Medical Ethics

Herbalife and The Ethics of Multi-Level Marketing

By November 23, 2018 No Comments

Are you one of the “lucky ones?” The Federal Trade Commission (FTC) is in the process of sending out something like 350,000 checks to people who were fleeced by the Herbalife and the Vemma Nutrition companies.

HerbalifeThe great giveaway comes as a result of a $200 million government settlement where Herbalife agreed to restructure its business and clean up its unethical act. According to the FTC the partial refund checks generally range between $100 and $500 with a few checks in the thousands of dollars sprinkled into the equation.

Herbalife and its Vemma subsidiary are “businesses” that people run based on what they buy from the company. After the settlement, Herbalife has been forced to end its pyramid scheme practices where money was made when “business owners” attracted new “business owners,” who in turn attracted more. Except cleverly, they weren’t called business owners so much as independent distributors. The majority of the money a distributor made had nothing to do with distribution. Indeed, little of the revenues a distributor made had anything to do with sales to friends, relatives and other unsuspecting people. The money was made when another new distributor was roped into the process. It was a business built on a house of cards.

The Herbalife company made their “MLM” scheme appear so attractive due to their advertising. They pictured distributors living opulent lifestyles. The executives at the very top of the pyramid might have lived that way, but the vast majority of their distributors never came remotely close.

For the most part, Herbalife relied on desperation. They targeted poor college students and young people who were out of work. I can well understand the need to make more money, but that is not what the company cared about. The company wanted more and more and more distributors to be added to their pyramid. Each distributor was forced to buy products (an “inventory”) and each purchase got kicked up the ladder.

What they have in common

Virtually all MLM organizations make big promises and show “big images” of successful salespeople at poolside or on yachts or simply enjoying the good life. They don’t explain to anyone how they can get there.

The legitimate supplement business, for example, is extremely competitive, very high volume and requires great sales and marketing expenses to be successful. I will share that I have friends in the natural and herbal supplement business and virtually all “health claims” are now scrupulously reviewed by the FDA (and they should be). Most of the supplements are identical.

My point in stating this is that Herbalife’s convincing new distributors that their supplements would virtually sell themselves was highly suspect. Beyond that, under the old way of their doing business, no one cared how many bottles of “supplements” they sold, so long as they kept finding new people to be “supplement” distributors.

Though I admire the recipients of those 350,000 checks for trying, they could have made infinitely more money working part time in a hardware store, or being barista’s or putting away books in the public library.

The company was unethical in the greatest sense for failing to advise their new distributors that their chances of making even minimum wage were almost non-existent. They would never admit to that, of course, but it would have been much closer to the truth. In business, as in life, there are no shortcuts. You can’t go from a part-time job, working out of your dorm room, to owning a villa on the French Riviera. The executives of Herbalife, who undoubtedly own villas, knew it what they were doing from day one.

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