Diamond Trading Company—there is still much to be done, particularly with regard to settling the U.S. antitrust issue. Penny also is working on an expanded list of “Best Practice Principles”—ethical codes meant to guide the trade in this new era of synthetics, treatments, and outside watchdogs.
“There is this wonderful phrase that Harry Oppenheimer used to use internally— ‘up to diamonds,’ ” Penny says. “Everything we do, as a company, as a trade, has to be ‘up to diamonds.’ It’s no longer a choice.”
Of course, not everyone feels that De Beers has acted sparklingly in the transition to Supplier of Choice. But Penny argues that SOC will ultimately benefit the industry. He says that the proliferation of brands and marketing plans has already led to “better store layout, better-trained and more-knowledgeable sales staffs, and more exciting point-of-sale material.
“Look at how robust our industry has been,” he adds. “All around us there has been a sea of disaster. But instead of declining, the diamond industry is growing. Every watch brand you see features diamonds. I have a lot of optimism and excitement about the future. We are in a growth industry.
“The entire trade has been turned inside out. There is a much greater understanding of the consumer. Look at the three-stone ring. If you say to a consumer, ‘This ring represents your past, present, and future,’ it’s something that resonates with what they are feeling. You haven’t mentioned price, you haven’t mentioned a set of numbers and initials that mean nothing to the consumer. They are buying it because of what it signifies.
“We have a unique product. And if we as an industry take advantage of its unique positioning and the extraordinary value it can have for the consumer, that’s an exciting industry. That’s the kind of business I want to be in.”