Monday 29 January 2018

Christine Richard attempts to explain how 'Herbalife (HLF)' racketeers continue to commit fraud by hiding key-data.

Image result for pseudoscience


Statutory Warning

More than half a century of quantifiable evidence, proves beyond all reasonable doubt that:
  • what has become popularly-known as 'Multi-Level Marketing' (aka 'Network Marketing') is nothing more than an absurd, cultic, economic pseudo-science.
  • the impressive-sounding made-up term 'MLM,' is, therefore, part of an extensive, thought-stopping, non-traditional jargon which has been developed, and constantly-repeated, by the instigators, and associates, of various, copy-cat, major, and minor, ongoing organised crime groups (hiding behind labyrinths of legally-registered corporate structures) to shut-down the critical, and evaluative, faculties of victims, and of casual observers, in order to perpetrate, and dissimulate, a series of blame-the-victim rigged-market swindles or pyramid scams (dressed up as 'legitimate direct selling income opportunites'), and related advance-fee frauds (dressed up as 'legitimate training and motivation, self-betterment, programs, recruitment leads, lead generation systems,' etc.).
  • Apart from an insignificant minority of exemplary shills who pretend that anyone can achieve success, the hidden overall net-loss/churn rate for participation in so-called 'MLM income opportunities,' has always  been effectively 100%.

David Brear (copyright 2018)

____________________________

Instead Of Providing A Reality Check, Herbalife's New Official Compensation Disclosure Falsely Indicates That Most Distributors Make Money

By Christine Richard


Summary

Thanks to the FTC Order, Herbalife is now in a position to track and disclose alleged retail sales profits in its official statement of average compensation disclosure.
It can also now remove all those people who sign up just to purchase products at a discount, a group the company has long said distorts reported average compensation.
The new disclosure suggests that nearly 90% of distributors earned some income in a “typical” month.
To create that impression, however, Herbalife had to take 170,000 distributors off its disclosure document.
That's a violation of the FTC order, which says income disclosures must be "non-misleading."
Every day, Herbalife Ltd. (HLF) recruiters pitch the business opportunity across the US, describing how Herbalife allowed them to quit jobs and stay home with their children, boasting of financial freedom and showing photos from Herbalife-sponsored vacations in exotic locations around the world. Such pitches are prone to exaggeration, of course, which is why Herbalife and other multi-level marketing companies are required to provide a reality check in the form of an official disclosure of average compensation.
Distributors are expected to post a statement like this when presenting their individual experiences as part of a promotion of the business opportunity:
"Income depicted is unique to the individual and is not typical. Achievements require skill & consistent work. For typical earnings, see Statement of Average Gross Compensation at Herbalife.com."
Here's where the company is legally required to throw some cold water on all the hype.

Shortcomings of the Disclosure

Herbalife's disclosure of average compensation has long been a battleground between the company's supporters and its critics. Critics claimed that Herbalife so thoroughly parsed distributors before adding them to the disclosure statement that the company made it impossible for a reader to determine the average experience of distributors. Skeptics also pointed out that Herbalife failed to provide expenses in its income disclosure, effectively equating revenues with profits.
Meanwhile, Herbalife argued that critics took advantage of some of the shortcomings in its data collection to exaggerate the distributor failure rate. For example, because Herbalife never distinguished between its distributors and the vast number of individuals it said signed up with the company to get a discount on the products, critics blended the two, claiming thousands of people weren't being paid by Herbalife even as they had no interest in making money.
Herbalife also argued that because it didn't track retail sales by its distributors, it couldn't add this crucial element of earnings to the table. That limited disclosed compensation to commissions earned by distributors on their downline's purchases. Retail sales - the foundation of the entire business opportunity, according to the company - were missing from any analysis of compensation.
All of this has been remedied by the Federal Trade Commission (FTC) Consent Order imposed on Herbalife's business in July 2016. Herbalife is now required to distinguish between distributors and discount consumers, classifying the latter as preferred members. It's also required to track retail sales and to collect information that would allow it to show just how much in retail sales profits its distributors are claiming to earn.
The only item still missing from the table is expenses, and that works in Herbalife's favor.

The New and Improved Table

With this in mind, we turn to the new and improved, post-FTC settlement average compensation disclosure for Herbalife distributors in the U.S. The substance of the disclosure is contained in a section that asks: "How much can I earn in a typical month?"
Herbalife's presentation of the data for a single month is a departure from previous years' disclosures, which covered a 12-month period. Because Herbalife implemented a number of FTC-mandated changes to its business beginning in May 2017, the company isn't able to present full-year data yet.
Should that matter? Probably not, because Herbalife is very much a month-by-month business. A distributor's advancement and compensation depend on meeting various monthly volume point thresholds, which encourages more consistent purchasing. Therefore, we can assume those earning compensation in a "typical" month are largely the same distributors who are earning in subsequent months.
Back to the company's response: "In a typical month from June to September 2017, about 45,000 U.S. distributors ordered products for resale from Herbalife, and about 40,000 of them earned money from their sales and the sales of those they sponsored." (The FTC Order has also required Herbalife distributors to distinguish between products they buy for their own consumption and products they buy hoping to retail.)
The disclosure table provides a breakdown of distributor earnings for those who bought products they hoped to retail.
At first glance, it appears that the vast majority of distributors earn money. For most, the amount is small, but it's at least something; 50% of first-year distributors, for example, earned less than $95 per month - before expenses - while 50% of those who had been with Herbalife for more than a year earned less than $305.
Yet, readers are told that 40,000 out of 45,000 distributors, or 89%, receive some compensation, in the form of retail sales profits and/or commissions on purchases by preferred members and distributors they've recruited.
Not bad if you have very modest expectations, but also not exactly true.
In order to imply that 89% of distributors received some compensation in a typical month, Herbalife needed to define as relevant only those distributors "who ordered products for resale" in that month. A reader might reasonably assume that's the lion's share of distributors, when, in fact, it's a small subset.
During the company's third quarter earnings call with Wall Street analysts on November 2, Herbalife President Des Walsh told analysts and investors:
"Today, we've got about 470,000 Preferred Members. We've got about roughly 215,000 Distributors. So, it's roughly a sort of a two-thirds, one-third ratio."
So, according to Walsh, one-third of all members or 215,000 people sign up with Herbalife for the stated purpose of making money. Yet, the disclosure only discusses the 45,000 distributors who purchased products for resale in a given month. That leaves 170,000 US distributors off the disclosure statement who didn't place an order, presumably because they didn't have any retail customers to sell to or perhaps had excess unsold inventory from a prior month.
Once again, Herbalife has managed to quantify success by simply removing failure from consideration; it's an old trick and a surprisingly bold one in the wake of the FTC settlement.
If all 215,000 distributors had been included in the table, Herbalife would have reported that just 19%, 40,000 out of 215,000 distributors, received any compensation in a typical month between June and September 2017. That's a disappointing outcome, given that Herbalife now has all the data at its disposal to add retail sales profits and to exclude discount consumers from its disclosure.
Not presenting these disappointing numbers to the public is a violation of the FTC Consent Order. Under the Order, the FTC bans Herbalife and its representatives from "making any representation, expressly or by implication, regarding the amount or level of income, including full-time or part-time income, that a participant can reasonably expect to earn unless the representation is non-misleading and, at the time such representation is made, Defendants possess and rely upon competent and reliable evidence sufficient to substantiate that the representation is true." (Subsection IV.B)
It's important to remember that the compensation disclosure document is not the work of overly enthusiastic distributors. It was created by Herbalife corporate to put overly enthusiastic distributor promotion into context. It's the fine print, and it's intended to contain the hard truth.
Potential recruits have to actively seek out this hard truth. They have to tune out the hype and override all the voices urging them to banish negativity and chase their dreams. Amidst the thumping music and cheering crowds at Herbalife recruitment events, they have to notice the scrolling disclosure statement at the bottom of the screen. They have to jot down the address and remember to follow-up with a visit to Herbalife's website.
Then, when they finally get there, the water is nowhere near as cold as it should be.

Christine Richard (copyright 2018)

Saturday 27 January 2018

'Herbalife (HLF)' useful idiot, Antonio Villaraigosa, refuses to face reality .

Image result for pseudoscience


Statutory Warning

More than half a century of quantifiable evidence, proves beyond all reasonable doubt that:
  • what has become popularly-known as 'Multi-Level Marketing' (aka 'Network Marketing') is nothing more than an absurd, cultic, economic pseudo-science.
  • the impressive-sounding made-up term 'MLM,' is, therefore, part of an extensive, thought-stopping, non-traditional jargon which has been developed, and constantly-repeated, by the instigators, and associates, of various, copy-cat, major, and minor, ongoing organised crime groups (hiding behind labyrinths of legally-registered corporate structures) to shut-down the critical, and evaluative, faculties of victims, and of casual observers, in order to perpetrate, and dissimulate, a series of blame-the-victim rigged-market swindles or pyramid scams (dressed up as 'legitimate direct selling income opportunites'), and related advance-fee frauds (dressed up as 'legitimate training and motivation, self-betterment, programs, recruitment leads, lead generation systems,' etc.).
  • Apart from an insignificant minority of exemplary shills who pretend that anyone can achieve success, the hidden overall net-loss/churn rate for participation in so-called 'MLM income opportunities,' has always  been effectively 100%.




_________________________________________________________________________


www.sacbee.com/news/politics-government/capitol-alert/article196917629.html






Antonio Ramón Villaraigosa ( born January 23, 1953) is an American politician who was Mayor of Los Angeles 2005-2013. Previously, he was a member of the California State Assembly (1994–2000), where he served as the Democratic leader (1996–98) and the Speaker of the Assembly (1998–2000). During his tenure as L.A. Mayor, Villaraigosa drew national attention for his work and he was featured in a Times story on America's 25 most influential Latinos. He was the first Mexican American in over 130 years to serve as Mayor of L.A. He was not allowed to run for re-election in 2013, but he continues to be active in education, civic engagement, water, immigration, transportation and economic development issues. He speaks nationally, and throughout California, on these, and other, matters.
Villaraigosa is a member of the Democratic Party and he was a national co-chairman of Hilary Clinton's 2008 Presidential campaign, a member of President Barack Obama's Transition Economic Advisory Board and Chairman of the 2012 Democrat National Convention.
In November 2016, Villaraigosa announced his candidacy for Governor of California in 2018.
Despite his impressive resume, if (as he has recently implied) Antonio Villaraigosa sincerely believes Herbalife to be an entirely lawful enterprise offering a viable income opportunity, then he's not only far too stupid to be elected as Governor of California, but also far too stupid to be held to account.


Antonio Villaraigosa, Herbalife


In 20013, it was reported that Villaraigosa had been employed as 'senior advisor to Herbalife.'

http://www.laweekly.com/news/bitter-herbalife-battle-pits-antonio-villaraigosa-against-an-old-friend-4173346

In February 2015, while Villaraigosa was considering running for the United States Senate, the L.A. Times reported that he'd received at least $162 000 from 'Herbalife.' The story questioned whether 'Herbalife's' co-opting of Villaraigosa might become a major obstruction to his hopes for further election success in California, due to 'Herbalife's' awful reputation and ongoing FTC pyramid scheme investigations. 
Villaraigosa’s connections with 'Herbalife' have also been condemned by the League of United Latin American Citizens.
Unfortunately, Antonio Villaraigosa has piles of green reasons, as well as his ego, preventing him from facing reality.

David Brear (copyright 2018)

Thursday 18 January 2018

'Lyoness/Lyconet' racket finally gets busted in Norway.

The following are automatic translations.

_______________________________________________

https://lottstift.no/om-oss/aktuelt/varsel-om-vedtak-sendt-til-lyoness/

On 11 January 2018, the (Norwegian) Lottery Authority issued notification of a decision with a decision to stop Lyoness' work in Norway.
Notification of decision sent to LyonessThe notification of decision is against Lyoness Europe AG and Lyoness Norway AS, but will also include 150,000 Norwegian participants and 1,000 loyalty companies included in the Lyoness sales network in Norway.

Illegal pyramid-based sales system

Based on testimony, the Lottery Authority has rejected appeals in 2016 and 2017, and the content of that, found grounds for assessing whether Lyoness is an illegal pyramid-based sales system after the Lottery Agreement Section 16, second paragraph.
In assessing, we have concluded that the revenues from Lyoness' business in Norway mainly depend on the illegal acquisition of participants, and not from the legal sale or consumption of goods, services or other benefits.

Lottery Authority's conclusion

In the notice of decision, the Lottery Authority concludes that Lyoness's work in Norway is an illegal pyramid-based sales system pursuant to section 16, second paragraph, of the Lottery Act.
We have paid particular attention to the fact that Norwegian participants in Lyoness do not receive or consume goods, services or other benefits from the sales system that correspond to the value of what is paid when they pay for them. Participants' payments to Lyoness are as a consequence of this to be regarded as consideration to participate in a pyramid-based sales system. The income of the company and the individual participant is related to the acquisition of new participants and those payments to Lyoness, and not from the sale or consumption of goods, services or other benefits.
In a letter dated 11 January 2018 , the Lottery Authority has warned that we will make a decision that Lyoness must stop all work in Norway. Notification of resolution means that all repatriation of participants and loyalty companies to CashBack World and Lyconet, and all sales and use of benefit cards, discount coupons, customer card shares, gift cards, promotional materials, seminars and other products in the workplace must be terminated.
The Lottery Authority's notification of decision basically bases itself on the information we have received from Lyoness in case.


___________________________________________________________________

https://www.dn.no/nyheter/2018/01/18/0849/Lyoness-Norway/lotteritilsynet-vil-stanse-shoppingnettverket-lyoness-i-norge


Lyoness Norway

The Lottery Authority will suspend the Lyoness shopping network in Norway

The Lyoness shopping network is a pyramid-like system, according to the Lottery Authority, which will suspend operations in Norway.




Repayment when shopping, own shopping points and lucrative shopping offers are among the benefits the Lyoness lure attracts to get new members.
The Switzerland-registered network has its own subdivision in Norway, with around 150,000 Norwegian participants and 1000 so-called loyalty companies as part of their sales system.
Lyoness
  • Is a distribution and trade network that was created in Switzerland in 2003 by Hubert Freidl.
  • The system is structured so that you can get benefits in terms of getting a small portion of the amount you pay for.
  • The Norwegian subdivision Lyoness Norway has approximately 150,000 Norwegian participants and 1000 loyalty companies as part of their sales system.
  • Lyoness Norway is led by Claes Gunnarson.
Now the Lottery Authority will stop its business in Norway. The audit believes Lyoness is a pyramid-like sales system, and issued a decision last week for a decision on pending orders in businesses n. Lyoness disagrees with the audit's statement, saying that it will respond to the audit's case-making.
In its assessment, the Lottery Authority has emphasized that Lyoness's revenue is mainly due to the acquisition of participants and not from the sale and consumption of goods and services or other benefits.
The Lottery Authority writes in the letter that it announces that, from the summer of 2016, a large increase in the number of inquiries about Lyoness's activities in Norway from participants, family, friends to participants and persons who had been tried to report that Lyoness was running pyramid games, recorded a large increase.
Lyoness has a four-week deadline to object to the decision that has been notified, or the basis for the notification.

Disagree with the production

Leader Claes Gunnarson in Lyoness Norway answers the following criticisms in a press release: "Lyoness has received a preliminary decision from the Norwegian Lottery Authority. Lyoness emphasizes that this is not a final decision.
Lyoness disagrees with the Lottery Authority's case-making, and is particularly surprised at the preliminary decision to suspend Cashback's cash benefit program. The cashback card is free and is used by over eight million members globally and 160,000 in Norway for purchases of goods and services at approximately 1000 Norwegian stores and online stores.
Lyoness is now going through the preliminary decision with the lawyers, and will respond to the Lottery Authority's argument. We believe Lyoness is a legitimate business and will respond to the Lottery Authority's charges ".


___________________________________________________________
www.nettavisen.no/na24/lotteritilsynet-mener-lyoness-driver-ulovlig---150000-kan-rammes/3423407336.html

The Lottery Authority believes Lyoness operates illegally - 150,000 can be affected

All activities in Norway can be stopped.
The Lottery Authority has concluded that Lyoness's operations in Norway are an illegal pyramid-like sales system, the Lottery and Foundation Supervisory Authority writes .
"We have paid particular attention to the fact that Norwegian participants in Lyoness do not receive or consume goods, services or other benefits from the sales system that correspond to the value of what is paid when they pay for them, writes the audit.
As a result, the participants' payments to Lyoness are considered as consideration to participate in a pyramid-based sales system. The income of the company and the individual participant comes almost exclusively from the replacement of new participants and their payments to Lyoness, and not from sales or consumption of goods, services or other benefits, the audit writes.

150,000 Norwegians

Managing Director Claes Gunnarson in Lyoness Norway AS disagrees with the Lottery Authority.
Background is a prudential case that was created last year. In a letter dated 11 January, the Authority notified Lyoness of a decision to suspend the company's activities in Norway.
The notification is directed against the Norwegian company Lyoness Norway AS and the international parent company Lyoness Europe AG, affecting approximately 150,000 Norwegian participants and approximately 1000 loyalty companies included in the Lyoness sales network in Norway.
Furthermore, it means that all referral of participants and loyalty companies to Cashback World and Lyconet, and all sales and use of benefit cards must cease.

Surprised

The decision is not final and Lyoness has four weeks to come up with his opinion on the matter.
Lyoness disagrees with the Lottery Authority's case-making, and is particularly surprised by the preliminary decision to suspend Cashback's customer benefit program, according to Claes Gunnarson, Head of Lyoness Norway AS, in a press release. It reports BA (requires subscription).
Lyoness is a distribution network established in Switzerland in 2003 and has over seven million members in 47 countries.
The prosecution of Lyoness, named under the name of Lyconet, was stamped by the Lottery Authority as illegal pyramid play, until a structural change in 2014 no longer gave the audit grounds for thinking this, writes BA.
The newspaper also writes that several Lyoness members in Europe have sued the business and received significant sums of money

Tuesday 16 January 2018

'Amway/Nutrilite', 'Herbalife', 'Nuskin', etc. The level of 'MLM' corruption in China beggars belief.

Image result for pseudoscience




Statutory Warning

More than half a century of quantifiable evidence, proves beyond all reasonable doubt that:
  • what has become popularly-known as 'Multi-Level Marketing' (aka 'Network Marketing') is nothing more than an absurd, cultic, economic pseudo-science.
  • the impressive-sounding made-up term 'MLM,' is, therefore, part of an extensive, thought-stopping, non-traditional jargon which has been developed, and constantly-repeated, by the instigators, and associates, of various, copy-cat, major, and minor, ongoing organised crime groups (hiding behind labyrinths of legally-registered corporate structures) to shut-down the critical, and evaluative, faculties of victims, and of casual observers, in order to perpetrate, and dissimulate, a series of blame-the-victim rigged-market swindles or pyramid scams (dressed up as 'legitimate direct selling income opportunites'), and related advance-fee frauds (dressed up as 'legitimate training and motivation, self-betterment, programs, recruitment leads, lead generation systems,' etc.).
  • Apart from an insignificant minority of exemplary shills who pretend that anyone can achieve success, the hidden overall loss/churn rate for participation in so-called 'MLM income opportunities,' has always  been effectively 100%

David Brear (copyright 2018)

_________________________________________________________________________

http://mlmtheamericandreammadenightmare.blogspot.fr/2018/01/new-york-times-begins-to-investigate_11.html

Last week, I posted a jaw-dropping 'New York Times' article which contained interviews with chronic Chinese victims of the pernicious 'MLM' fairy story - one of whom had lost over US$500 000 and who now describes himself as having been 'brainwashed.' The article also explained how various US-based 'MLM' companies face investigation, or have already been caught and heavily-fined, for paying bribes in China.

Even though 'MLM'  groups were once officially identified as 'evil cults and secret societies spreading superstition and lawless activities' and 'MLM' remains supposedly banned in China, the 'NY Times' article began to set out some of the subversive tactics which have been widely-employed by the bosses of various US-based 'MLM' cultic rackets in order to keep operating China. 

www.bloomberg.com/news/articles/2013-09-24/amway-embraces-china-using-harvard-guanxi

This information came as a complete surprise to one of my correspondents who wants to know how it is possible that such a controversial organisation as 'Amway' could simply buy association with Harvard University in order to gain influence over Chinese officials? 

http://www.slate.com/articles/business/moneybox/2017/02/the_trump_era_will_be_a_boon_for_multilevel_marketing_companies.html

Yet these serious matters were touched on in a 'Slate Magazine' article (by Michelle Celarier) in February 2017, whilst  in September 2013, a much more detailed description of 'Amway/Nutrilite's' campaign of subversion in China appeared in an issue of 'Bloomberg Markets' and was partly republished in October 2013 in the 'Washington Post.'


Image result for rico act



Unfortunately, the mainstream media has, to date, treated the criminogenic 'MLM' phenomenon as a business story, when nothing could be further from truth. Indeed, every move in China described by 'Bloomberg' and the 'Washington Post' in 2013 and lately confirmed by the 'NY Times,' fits into an overall pattern of ongoing major racketeering activity (as defined by the US federal Racketeer Influenced and Corrupt Organisations Act, 1970).

_________________________________________________________________________

Amway thrives in China, with Harvard’s help



Anthony Saich enlisted Amway to sponsor a program for Chinese officials at Harvard University's Kennedy School. (Adam Amegual/Bloomberg Markets)


 





On a sweltering July in the inland Chinese city of Hefei, 1,000 people whistle and clap as Cao Yuchao tells them about Amway, the household-products giant named after the “American Way.”
Against a rainbow backdrop and the Chinese characters for glory and dreams, Cao, Amway’s local chief, paints a glowing portrait: China has been its top market for nine years, with booming sales of Artistry cosmetics and Nutrilite dietary supplements. Amway sponsored China’s team at the 2012 Olympics.
“I can’t say for sure that these champions were successful because of Nutrilite products, but I can say for certain that every medalist has taken a Nutrilite product before walking up to the winner’s podium,” Cao says.

Amway offers great rewards, Cao tells the salespeople and recruits gathered before him: The company has paid $9.3 billion in commissions and royalties to Chinese distributors. It’s taken the best salespeople on free trips to Paris and Rome. And it gives all of its 300,000 Chinese representatives the chance to be their own boss.
Cao introduces successful representatives, who tell the audience, “Believe in yourself and nothing is impossible.” Gao Hanping, who left a job with the railway ministry for Amway, shows a video of his luxury car, a home with a garden and photos of his Las Vegas vacation.
“People say working for Amway is tough; they don’t want to do it,” Gao says. “Hard work is the key to success.”
Since its founding in small-town Michigan in 1959, Amway has pitched its direct-sales system — a corporatized version of peddlers going door to door — as a path to wealth and happiness. Now, its “American Way” depends increasingly on China, which accounted for almost 40 percent of parent company Alticor’s $11.3 billion in global revenue last year. That’s remarkable, considering that China banned direct selling 15 years ago, endangering Amway’s growth.
Amway won back its place in China by changing its business model and opening stores. It also improved its reputation by teaming up with the United States’ most prestigious school: Harvard University.
In a program bankrolled by Amway at a cost of about $1 million a year, Harvard’s John F. Kennedy School of Government has been training Communist apparatchiks known as Amway fellows. Since it started in 2002, the program has brought more than 500 Chinese officials to Cambridge, Mass., to study public management for a few weeks. They also visit Amway’s headquarters in Ada, Mich.
In a country where nothing is more valuable than guanxi, the term for the connections considered crucial to doing business, Amway has supersized its network thanks to Harvard. Though there are no public lists of participants, Bloomberg Markets identified 50 alumni through references in résumés in official publications and on Web sites.
The Amway fellows include leaders of Henan, Ningxia and Shaanxi provinces, with a combined population of about 138 million; the party secretaries of the cities Nanjing and Wuxi; and the national vice ministers of civil affairs and industry and information technology.
Also on the list are two officials who became heads of provincial branches of China’s Food and Drug Administration, which approves the sale of nutritional products and cosmetics, Amway staples. Another alumnus is a former official in the agency that polices direct selling.
Since the program began, Amway’s sales in China have surged more than fourfold. The turnaround is all the more striking because Amway — a company dogged around the world by accusations that it’s a pyramid scheme — won over Chinese officials in part by painting itself as a crusader against such abuses. Pyramid schemes lure people to join a business that grows mainly by recruiting people rather than by selling products.
Harvard has benefited from its association with Amway. The program has raised the profile in Asia of the Kennedy School, whose mission is to train enlightened public leaders and which was less well known there than the university’s vaunted business school.
The Amway fellows get to put the prestigious imprimaturs of Harvard and its partners in China — a policy research arm of China’s State Council and Tsinghua University — on their résumés. (Of 20 fellows Bloomberg contacted, three declined comment and the rest didn’t respond to interview requests.)
Scott Balfour, vice president and lead regional counsel for Amway in Asia, says the Harvard program is just one of many the company is involved in.
“We’d have the same success without this program,” he says. “I don’t think this is a linchpin of our success, but we certainly are very proud of it.”
Amway’s guanxi with officials is impressive, says Corey Lindley, who helped Provo, Utah-based Nu Skin Enterprises establish its skin-care direct-selling business in Asia and spent four years in China for the firm. “You have to build relationships with the government, and Amway has been a master of that,” he says.
Local government ties
Anhui, the province in which Cao presided over the July rally, shows how strong Amway’s ties to local officials can be. Hefei, 250 miles west of Shanghai, in July announced the winners of its Amway Cup, which solicited cartoons and poetry illustrating illegal pyramid schemes. The contest was sponsored by the city government, including the local Administration for Industry and Commerce, which polices direct selling.

In 2011, the province staged Anhui Sword, a campaign to combat pyramid sales schemes. In four months, the province shut down 1,302 pyramid schemes involving about 7,200 people, provincial officials announced that December.
The top official at a news conference announcing the campaign was Anhui’s vice governor, Tang Chengpei, according to another news release. Tang, who has since been promoted to provincial party secretary, was a 2002 Amway fellow.
Amway, which was founded in 1959 by Richard DeVos and his friend Jay Van Andel to sell a liquid household cleaner, has become a global giant. It employs more than 21,000 people in 100 countries and territories and sells 450 products through a network of more than 3 million “independent business owners,” its term for its non-employee sales force.
DeVos, 87, had a net worth of $8.3 billion as of Sept. 15, making him the 144th-richest person in the world, according to the Bloomberg Billionaires Index. In addition to a 50 percent interest in Alticor, he’s the principal owner of the Orlando Magic basketball franchise and funds Christian organizations and free-enterprise groups such as the Heritage Foundation, a think tank. His son Doug, 48, is president of Amway. Van Andel, who died in 2004, was also a billionaire. His son Steve, 57, is Amway’s chairman.
Traditionally, direct sellers ply their wares to consumers face to face rather than through stores, says Bill Keep, dean of the business school at the College of New Jersey. Many such companies employ something called multilevel marketing: Their salespeople earn money not only by selling products; they also get rewarded for recruiting more salespeople — qualifying for bonuses or other compensation based on purchases made by those that they enlist, Keep says.
“The burden of recruiting and training is on the salespeople, and it lowers fixed costs for the parent firm,” he says. “But that recruitment aspect of it carries the risk of pyramid-scheme behavior.”
Therein lies a gray area, Keep says. In legitimate marketing, the main purpose is to make sales to the consumer. In a pyramid scheme, salespeople are primarily rewarded for recruiting others, he says. Telling the difference between the two requires transparency about how much of salespeople’s earnings ultimately come from selling to consumers vs. to recruits, he says. Amway says it doesn’t break down sales in that way.
“The traditional plan, which operates in most of the world, can’t be deemed a pyramid, because no one earns a thing based on the act of recruitment,” says Michael Mohr, Amway’s general counsel and secretary. “Benefit is only accrued based on the sale of product. That has been misunderstood.”
In China, Zheng Yimei, 23, heard about Amway from someone at a bus stop five years ago. Since then, she’s attended meetings in Hefei. Zheng says she wanted the opportunity to work for herself after dropping out of school at 14 and toiling as a garment worker, in a bakery and at a grocery weighing produce, where she earned 700 yuan, about $115, a month. She has bigger ambitions now.
Two salespeople in China told Bloomberg Markets how Amway’s compensation system works: The more products you sell, the higher the commission you get. One of the salespeople showed a document on the Internet that detailed the system. In the fiscal year that ended on Aug. 31, 2,500 yuan (about $410) in net sales earned a commission of 9 percent, sales of 7,500 yuan ($1,225) earned 12 percent, and on up to the top rate of 27 percent on net sales of 125,000 yuan ($20,400) or more.
The salespeople said they would also earn a bonus on the sales of each person they brought into the organization. If the salesperson made 8,000 yuan (about $1,300) in net sales and enlisted four people, who each also made 8,000 yuan in sales, he would get a 3,360 yuan ($550) bonus (18 percent of the total 40,000 yuan in revenue minus the 12 percent, or 960 yuan, that would go to each of his four recruits).
It’s not correct to say a salesperson would get a bonus for sales made by recruits, Amway’s Balfour says. The online document isn’t an Amway document and isn’t accurate, he says. The company has two categories of distributors in China: representatives, who earn commissions solely on their own sales, and authorized agents, individuals who register with the government as businesses.
“Sales representatives are true direct sellers in that they’re going out and selling the product to family and friends,” Balfour says. “Authorized agents actually have a fixed location.”
The sales from agents’ shops are counted as personal volume, he says. Under Chinese law, Balfour adds, “networks and groups are not allowed,” so Amway structures its business differently than in the rest of the world.
China’s regulations stipulate that “the remuneration paid by the direct-selling enterprise to its direct salesman shall be calculated only based on the income of the products sold to the consumers.”
In Beijing, framed photos of Amway executives with Chinese leaders going back to Jiang Zemin plaster the wall at Amway’s office, which takes up the 11th floor of a building across the street from the Ministry of Commerce.
“We have a fabulous government relations team, and the origin of that is that we were really born out of a crisis,” says Audie Wong, president of Amway’s business in China. “We had to solve crises over and over again.” Wong, 61, joined Amway in Hong Kong in 1981.
The crisis came in 1998. Amway meetings like the one in Hefei made the Chinese authorities nervous because they feared the gatherings might be a cover for religious or other rallies, says Herbert Ho, a former Amway China executive and the author of a 2004 U.S.-China Business Council report.
Entrepreneurs with fraudulent sales schemes also brought scrutiny, Ho’s report says. In one notorious case in a town in Guangdong province, a Taiwanese company persuaded farmers to buy a foot massager for 3,900 yuan — about eight times the regular price — and pay 800 yuan to join its sales force, it says.
Participants rioted when they realized they’d been scammed. Similar incidents of social unrest triggered an official backlash, according to the report.
Ban on direct selling
China banned direct selling in April 1998. The timing was lucky, Wong says, because China had begun negotiations to enter the World Trade Organization and didn’t want to be perceived as shutting down U.S. companies.
Later that year, China agreed to let Amway and other international companies continue operating, with modifications, including opening stores. Amway also began manufacturing in China and advertising there.
“We needed to demonstrate that Amway would be a long-term honorable corporate citizen in China,” Doug DeVos, Amway’s president, wrote in an article chronicling the company’s China experiences that was published in the April issue of the Harvard Business Review. The article doesn’t mention Amway’s connection to the Kennedy School.
China isn’t the only place Amway has had crises. In the United States, the Federal Trade Commission investigated the company in the 1970s for price fixing and misrepresentation of the potential profits salespeople could make. The FTC in 1979 found that Amway was not a pyramid scheme but ordered the company to stop making misleading earnings claims and fixing prices and to disclose information on the average income for its salespeople.
Active U.S. salespeople earn an average of $202 a month, according to company figures. Balfour says Amway doesn’t publish such information for China.
Any big company faces critics, he says. “Many of these sites or groups are operated by former distributors that were sanctioned by the company,” he says.
Mao Shoulong, a professor of public policy at Renmin University in Beijing, argues that Amway’s funding of the Harvard program is inappropriate.
“Of course this influences Amway’s position in China; they’ve got provincial governors and department heads visiting their headquarters each year,” he says. “Government officials shouldn’t be taking money from a company to travel to the U.S. or visit sites around the country.”
Says Balfour: “I don’t think our success is dependent on this program. Any educational program just helps the business environment generally.”
Corporate backing isn’t unheard of at the Kennedy School. Out of 1,049 sponsored awards from July 2000 through June, 39 were from for-profit companies such as Amway, according to school records.
The school began a push to focus more on Asia in the late 1990s and hired Anthony Saich, who had run the Ford Foundation in Beijing, to make it happen. In 1998, the school began training about 20 Chinese officials a year through a fellowship funded by New World Development, a Hong Kong-based real estate company. Lu Mai, a policy researcher for China’s State Council who had attended the Kennedy School in the 1990s, sought Saich out to propose a more ambitious initiative to train local officials.
Saich liked the idea. He drew in Tsinghua as a Chinese partner, alongside the State Council’s Development Research Center. Tsinghua had created a school of public policy in 2000, and Saich says he was eager to promote ties with it, as well as to have a partner on curriculum and training development. Money quickly became a sticking point.
“Sending 50 senior officials to America was not approved of by some people in China,” says Saich, 60, a Brit who has written or edited more than 20 books on China. “There were a lot of fears about what the program would teach.”
So Saich began looking for a company that would be willing to pay for the program in exchange for a chance to improve its relations with the Chinese government. Edward Cunningham, then a 24-year-old program officer who worked with Saich, suggested Amway. Cunningham was well versed in Amway’s travails in China; he’d written a paper about its corporate strategy there for a class at MIT, where he earned a PhD in political science. “I at least had an idea of what Amway had gone through,” says Cunningham, now an assistant professor at Boston University and director of the Asia Energy and Sustainability Initiative at the Kennedy School.
Cunningham sent a letter to Doug DeVos that ended up on Wong’s desk in Beijing. Wong saw opportunity. “It has this combination of the best brands,” Wong says, laughing. “You have Harvard, you have Tsinghua, and you have the State Council.” Amway signed up.
Amway fellows, who are selected by the Communist Party, prepare for two weeks at Tsinghua before studying government functions, such as budgeting and crisis management, at Harvard. Lectures taught by well-known Harvard faculty members — Joseph Nye, famous for his study of political power and influence, for instance — are translated into Chinese.
Saich says the sponsorship lets Amway show it’s interested in more than profits in China. “It gives them something to talk about with senior government officials,” he says. “Secondly, it probably gives them a local network base that they can interact with. They have people from the program in every single province.”
Amway has accomplished things other foreign enterprises haven’t. It was the first and only foreign company allowed to register a charitable foundation with the Ministry of Civil Affairs, Wong says.
The Kennedy School’s Ash Center for Democratic Governance and Innovation, which Saich heads, trains city staff from Shanghai and Indonesian and Vietnamese officials. State-owned China Southern Power Grid Co. and Thai investment firm Charoen Pokphand Group Co. have sponsored training programs at the Kennedy School, whose graduates include Bo Guagua, son of Bo Xilai, the disgraced member of China’s ruling Politburo.
Meanwhile, in China, Amway’s network continues to grow. Zheng, the saleswoman in Hefei, is devoting herself full time to selling Amway products, though she has yet to make any money.
“Amway is my China dream,” she says. “If you speak about education, I don’t have much. If you focus on relevant work experience, I haven’t got much either. It’s my ticket to a better life.”

Bloomberg Markets/Washington Post (copyright 2013)