Donna
Baker, named president of the Gemological Institute of America in November,
stands beside a rutilated quartz crystal unearthed in Brazil. The art piece,
which took seven years to create, now hangs at the institute's worldwide
headquarters in Carlsbad, Calif.
CNS Photo by Sean DuFrene.
From its labs in Carlsbad, Calif., and New York, the nonprofit GIA issues
grading certificates that bridge the gap between consumers and gem sellers.
While the reports don't provide a price, they do detail the qualities that make
the world's most expensive stones so valuable.
In 2005, about 800,000 gems were submitted to GIA labs from nearly 5,700
customers. Seventy-five percent of the institute's $123.6 million in revenue
that year came from fees it charged for grading and examining gems, according to
its nonprofit tax return.
"The GIA is the standard," said Terry Chandler, executive director of
the Diamond Council of America, based in Nashville, Tenn. "They pioneered
the research. There are other labs ... but the GIA has the best-known."
Yet today, the GIA is emerging from perhaps the most difficult 18 months in its
75-year history.
In 2005, allegations of payoffs to graders to inflate the value of stones at its
New York lab tarnished the institute's pristine image.
The fallout from the allegations - dubbed "certifigate" in the diamond
world - could have been staggering not only to the GIA but also to the industry,
experts said.
"The consumer doesn't believe a guy who says this diamond is really worth
$2 million," said Chaim Even-Zohar, a trade journalist and principal
shareholder of Tacy Ltd., a Tel Aviv, Israel-based diamond consultant and
publisher. "The certificate enhances consumer confidence. You can say it's
just a piece of paper, but it's not. It adds value to the stone."
The GIA moved fast to quash the scandal. It launched a four-month internal probe
and dismissed four employees at the New York lab. The GIA's longtime president,
William Boyajian, resigned last summer, although he was not implicated in the
scandal.
The quick action worked. "At the end of the day, the name of the GIA has
not been adversely impacted," Even-Zohar said. "They're still the
leading gem lab in the world."
The GIA has now put the scandal behind it - despite some lingering concerns in
diamond circles that people who allegedly paid off graders have not been
identified or prosecuted.
In November, the institute's board of governors named Donna Baker, the GIA's
legal counsel since 2001, as the new president - opting for an insider over
candidates from outside the small fraternity that makes up the gem trade.
A former Roman Catholic nun, Baker is the first woman to lead the GIA. She
emerged as the leading candidate after a search that initially included 140
contenders.
Baker is popular with the institute's employees and some key industry leaders,
industry observers said. Her legal experience and varied career, which includes
service on corporate boards, persuaded the board to offer her the job.
"What Donna brought to the table was an absolutely clean, straight
background," Even-Zohar said. "She is not perceived as someone who
plays ball. I think it was a good choice."
In one of her first moves, Baker hired an outside consultant to help review
every aspect of the organization. She expects to make a report to the board in
May.
"It's a bottom-up review of what we're doing," Baker said. "None
of this is insinuating what we're doing is wrong. It's just we're in a very
dynamic environment. We want to make sure we change along with it."
GIA IMAGE THREATENED
The institute's image as an independent grader of gems was rocked in early
2005, when a New York diamond dealer sued the GIA and others alleging that some
employees at the New York lab took bribes to inflate the quality of diamonds in
grading reports.
Ralph Destino, GIA board chairman and chairman emeritus of Cartier, was asked to
take charge of the crisis. Baker, as the institute's top lawyer, had a hand in
the four-month internal probe, although she declines to discuss details.
Besides replacing certain personnel, the GIA took several steps to change its
practices so that it didn't appear to be so cozy with companies that submitted
stones for grading.
The policy changes included no longer accepting or soliciting donations from
companies that use GIA lab services. It also ended a preference program where
members, who paid an annual fee, got price breaks and quicker access to grading
services.
By December 2005, the GIA had settled the lawsuit for an undisclosed amount. It
has not released names of anyone involved - although it has banned some unnamed
companies from using its grading services. Baker said the institute has turned
all the information from the internal probe over to law enforcement.
"I consider this incident behind us," she said. "However, that
doesn't mean we won't remain vigilant so this situation never happens
again."
While gem industry experts generally applaud the steps the GIA has taken to
quell the controversy, they would like to see the people held accountable who
allegedly made the payoffs.
"My concern is with the corrupters, not the corrupted," said Robert J.
Friedman, president of New York-based Diamond Manufacturers and Importers
Association of America. "We would like to see closure. And for us closure
means, if there was wrongdoing by people in the trade, that they be prosecuted.
It is very important to us that there is not the perception that people got away
with something."
The U.S Attorney's Office in New York won't comment, as a matter of policy, on
whether it is pursing an investigation, a spokeswoman said.
GIA INDUSTRY HEAVYWEIGHT
Atop the GIA's Carlsbad oceanview headquarters, a 1-ton, crystal and glass
octahedron slowly spins. Called the Tower of Brilliance, it was donated by D.
Swarovski & Co., the well-known Austrian crystal manufacturer, in 2002.
Having a giant faux diamond on the roof doesn't display the subtlety that most
nonprofits strive for. But it certainly supports the institute's image as a
heavyweight in the gem business.
Baker said the GIA's tax-exempt status is based on its education and research
activities in the gem trade, as well as easing the burden on government. If the
institute didn't set standards for gem grading and jewelry education, government
at some point might have to, she said.
Destino added that keeping that nonprofit status is vital for the institute.
"One of the many reasons for which the GIA is respected by consumers and
considered the gold standard is that of all the diamond labs in the world - and
there are a lot of them - we are the only one that is a not-for-profit public
benefit institution," he said. "It is very important for our
credibility that we remain a public benefit institution."
At its accredited vocational college, the GIA offers six-month courses in
gemology, jewelry arts and business administration. It has teaching staff at
locations worldwide. In 2005, about 13,000 students either attended on-campus
courses or signed up for distance education, which costs about half the $13,500
tuition for the on-campus programs.
Over the GIA's life, 200,000 students have graduated from its programs, which
include the Graduate Gemologist (G.G) professional designation.
At its research lab, scientist and technicians develop tests to uncover
information about stones - ranging from whether a diamond has been blasted with
radiation to change its color to whether an emerald was mined in Columbia or
elsewhere in the world.
A small museum exhibits jewelry and rare stones. The GIA has 50,000 gems in its
collection, which comes mostly from donations.
And it operates a comprehensive gem library with 38,000 books, journals, videos
and photos, including thousands of rare volumes ranging from auction catalogs
from the early 1900s to Pliny's "Naturalis Historia" (Natural History)
published in 1496.
IT ALL STARTED IN L.A.
The institute didn't start out with so many tentacles.
Robert M. Shipley founded GIA in Los Angeles in 1931, offering correspondence
courses in gemology, as well as performing gem research.
The institute spent its early years making specialized equipment used by
jewelers and gemologists. It also began publishing journals on its research into
gem stones. It continues both activities today. It also sells research
instruments developed by De Beers.
The company opened a New York City operation in the 1940s to be closer to the
city's famous Diamond District. In the early 1950s, Richard Liddicoat, executive
director of the GIA, created a diamond grading system based on the Four Cs.
It caught on with the industry and consumers. In 1955, the GIA began issuing its
first diamond grading reports.
The GIA began formal on-campus education classes in Santa Monica, Calif., in the
early 1960s. It expanded internationally, opening up schools in Asia, Europe and
Russia.
By 1997, the GIA had run out of room in Santa Monica and began searching
Southern California for a new headquarters.
These days, Baker and Destino are focused on issues that they believe will be
pivotal to the GIA going forward. The institute recently began grading synthetic
diamonds, for example, a move that was controversial in the industry. It also
has begun issuing origin reports for emeralds, since the rare gems from Columbia
are considered more valuable than those from elsewhere.
Baker and Destino also believe changes in the diamond industry are leading GIA
to expand its services globally, so the education and gem grading standards it
established in developed countries also become the standard in emerging markets
such as India and China.
"Donna has a great grasp of what's taking place in the two major countries
of expansion - India and China," Destino said. "We are looking to her
and her team to plant our flag in these developing areas. We're on a very
ambitious growth program in new markets."
He continued, "At the moment, phase one is schools. Phase two will
inevitably be additional labs. That's a little bit down the road and a lot more
expensive."
GEMOLOGICAL INSTITUTE OF AMERICA
The nonprofit research and educational organization has been growing fast
over the last five years. The following chart shows total revenue, total
expenditures and "excess" revenue - or retained earnings - from 2001
to 2005, the latest figures available. The information comes from 990 tax forms
that nonprofit organizations must file with the Internal Revenue Service.
