Tiffany & Co. Ethical Issues in Gold Sourcing

Introduction: Defining the Ethical Dilemma

An ethical issue is defined as a "problem or situation which requires a person or organization to choose between alternatives that must be evaluated as right (ethical) or wrong (unethical)" (Business Dictionary). By this definition, Tiffany & Co.'s dilemmas in gold sourcing are far from simple.

Kowalski felt that the company had a direct obligation toward its customers to assure them that the gold used by Tiffany was manufactured and processed "in a way that [the customer] would be proud of." As much as this is an ethical issue, it ultimately also translates into a strategic decision for the company: "This is about protecting our brand. Our customers have certain expectations about how we do business. Part of the brand promise that we make every time we sell something is that we will conduct ourselves in an acceptable way. It is risk management in a very broad sense of the word. [...] At the end of the day, this is absolutely driven by our strategic need to protect our brand, which is at the very heart of the profitability of this company. It is about protecting our bottom line." (Kosich, 2004)

The choice between the courses of action deriving from ethical or unethical decisions — doing something versus doing nothing — is a difficult one to make, given the consequences and risks attached to either option.

Even if the "Do Nothing" option might appear cheaper in the short term (reducing the number of gold providers to only socially responsible ones could lead to increased resource prices), the long-term effects of such inaction on Tiffany's brand equity, negative external and internal perception of the company, and a potential crisis of consumer confidence could all have damaging effects on the company's productivity and long-term sales.

On the other hand, the "Do Something" option is also not easy to sustain in the long term. It increases the costs for the metal and thus the cost of final products, raises expectations for Tiffany's level of environmental commitment, and places the company in a position it cannot always control with respect to its alignment with NGO forces.

In essence, the core problem reduces to a choice between being a reactive company with respect to the socially responsible issues implied by its activity — and thus not risking departure from its comfort zone — or living up to its mission to "bring beauty into the lives of our customers by creating beautiful objects," and to the special demands that mission places on its products, given their emotional nature and the socially responsible attitude customers expect. The possibility that this differentiation could translate into a competitive advantage over competitors may be the added bonus of gaining what Kowalski called "the social license to continue to do business."

Legal Concerns and Their Influence on the Ethical Issues

The legal concerns raised by the situation, as perceived from the case study, did not directly affect Tiffany & Co. Had any gold providers been subject to legal prohibition under environment-related legislation, Tiffany & Co. would have been legally obligated to terminate those provider–client contracts. In this case, however, Tiffany was the proactive party, seeking to avoid a recurrence of the difficult "blood diamond" situation of earlier years.

Tiffany's open letter, warning the government and society that the Rock Creek Mine would pollute the "stark beauty" of the Cabinet Mountains and endanger local wildlife, cast the General Mining Law of 1872 in a negative light. That law had historically handed over large swaths of public land to miners without a clear requirement for sustainable practices or environmental protection. The letter thus served as a call to action for U.S. mining regulators (Gagnon, 2004).

Once the open letter was made public, it "implicitly communicated that Tiffany & Co. is committed to 'responsibly-mined' minerals and metals," raising important questions for its management team about what behavior such a commitment would create among its key stakeholders: consumers, shareholders, gold providers, and NGOs.

Stakeholder Rights and Interests

Regarding consumers, by adopting the "Do Something" option, Tiffany risks depriving them of lower-priced products — an outcome not always well received, even for luxury goods. It can also alienate customers who are not concerned with environmental issues, potentially undermining the emotional experience of purchase.

Regarding shareholders, the same "Do Something" decision may raise questions about returns on investment, as the pursuit of a "gold standard" in sourcing can open the door to expensive complications. On the other side, "Doing Nothing" risks negative perceptions of the company — among both employees and customers — reducing confidence in Tiffany and making it vulnerable to criticism from NGOs and other organizations, all of which would ultimately harm shareholders' long-term returns.

Gold providers have an interest in having their contracts honored and their customer relationships secured. Those failing to meet Tiffany's social-responsibility requirements stand to lose their contracts if the company chooses to act.

The involved NGOs gain a powerful ally if Tiffany commits to the "Do Something" course, amplifying their message considerably. With a partner of Tiffany & Co.'s size and prominence, their path toward achieving environmental goals becomes clearer and, to a certain degree, easier.