Blog

Better Business in the Jewellery Sector: Trust-Based and Compliance-Based Cultures

Better Business in the Jewellery Sector: Trust-Based and Compliance-Based Cultures

April 4, 2018, by Victoria Gronwald & Estelle Levin-Nally

Share

Trust is crucial to any business relationship and is especially important as a mechanism for risk management in the jewellery sector. 

Attempts to formalise assurance of responsible business conduct in line with compliance-based systems for due diligence are often met with resistance across jewellery, precious metals and minerals sectors and supply chains. Our clients and stakeholders have alerted us to various reasons for this: capacity constraints of small and medium-scale enterprises (SMEs), the perception of imposing unrealistic due diligence demands on producer countries, and concerns about disclosure of commercially sensitive information. Something we also frequently hear from clients and stakeholders is that a compliance-based approach sends a signal of distrust to suppliers and could disrupt their relationships; there is a clash between two assurance cultures and this is a threat to developing better business in the jewellery sector.

Relationships between jewellery businesses have always been built on trust: trust that goods will be delivered to specification, on time, and at a price deemed reasonable to both parties, oftentimes without a formal contract in place. This relationship, over time, can become incredibly strong, with some jewellers and their suppliers mutually dependent. Furthermore, a trusting relationship between two jewellery sector business partners is not just a fundamental condition for doing business, but an asset in itself, worthy of attention and protection. Consequently, and quite understandably, anything that undermines trust is perceived with concern and suspicion, and treated with great caution. Compliance-driven assurance systems sit in this category.

We categorise these two potentially clashing cultures as ‘trust-based’ and ‘compliance-based’:

1. Trust-Based Culture 

A culture built on trust is relationship-based and constitutes a soft form of risk management. It is about people and experience rather than comprehensive due diligence backed by detailed evidence that can be provided to auditors or any stakeholder that may raise questions. Consider: “My supplier was recommended to me by a peer. I trust them because I know them well and have worked with them for a long time. I have no reason not to trust them so don’t need to ask questions.”

In this form of assurance, the principle of ‘innocent until proven guilty’ is prime. Protection of reputation and inclusion in a trusted community provides the framework by which assurance of ethics is achieved. This assurance approach is formalised through guilds, industry associations, and trading platforms where membership is determined by reputation and standing in the industry, and extra-legal methods for seeking justice, when required, are embraced. This is most common in gemstone and jewellery relationships.

Trust-based culture in the jewellery industry constitutes a soft form of risk management
Trust-based culture in the jewellery industry constitutes a soft form of risk management. Photo: Unsplash

2. Compliance-Based Culture Working with suppliers based on compliance is a hard form of risk management – rules and regulations, checklists, audits, and evidence apply. Consider: “If I trust my supplier, it is because they are able to provide evidence of their credentials and compliance and not based on their reputation, recommendations, or my experience of doing business with them.” In this form of assurance, the principle of ‘guilty until proven innocent’ is prime. This is most common in precious metals relationships. 

Compliance-based culture in the jewellery industry is built on regulations, checklists, audits, and evidence.
Compliance-based culture in the jewellery industry is built on regulations, checklists, audits, and evidence. Photo: Unsplash

Trust between jewellers and their customers is also important. Many consumers know “their” brand: a preferred jewellery company that embodies values, and style, that resonate with them. There is a demographic of consumer that chooses to literally wear its ethical values, seeking out jewellers who put their dedication to sustainable sourcing front-and-centre in their practices and marketing. 

Increased awareness of human rights and environmental issues in mineral supply chains redefines jeweller-consumer trust. Consumers are increasingly going beyond simply relying on certain brands and are asking questions about the origin of materials and conditions of production of the goods they buy . A brand name may not be enough to build trust with consumers in the future, and will need to be accompanied by evidence and assurances that its products are not associated with any human or environmental abuses.

In our blog on transparency, we highlighted the practice of anonymising materials’ provenance to increase cost efficiency, effectively removing the possibility of tracing materials back to source. If a jeweller acquires materials from a supplier that takes part in such a practice, what sort of guarantees can be given as far as human rights and environmental due diligence go? This is why, to satisfy the requirements and demands of consumers, civil society, and hard and soft laws, businesses can no longer rely on a “I know and like this person” approach as the basis for determining responsible business conduct—trust based on long-term business relationships needs to be combined with actual checks and questions to suppliers about the origin of materials and the conditions of their production. Jewellery companies now have clear market-based motives to conduct due diligence on their supply chains more formally than before, assessing social and environmental risks and finding ways to mitigate them together with suppliers and business partners.

Trust and compliance are essential components when attempting to mitigate and remediate social and environmental risks linked to mining.
Trust and compliance are essential components when attempting to mitigate and remediate social and environmental risks linked to mining and improve conditions and revenues for artisanal and small-scale miners. Photo: Levin Sources/Estelle Levin-Nally

So, how do we marry trust-and-compliance-based approaches, if both add value for the jeweller and for society? Jewellers working towards sustainable or responsible sourcing (we’ll explore the difference between ‘sustainable’ and ‘responsible’ in an upcoming blog in the series) need to work with their suppliers to perform the required due diligence. To do so, the business case needs to be understood and clearly articulated to, and with, suppliers, and in such a way that this process in and of itself calls upon, protects and ultimately further deepens trust. Transparency must be investigated and explained as a way to build competitive advantage or protect a business's reputation. These are two scenarios that, if neglected, have real negative financial implications for both jeweller and supplier.

Where should you start?

  1. Remember that your supplier has invested in their existing processes and procedures, and will likely defend them. Understandably so; change to systems takes time and money. Our last blog, on building capacity to perform due diligence, covered this issue.
  2. Work out what your company needs to do. Do you need to develop a company sourcing policy? Comply with RJC Standards? Map your supply chain? Figuring out your needs allows you to make specific requests of your suppliers that fulfil your requirements and ambitions.
  3. Assess your suppliers’ due diligence systems (if they have any) against the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas. This will give you a clear picture how they identify and remediate risks. 
  4. Work with your suppliers to develop their capacity to perform due diligence to the level you desire, such as those required by the RJC, or advocated by the OECD. Explain that progress, and not perfection from the outset, is the goal, and be patient as they get on board with new systems and expectations.

If suppliers are reluctant to get on board with your new requests for supply chain information, present this as:

  • An opportunity to learn together
  • A means by which you can reduce nasty shocks or avoid sudden costs because by working together you’ll be mitigating risk better
  • A market advantage (if it is one) because by doing this, you will be helping your supplier get risk-ready in anticipation of demands by other clients for the same information
  • A joint effort. Seek to understand what their concerns and barriers are, be available to problem-solve on these, adjust your approach if the supplier is important enough and needs a lower bar to at least get started, but be clear that them embracing due diligence is important to you and vital for your ongoing relationship with them.

A progressive and collaborative approach needs to be taken if the jewellery sector is to meet the increasing demand for transparency from both civil society and consumers. While trust is indeed crucial to any business relationship, it needs to have a solid foundation in comprehensive due diligence. We need to reach a stage where suppliers are renowned and recommended for the strength of their due diligence processes alongside the quality of their materials and their historic brand credentials. Businesses across multiple sectors must improve their relationships through due diligence, ultimately building trust between trading parties and encouraging responsible business conduct.


The 'Better Business in the Jewellery Sector' blog series is written by jewellery, due diligence, and responsible sourcing experts from Levin Sources and edited by Dr. Yolande Kyngdon-McKay and Jack Cooper. Dr. Fabiana Di Lorenzo provided additional content.

Share this content