De Beers Consolidated Mines Limited is a South African-based mining and trading company, which controls the flow of diamonds in the United States marketplace (Aurora, 2008). De Beers distributes diamonds, ships them, and distributes them to significant intermediaries, wholesalers and retailers (Atkinson, 2000).
1. Unethical behaviour: Unfair trading and competition
The first unethical conduct identified within the De Beers example is unfair trading and competition, particularly in the formation of cartels. Unfair competition is unethical in terms of the Teleological Framework, as it focuses on the negative result of the conduct of an individual or company as a juristic person, which forms the basis of self-interest (ethical egoism), thereby going against the rights of others (Stanwick & Stanwick, 2009).
This section will briefly explain the De Beers example of this form of unethical conduct, and look at ways in which De Beers could redeem their reputation. We will begin with the definition of a cartel.
A cartel is a group of people, organisations, or companies that cooperate together to control production, marketing, and pricing of a product (Smith, 2003). Cartels are an example of unethical conduct and are thus explicitly illegal under antitrust laws in many countries of the world, as they eliminate fair market competition. A cartel’s biggest effect is driving the price of a commodity up and well beyond what is considered a reasonable and fair market value; this causes an artificially inflated price. Since these organisations control the level of production, they are able to decide what is available in the market, and as a result they can manipulate the market by lowering production, raising prices, and making it difficult to obtain commodities. This could be harmful to other organisations and consumers. Other organisations cannot compete competitively with these cartels, and consumers find it expensive to obtain these commodities (Smith, 2003). Cartels are a basis for self-interest rather than for social-interest: those who benefit from cartels are the members of the cartel itself, and hence the consumers – and society at large – lose out (Smith, 2003).
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De Beers is made up of a group of producers; namely Barnato Brothers, Anglo American, CDM, JCI and other consolidated mines. These producers were together regarded as a cartel (Atkinson, 2000), which was formed as a group of producers whose goals and objectives were to fix prices, control and limit supply, limit competition and dominate the market for diamonds around the world (Aurora, 2008).
Over the years, De Beers has achieved these goals, and is arguably the most powerful mining company, not because of superior products, but because of monopolistic values. The De Beers diamond cartel currently owns hundreds of subsidiaries, which enable them to maintain a large market share (Algoe, 2009).
De Beers, with its objective of dominating the market in order to maximise profits and market power, have displayed most of the characteristics of ethical egoism, which promotes that each person should conduct behaviour in their own self-interest if the net effect is positive rather than negative (Stanwick, 2009). However, the net effect of this cartel was negative rather than positive, as shown by the unfair market prices and the decreased competition described above.
The De Beers cartel is also unethical in terms of the existentialism framework, which is based on the belief that the only person who can determine right from wrong is the person making the decision (Stanwick, 2009). In this case, De Beers knew that their actions were not only wrong, but illegal, yet they still pursued this form of unethical behaviour. This cartel-forming also violates the principle of utilitarianism, which is concerned with providing the greatest good for the greatest number of people (Stanwick, 2009). Since the cartel only benefitted a small number of stakeholders, in that it set the market prices of diamonds to their own gain, this principle is therefore violated (Antoninus, 2005).
De Beers could also be said to be against the freedom of enterprise, as they force possible competitors to obey the cartel directive and, often under financial or even physical threats, victimize their co-producers and suppliers (Antonius, 2005).
As Willem Landman and Khanyisa Nevhutalu of the Ethics Institute of South Africa have said, “Profit follows a company with an image of sound business ethics, and corporate governance will have better customer, vendor and regulatory relations.” De Beers should consider ethics before considering any other factor, because it’s important to know where they are headed and what they are walking toward. Ethics should be embraced as a core contributing factor to its success by acknowledging the following six steps: the role of trust, corporate reputation, investor confidence, expectations of ethically discerning consumers and investors, ethics as a premise for unlocking human potential in organisations, and the prevalence of fraud, corruption and dishonesty (Van Vuuren, 2002). They should ensure that the organisation’s decisions or actions constitute fairness, accountability, and responsibility towards its stakeholders. Fairness involves the managers treating other entities in a just manner. Accountability and responsibility states that all managers should be accountable for their actions, which should be responsible and transparent (Stanwick, 2009). De Beers should also apply the triple-bottom line principle meaning that the organisation should balance economic, social and environmental performance (Van Vuuren, 2002).
De Beers should abandon the cartel and focus on more aggressive marketing that will or would replace the diamond trade’s price-fixing tradition. Marketing will display a fairer competitive market, and thus consumers will purchase products at the fair competitive market price and the acceptable fine quality. De Beers should work towards building a bridge between egoism and utilitarianism in terms of maximizing profits for shareholders and provide the greatest good for all other stakeholders respectively. They can do this by offering quality products to consumers at reasonable prices, thereby looking out for their own self-interests as well as the interests of others (Atkinson, 2000).
2. Unethical Behaviour: Deceitful Advertising
The second unethical behaviour displayed by De Beers is misrepresentation in the form of falsifying the true meaning of a diamond in order to increase their profits. This shows a deliberate intention to deceive as they stand to gain an advantage from this unethical behaviour.
De Beers has successfully pushed the idea that a diamond is a sign of love, fortune and influence (Qureshi, no date). De Beers have misled customers into buying diamonds with the idea that a diamond is a symbol for love. For example, in 1947, their sophisticated advertising strategy resulted in the releasing of the tagline, “a diamond is forever”, which is, in fact, not true as diamonds can be tarnished, cracked or splintered (Edgerton, no date). This simple, yet misleading logo was a great success, and is still in use. Some of De Beers’ methods of advertising include visiting schools to feed young girls false information about diamonds, and ensuring that well-known personalities are seen wearing the biggest and most sparkling diamonds (Qureshi, no date). Some of these misleading ideas are that the value of the diamond outweigh its cost, the size of the diamond represents the extent of another’s love, and to symbolise “forever” one should not resell diamonds, but rather hand them down to relatives, and that the only suitable gift that signifies a proposal is a diamond ring (Diamond Source, no date). Many problems have arisen due to mining operations, such as blood diamonds and extreme working conditions, however, many consumers are still blinded by the “status” they receive when wearing these diamonds.
One of the advertising standards of De Beers is that there will be no deceptive advertising released to the public by their advertising agency (De Beers Group, no date). “To maintain and enhance customer trust in, and the reputation of, the gem diamond industry, De Beers Group of companies are committed to combating dishonestly and fraud in all business transactions. Any conduct that seeks to deceive, mislead, cheat or delude the customer including: any undeclared or misrepresented trade in treated Diamonds, whole or partial synthetics, or stimulants; any trade misrepresenting the colour, clarity, caratage, cut and provenance of a Diamond” (De Beers Group, no date: 8).
As a result of De Beers’ deceitful advertising, they are no facing lawsuits in different countries. Even though De Beers claim that they are not guilty of doing so, they chose to settle to prevent doubt and future legal action costs. The settlement is worth $295 million and an order is awaited by the US District Court for the district of New Jersey. If you have been misled and bought diamonds directly or indirectly up until March 31, 2006, you may claim for it (Diamond Class Action, 2011).
Examples of unethical behaviour have been illustrated by Stanwick & Stanwick. De Beers has overlooked a number of these principles. They failed to apply the transparency principle, as this principle states that employees should operate business in an honest and transparent manner, and not make decisions with ulterior motives in mind. This is shown by De Beers’ main focus on profits, and the lack of concern for their consumers. The dignity principle has also been breached, as shown by the worldwide misrepresentation that a diamond is a status symbol, therefore not respecting the dignity of society at large. In terms of the citizenship principle, employees and managers of De Beers assisted the company in misleading society, therefore they were not acting as responsible citizens within the community (Stanwick & Stanwick, 2009).
De Beers was not concerned about the impact their business decisions would have on society, their actions were not transparent and society was unaware of their decisions and practices, not seeing the slogan as a marketing pitch but as a truthful statement. The company was also not bothered by the impact and effects on society. Fairness was also not taken into consideration; it can be said that the consumers would not consider their actions fair if they were aware of their agenda, as shown by pending court cases. Ethical responsibility is the expectation that society has of the company. Society did not expect such misleading actions and behaviour and did not see this false marketing as a plot to increase profits, but as a truthful slogan, and therefore fell for the scheme of De Beer (Stanwick & Stanwick, 2009).
Morality versus strategy asks whether it is more important to have an excess profit or to be morally correct. If a company is mainly profit-based, such as De Beers, they would not falter in acting unethically if a computation has shown that this behaviour could earn them more money, and they would find no reason to change or improve their behaviour (Gibson, 2007). De Beers was faced with the question of whether they should do the right thing and act ethically with the expectation that profits will follow, or if profit should be set as the principal goal regardless of what ethical mannerisms are overlooked. The former option is usually chosen when morality becomes a subordinate to strategy (Gibson, 2007). By De Beers choosing to disregard ethical behaviour, they took the risk of misled customers becoming ware of their unethical actions, resulting in falling profits.
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Virtue theory encompasses elements by which a company should stand by in order to operate in the best interests of its stakeholders, namely integrity, respect, excellence. In terms of integrity, De Beers did not attempt to what is right, but instead focused on personal gain, therefore not adhering to the uppermost ethical standards. In terms of respect, they did not value the perceptions and expertise involved in order to merge with the best ideas and insights, as they had only one main goal in their business: profits. In terms of excellence, which is achieving a high quality result by constant improvement and excellent implementation, De Beers stuck with their strategy, despite the fact that it was wrong to have a hefty profit (Gibson, 2007).
De Beers displays a strong example of immoral management, shown by the fact that the company is profit-driven and has basically no regard for ethical behaviours, as long as they retain large earnings (Blakeremkus, 2010). We could also possibly say that they manage amorally, meaning that they do not factor ethics into their decisions and merely focus their decisions on what will apply to their particular business practices. Thus, if ethical behaviours are best for the business, it will incorporate them, but if not, it will do what needs to be done. We can tell that moral management has not been used within De Beers, as this involves the case when management shows high integrity in their business actions (Stanwick & Stanwick, 2009).
We can also look at De Beers in terms of Teleological Theories, which are theories that show the consequences of actions. Utilitarianism is a key principle involved. This theory implies that if the consequence is good, then the action from which it came is also good, and vice versa (Blakeremkus, 2010). If De Beers had been honest and open, they would have had a better end result. Since they weren’t, a bad result is reflected in customers choosing to boycott De Beers due to their developing reputation for misleading society. Whereas deontological theories are theories based on the rights and duties of individuals or groups, this was not a theory used by De Beers as they acted unethically and created a false interpretation of diamonds so that they could earn a greater profit (Stanwick, 2009).
Based on the discussion above, our opinion is that if De Beers had been honest and forthcoming with their marketing of diamonds, they would not be faced with court cases and other negative consequences today, as expressed by the utilitarianism principle. If De Beers had shown integrity, and devotion to moral and ethical principles, they would have had a better relationship with society, and therefore kept up their sales because of a reliable reputation. This would be in line with the ethical principles described above.
3. Unethical Behaviour: Discrimination
Discrimination is defined as “unfair treatment of a person, racial group, minority, etc.; action based on prejudice” (McLeod & Hanks, 1984).
The De Beers group website states that the company strives to recruit and develop employees from the countries in which De Beers is involved in and is “dedicated to growing an equitable and empowered workforce where every individual is respected and supported regardless of race, gender, age or disability” (The De Beers Group, 2008). Yet, despite The De Beers Group’s promise for fair treatment of its employees, there have been cases of discrimination throughout the company’s history, and this discrimination still exists this day.
De Beers has been discriminating against its employees since the company was formed by Cecil Rhodes. Rhodes realised that the mines required a lot of cheap labour. Rhodes targeted the poor South African blacks. To get the labour, Rhodes helped establish many taxes that forced poor blacks to seek employment, just so that they could pay these taxes. These workers would have had to walk to the mines, and were given bread and cold tea after working for hours (St. Antoninus Institute, 2005). As De Beers was founded in 1888, a time where racism was socially acceptable, De Beers could say that that was then, and that they have since altered their views on prejudice of all forms. During Apartheid, De Beers voiced their disgust and opposition to the political regime, yet they shamelessly took advantage of the political conditions to get inexpensive and compliant labour for the mines. Meanwhile, competitors and smaller companies exited the South African market, in order to show their displeasure at the Apartheid system, or as a result of insolvency thanks to social unrest in the ranks of their employees. De Beers saw this as a business opportunity and bought out these smaller companies at a cheap price. At one point, De Beers owned forty per cent of the companies listed on the Johannesburg Stock Exchange (St. Antoninus Institute, 2005). De Beers enriched itself through Apartheid, despite officially standing against the regime.
The De Beers employees were always suspected by the company itself of stealing diamonds and then selling them on the black market to compensate for poor wages. This would cause a lower profit than wanted, and would not align with De Beers’ belief in ethical egoism and Friedman’s stakeholder theory (St. Antoninus Institute).
De Beers gives the impression that it supports helping out those involved and affected by the company, but it seems as though De Beers believes in Milton Friedman’s Stakeholder Theory. Friedman believed that the only social responsibility a manager has is to optimise the business’s resources in a way that enhances the level of profitability of the business (Stanwick & Stanwick, 2009). Friedman felt that business executives should engage in acts of social responsibility in their own time and with their own personal funds. If business executives use the business’s resources for social responsibility, then the executives are actually stealing from the company. Friedman justified this by stating that companies are not moral agents like individuals are, and therefore do not have any moral duty to society (du Plessis, Prinsloo, and Rossouw, 2009: 131). De Beers does not seem to care that it pays its workers barely enough to survive, because to them that is cost-minimization, which in turn leads to greater profits.
De Beers also appears to support ethical egoism. Ethical egoism focuses on each individual’s self-interest. It is based on the belief that each individual should act in a way to promote oneself if the net result will generate positive results instead of negative results on balance (Stanwick & Stanwick, 2009). Whilst De Beers is acting in their own self-interests, as mentioned in the cartels section, they are not generating an overall positive result at the end of the day. Although De Beers has created jobs for the jobless and paid them, this was not their actual reason for employing them. De Beers just needed people to mine the diamonds that they sold for millions, whilst paying their employees the minimum wage and increasing their profits.
Additionally, De Beers has not taken into account any ethical principles, particularly the Dignity Principle and the Fairness Principle. The Dignity Principle is based on the belief that the dignity of all individuals needs to be respected. Protecting the dignity of people includes ensuring the human rights of health, safety, and privacy. Furthermore, the Dignity Principle encourages the enhancement of human development, not only within the company, but also in society as a whole. The Dignity Principle involves making affirmative efforts for those individuals who need help in the personal pursuits, and helps protect those who are vulnerable to unethical actions (Stanwick & Stanwick, 2009). The company was not interested in human development in society, as illustrated by the lack of healthy diet in the workplace. Nothing was done to improve this diet or give workers the respect they deserved.
The Fairness Principle is based on the belief that stakeholders who have a vested interest in the firm should be treated fairly. Stakeholders include any group that has a vested interest in the operations of the company. This includes stockholders, customers, local communities and employees. One example of fairness is procedural fairness, which deals with ensuring that parties interacting with the firm are treated fairly from a due process perspective. This would also include ensuring that employees would not experience retaliation, should they notify government officials of any legal violations (Stanwick & Stanwick, 2009). The company has not treated its employees fairly or equally. Although nothing has been said about the way higher management of De Beers were treated compared to miners, it doesn’t give a full picture of the corporation, and reflects the fact that these workers were, indeed, treated differently. Thus, De Beers did not strive for behaviour of high integrity.
De Beers should focus on reparation. Reparation is where the individual focuses on repairing the consequences of previous wrongful acts (Stanwick & Stanwick, 2009). De Beers cannot erase what has already occurred, but it can ensure that it does not happen again, using the principles of equality, fairness and dignity.
In light of the above, in our opinion a vehicle should be purchased or hired to transport employees to and from work. This will ensure that workers are not exhausted by the time they arrive at work. Proper food should also be provided to these employees. This will make them more productive, motivated and careful with their works. De Beers should pay employees more than just the minimum wage, and set up projects to help improve the lives of informal miners, just like a $2 million project set up in Tanzania (National Jeweller Network, 2006). De Beers should also focus on fidelity and beneficence. If De Beers promises its prospective employees that it will pay them wage that will enrich their lifestyle, they should keep that promise. De Beers should also disregard Milton Friedman’s stakeholder theory, and use company resources to improve the lives of other stakeholders, including employees.
4. Unethical Behaviour: Human Rights Abuses (Genocide and Child Labour)
In India, 75% of the population live on less than $2 a day. This is roughly R15 a day. About 42% of the Indian population live on a per-capita income of Rs 447 monthly. De Beers takes advantage of these poor employees in India and create jobs for their children. De Beers need children to shape the smaller diamonds as their eyes and fingers are better suited to shape the stones (Jewel Info 4 U, 2004). These children then suffer from eyestrain, repetitive motion injuries and lacerated lungs from diamond dust. These children should be in school, and not working purely because their family need all the money they can get, just to survive.
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