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Icons & Innovations: Tiffany & Co.: The Tiffany Standard

Jill Newman

Fine jewelry is fashioned from precious gold, diamonds, rubies, and emeralds—extremely limited natural resources whose origins often are shrouded in mystery and controversy. The mining of valuable minerals and gems can damage the environment, exhaust natural resources, and even incite political chaos in an unstable region that holds a bounty of these materials. Nevertheless, the allure of precious gems remains undiminished, leaving jewelers to set their own ethical standards for how their products are sourced.

Tiffany & Co. has positioned itself at the forefront of some contentious issues, even refusing to offer some gems—specifically coral and newly mined rubies, spinel, and jadeite from Myanmar—that compromise its values. Guiding this initiative is Michael Kowalski, Tiffany’s unassuming 53-year-old chairman and chief executive officer, who also is a trustee of the Wildlife Conservation Society and a passionate outdoorsman fond of hiking and sea-kayaking in Alaska. “Everyone has come to realize that there are legitimate issues on natural resource extraction, and there is no reason to think the jewelry industry is exempt from them,” says Kowalski. “We have an opportunity to exhibit leadership and raise awareness in the industry. We have an obligation to do that, and ultimately customers do care.”

Kowalski recently has made some surprisingly bold moves that conservationists who police the industry have hailed. In 2004, in a full-page advertisement in the Washington Post that bore his signature, he criticized the U.S. government’s sanctioning of a Montana silver mining operation that he viewed as hazardous to the environment.

Kowalski’s conservation efforts extend to his role as the head of the Tiffany & Co. Foundation, which has given millions of dollars in grants to organizations that promote responsible mining, coral reef conservation, and land protection. Tiffany also is a founding member of the newly formed Council for Responsible Jewellery Practices.

Kowalski’s ideals are transforming the 168-year-old company, which realized sales of $2.2 billion in fiscal 2004, a 10 percent increase over the previous year. (Profits were $304.3 million, 41 percent ahead of the previous year.) As it strives to gain control over the sources of its raw materials and its supply chain, Tiffany & Co. is becoming a vertically integrated retailer—an industry anomaly. Instead of purchasing partly finished gold jewelry, it now acquires directly from an American mine gold ingots that it melts and molds into jewelry in its own manufacturing facilities in New York and Rhode Island. Rather than buying cut and polished diamonds, Tiffany & Co. purchases rough stones directly from mines it deems socially and environmentally responsible. Last year, it opened its own diamond-cutting and -polishing facilities in Belgium, South Africa, and Canada. “If the vertical chain is unbroken, then we have control over the origins of materials relative to social issues,” explains Kowalski.

Gold mining, in particular, has come under scrutiny by environmentalists because it requires moving massive amounts of earth and typically uses huge quantities of cyanide to cull the gold from the rock. However, Tiffany procures all of its gold from Bingham Canyon Mine in Salt Lake City, Utah, a division of the Kennecott Utah Copper mine that does not employ cyanide to extract the gold.

Tiffany also has partnered with the Center for Science and Public Participation, WWF-International, and Earthworks to establish a comprehensive set of standards for the U.S. and international mining industries: the Framework for Responsible Mining, which was released last October. “We needed to understand what constitutes responsible mining; it had not been well defined,” he says. “Gold mining is an important industry in the United States, and we need to do it right with rigid standards.”

Diamond-mining and -trading practices are the other dark clouds looming over the jewelry industry. Of particular concern are so-called blood, or conflict, diamonds, stones whose mining and sales generate funding for oppressive regimes in some African countries. “When conflict diamonds arose [in the late 1990s], the industry, to a great degree, was blindsided by the issue,” says Kowalski. Prior to then, he adds, the industry had not been concerned with the sources of the stones because most retailers are so far removed from them.

Tiffany was particularly aggressive in taking control of its diamond acquisitions, although Kowalski says most consumers do not ask about the origin of a diamond. Under Kowalski’s stewardship, Tiffany became the first retailer to partner with a diamond mining company to ensure that its supply of diamonds is mined in a socially and ethically responsible manner. In 1999, it purchased a 13.9 percent stake in Toronto-based Aber Diamond Corp. for $71 million, which Aber used to finance its Diavik Mine in Canada’s Northwest Territories. Last year, Tiffany sold its interest for $268 million, but the terms of the transaction enabled Tiffany to retain its purchasing rights to Diavik’s diamonds.

In another unorthodox move, Tiffany entered into a partnership with Tahera Diamond Corp. in November 2004 so that it could purchase a portion of the diamond production from Tahera’s Jericho Diamond Project in Canada. Tiffany provided a $35 million financing credit to help Tahera establish a mine on its Jericho property in accordance with Tiffany’s standards. Both the Diavik and Jericho mines are innovative projects intended to preserve and restore the environment, to protect wildlife, and to support the local population.

Some of Tiffany’s competitors and suppliers have criticized the company’s moves as being reactionary, such as when it swiftly removed tanzanite from its display cases in 2002 after reports surfaced that sales of the deep-violet gems might be funding terrorist activities. “The situation was not clear, and we took an extremely conservative position,” Kowalski says. A year later, Tiffany began selling tanzanite again, after it was satisfied that the rumors were unfounded. 

Tiffany also stopped purchasing rubies, jadeite, and spinel from Myanmar in 2003, when the U.S. government passed a law banning imports because of that country’s human rights violations. Last March, U.S. Customs and Border Protection altered that ruling to allow the importation of gemstones mined in Myanmar provided they had been cut and polished in other countries. While most jewelers resumed importing the gems, Tiffany sustained the moratorium. “We support democratic reforms and an end to human rights abuses in that country,” Kowalski explains. “We believe our customers would agree with our position.”

Kowalski, an avid scuba diver, also champions the protection of coral reefs. Tiffany eliminated coral jewelry from its offerings eight years ago, despite its popularity. “It’s never been clear whether harvesting coral can be sustainable, and the coral reefs are threatened,” Kowalski points out. Last year, the Tiffany & Co. Foundation awarded grants of more than $400,000 to groups promoting coral reef preservation.

Kowalski insists his actions are not based simply on his own ethics and interests, but are aligned with stockholders’ and consumers’ expectations from the brand. “I would not call this altruistic,” he says. “It’s a smarter, better way to do business.” 

Tiffany & Co.
800.526.0649
www.tiffany.com

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