Market NewsCommentA Rough Deal

A Rough Deal

However skeptical, or some might say cynical, one becomes about large companies, sometimes I think they do rather get a bit of a rough deal.

Of course, I am not referring to Gem Diamonds, which I suppose can hardly be called a large company, where its highly rewarded management having successfully kept their jobs and take home pay, having masterminded over a 90% reduction in its share price since it peaked about a decade ago.

Amusingly, if you are at a loose end and go to the Gem Diamonds website it refers to itself as ‘a leading global producer of diamonds in Lesotho and Botswana’, which provides an interesting meaning to the word ‘global’, especially when its Botswana operation has been written off and closed down.

Nor am I referring to the head honcho at the Pearson Group, one John Fallon, who was suitably rewarded with a 20% pay increase despite the company recording its biggest ever loss of £2.6 billion.

In this instance, I am thinking of my old chums at De Beers.

I was alerted to the fact that their 56 page ‘Report to Society’ had consumed 4,300 hours to prepare; or as was rather helpfully added to put this into context the equivalent of 12 hours per day for a whole year.

Given the huge amount of effort put into this document, I thought that I better have a look as I also wanted to be one of the hundreds of thousands of people that the company assures me were going to read it as it sets out to be ‘Building Forever’.

Well, I can report that it, the report, is all very glossy and has an overwhelming number of numbers whizzing around saying how great they are, reinforced by the platitude statements from senior management; however I would not recommend reading it unless you have a slightly perverted sense of how to waste your time or happen to be an NGO.

I might be a bit of spoil sport, but I doubt if they have got the size of the anticipated audience correct, but it must be encouraging for those flogging through the 4,300 hours to believe that every word will be given full attention by some vast audience.

To me all this rhubarb spewing across the page is merely setting out what a company such as De Beers should be doing, not only as a good corporate citizen but also to improve its own bottom line; and I see no reason why so much effort should be put into such a report.

But that is the way of the modern world and where I think that companies can get a bit of a rough deal as political correctness and NGO’s looking for their own self justification huff and puff over some companies forcing this self eulogised perspective of what a company is doing.

As an aside, I find enlightening that an external body has to be employed to act as a referee for the content, in this case KPMG.  So more jobs for the boys in the world of mutual admiration, rather like the goings on at various remuneration committees aka Gem Diamonds.

Somewhere in the document it talks about that dreaded subject ‘beneficiation’.

Local politics demands local factories, despite the fact that all the evidence gleaned over decades is that local factories simply mean local subsidies at best and more often than not, local filching.

De Beers fought tooth and nail to delay the growth of local cutting in countries such as Botswana, and when they were finally forced to open a factory they can hardly be said to have gone out of their way for it to be a success.

An attitude or reaction, which apart from the basic commercial logic was reinforced when the company was forced to open the factory far away in the bundu in Serowe and not allowed to at least open the factory in Gaborone.

However, much of the travails of De Beers have been brought upon themselves by their own deliberate opaque ways, which has over the decades left it as a deeply distrusted organisation; a distrust which I do not think will be assuaged by some Report to Society however glossy it may be. The history just runs too deep.

So in this context to read that the World Bank has called for the audit of all large Botswana mining deals and in particular the publication of the De Beers contract, made me smile.

Whilst it was De Beers who insisted on total secrecy over the terms of its arrangement with the Botswana Government, I think it might rather be the other way around nowadays.

As De Beers slipped in the odd special clauses or side letters for the benefit of their key supplier Botswana, anxious that these special arrangements should not have to be passed onto other producers, whilst at the same time ascribing to themselves the right to decide what the producer actually got; over time, Botswana has most successfully tightened the screw around De Beers in the succession of marketing contract negotiations.

Not that long ago there was speculation that Anglo might be considering the sale of De Beers.

At that time, I suggested that the potential price being bandied about for De Beers was ridiculously high not least because of the unpleasant shock any potential buyer would receive when they did their due diligence on the contractual arrangements with the Botswana Government.

I cannot see that situation being reversed as the next set of negotiations start to get underway.

The question that I think that the World Bank should be asking is not so much what are the details of any contract that they have with De Beers, but rather how has and is the flood of money been and proposed to be spent.

It is not so much what is written down in some contract, but rather how things are actually done and often some of the more important issues come outside a specific contract, such as the whole issue about the valuation of De Beers when it was privatised, or to put it another way the whole Louis Nchindo affair.

Hopefully, for the author, next year’s Report to Society will not take so long …, but long enough for no jobs to be considered redundant.

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