Tiffany's Kowalski Speaks Out on Social Responsibility

November 8, 2004

Tiffany's Kowalski Speaks Out on Social Responsibility

"We absolutely believe that due to the nature of what we do, because of the emotional nature of what we do, we have to be socially responsible. That's precisely what our customers expect," says Michael J. Kowalski, chairman and CEO of Tiffany & Co., who spoke recently to University of Pennsylvania Wharton School of Business MBA students about a case study entitled: "Tiffany & Co.: A New Gold Standard." The study focused on Kowalski's open letter advertisement to the chief of the U. S. Forest Service that was published in The Washington Post on March 24, which criticized the government's approval of a Montana silver mine that would be environmentally hazardous.

Kowalski laid out Tiffany's advocacy strategy over the past nine years, including its attempts to reduce the risk of environmental hazards (such as the cyanide contamination and acid drainage associated with gold mining), to source gold and silver from more responsible mining operations, and to create a "chain of custody" for its gold and silver (a process that allows products to be traced directly to a commodity's source), according to "Knowledge @Wharton," the school's online newsletter. In 1999, several years after the issue of "conflict diamonds" was raised, Tiffany helped create a "chain of custody" for diamonds as well. As a founding member of the World Diamond Council, the case study says, Tiffany pledged to try to eliminate the trade of diamonds in African countries where it contributes to conflicts and exploitation, particularly of children.

Kowalski also told the students Tiffany did not expect and was surprised by the response generated by the publication of the open letter in the WP. He considers Tiffany's position to be "apolitical" because, "unlike other environmental issues today, mining issues traditionally cut across party lines." All that changed when newspaper headlines announced, "Tiffany Battles Administration over Mining Reform." "It was something that we certainly didn't anticipate," Kowalski noted.

Tiffany, however, has no plans to back away from the controversy. "Many of the mining communities in this country absolutely believe that we act as a front for the [non-governmental organization] community, that I am a radical environmentalist who is out of control, that we have been corrupted by the NGOs – none of which is true. In terms of brand leadership on this issue, we are at a turning point right now ... Putting our own house in order probably isn't enough. Now we have to step up and step out and exercise industry leadership," says Kowalski. He says Tiffany is prepared to be accountable when it comes to its own environmental issues and to encourage other retail companies like Wal-Mart, and other brands like Rolex, to do the same.

Kowalski says Tiffany commits a lot of resources to working behind the scenes on mining reform. At an upcoming global conference on mining, for instance, "we will oppose any sham mining reform, but we may not publicize or go public with any of this." What the company would like to see, perhaps five years down the road, he says, is a third-party certificate program for "good gold," along with mining certification: "It's a market-driven solution. It's not about government regulation. It's about like-minded people making an assessment about their customers. What we are trying to do is put pressure on the mining industry by saying, 'Make your R&D investments, do what it takes to do it right and if you do, they'll be a market for it.'"

Kowalski acknowledged that Tiffany has not always been associated with leadership qualities on social and environmental issues. In the mid-1990s, when conflict diamonds first became an issue, "we felt as an industry that we blew it," he said. "We should have seen it coming, we should have acted sooner, and we said to ourselves, 'Never again.'"

Now that Tiffany has established a "chain of custody" for its diamonds, the company has also turned its attention to the issue of lab-created diamonds vs. the natural diamonds Tiffany sells. "I think our greatest fear is that manufactured diamonds could affect the supply chain, and consumers will purchase a manufactured or lab diamond without being aware of what they are doing. We are working very hard to make sure that manufactured diamonds are identified. And we would direct a fairly emotional campaign. 'Natural diamonds are two billion years in the making. What kind of man would give a loved one a lab diamond?' We would be ruthless," Kowalski noted, to much laughter from Wharton's graduate students.

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