What This Shanghai-Based Lawyer Wants American MLMs to Know About China

Is Your China Strategy Too Reckless? Too Timid? Nonexistent?

There’s good money in selling to Chinese consumers but the People’s Republic of China restricted direct sales to single-level sales commissions.

The Chinese economy is growing. Consumerism is on the rise. Word of mouth marketing is king in China. Are you going after this market?

Maybe you’re staying out of China entirely. Maybe you’re operating in China with a single-level compensation plan. Maybe you’ve been quietly selling your products into China with cross-border e-commerce—without making any changes to your compensation plan—and you’re looking the other way while distributors do whatever they do onshore. Is there a better way?

We reached out to MLM.com contributor Mark Schaub to find out. Mark is a lawyer who lives and works in Shanghai. On this episode of the MLM.com Podcast, Mark discusses the strategies he’s used to successfully navigate PRC law for MLM clients.

Listen in to learn:

  • Does the single-level route—used by Herbalife China and Amway China—make sense for smaller brands?
  • How safe is the popular offshore e-commerce strategy?
  • What were the real objectives behind Chinese MLM law?
  • Is there a way to navigate MLM Law and pay Chinese sales leaders for their work while operating onshore?

Full Transcript

Nancy Tobler: Welcome to MLM.com Podcast. This is Nancy Tobler. I’m guest hosting for Kenny Rawlins.

Today our guest is Mark Schaub. He has worked as a lawyer in Shanghai since 1993. He specializes in foreign direct investment and restructuring in China. He has advised on foreign investment projects in all major sectors in China, with a cumulative value exceeding USD $20 billion. He’s familiar with China issues faced by companies of all sizes and is a trusted advisor to many companies ranging from family-owned businesses to Fortune 500 companies. He is also the global co-head of King and Wood Mallesons consumer practice.

So, welcome, Mark!

Mark Schaub: Thanks, Nancy.

Nancy Tobler: So, we’re so excited to have you on the call. We get a lot of reader response when we talk about China and how to do business in China. I think, perhaps, the very first question that needs to be cleared up is that there’s a difference in how direct selling or network marketing, multi-level marketing occurs in China. Would you talk about that difference?

Mark Schaub: Sure. I think we’ll talk a bit later about the opportunity in China. Multi-level marketing or network marketing has a very big presence in China and it’s growing quickly. And I think it also really gels with Chinese culture. There’s a large domestic presence. But American companies do dominate the multi-level marketing. And they basically have three different ways they do it.

Single-Level Direct Sales—How MLM Titans Enter China

Mark Schaub: Perhaps the most traditional way is the direct sales model—so, companies like Amway or Herbalife, these kind of guys. They will actually get a direct license—a direct sales license. That’s the PRC (People’s Republic of China) alternative to traditional network marketing structures. The PRC has a total ban on having anything more than one level of commission. So, you need to have a direct sales license. For many companies it really has stopped them entering the Chinese market because the requirements to do it are very high.

So, you have to put in a security deposit of about three million U.S. dollars and this has to be adjusted to include about 15 percent of sales revenue each month. You have to hire the direct sales people directly. And the remuneration has to be paid monthly.

So, it takes away a lot of the flexibility which is attractive to a lot of people in network marketing.

And then you need a direct sales license which requires a minimum capital of about 12 million U.S. dollars. And there are a slew of other requirements…

But I think for many companies, unless they’re very big and they’re very confident about the Chinese model…

And it also doesn’t encompass all types of goods. It’s mostly for cosmetics companies, supplements, household type appliances. So, I guess it is a model, but it is quite inflexible and quite expensive. So, do you have any questions about the direct sales model?

How Growth in the Chinese Economy Dovetails with Direct Sales

Nancy Tobler: Maybe talk just a little bit more about what kind of growth they’ve seen in the Chinese market in the last 10-15 years. Has it been 15 years?

Mark Schaub: I mean, the economy itself would have grown probably five times in the last 15 years. Supplements and cosmetics, they’re still the biggest part of MLM companies in China. And these are two of the hottest things growing at the moment.

So, even though the Chinese economy has slowed down to 6.5% [growth], supplements are still growing at a rate of about 12% to 20% and cosmetics are growing around 15%. There’s a lot of demand. And I’d say that China’s really the largest market for cosmetics. It’s not the largest one yet for supplements. But it’s a big market that’s still growing far faster than anywhere else. Also, I think direct sales is roughly growing at about 20%.

So, it is a very buoyant thing and when people look at the 6% or 7% growth that we’re seeing in China, it doesn’t really impact the retail sales. So, the Chinese government’s trying to push domestic consumption, and there’s a much bigger consumer base than maybe five years ago. So, now is probably the right time to come.

The Popular Offshore E-commerce Strategy

Mark Schaub: And maybe that would be a way to segue to the second model, which is a bit of a gray area, and it’s basically an offshore e-commerce model. And I’d say this only came about maybe five years ago, and it kind of shows you how new the Chinese consumer class is and how quickly it grew.

So, companies like Alibaba, Taobao, Tencent… all these companies really have grown a lot in the last five years through e-commerce. So, China has about 880 million Internet users. They do buy a lot online and e-commerce is basically where… say a US company will be operating offshore and then they will bring the products into China via cross-border e-commerce. And then they basically operate the business like they do in the States—having more than one level of commission.

And typically these businesses grow very very quickly.

We have seen a number of MLM clients where China was a secondary or third market or even a fourth market—wasn’t very interesting—but within a year, it grew bigger in the domestic market for them.

When you’re small, people won’t notice. But the problem is once you get larger, this e-commerce model—because it really is directly in breach of the Chinese regulations in respect of multi-levels of commission—it’s inherently fragile.

So, a lot of these companies might be deemed to be illegal pyramid schemes. This will perhaps damage the reputation at home. But it will definitely interrupt the operations in China. And, you know, the Chinese authorities can do all kinds of things. They can arrest your affiliates. They might block the marketing channels like your website, your WeChat account. And we’ve also seen cases where company executives get arrested once they get into China. And then the argument that, “Oh, we’re offshore” won’t really hold much water because They’ll say, “You might be offshore, but you’re operating in China in an illegal way.”

So, I think this is a very prevalent model in China, but I think it’s like building a castle on sand. You know, once the castle gets too big, it might fall apart.

Nancy Tobler: Yeah. An interesting model. And I think you’re right. I think there are a lot of companies that have gone that way.

A Better Way to Navigate Chinese MLM Law

Mark Schaub: So, what we’ve done recently is we’ve come up with a compliant model which we call the SOSO (sales offshore, service onshore) model. And, “so so” (at least in Chinese English) means, “not bad.” But it is a bit of a middle ground type thing where it combines the benefits of the offshore e-commerce model and the direct sales model.

So, we had a client that had tried the offshore e-commerce model, got into trouble, came to us. And then we had to put out the fires. But they still wanted to continue the business in China. And so, we came up with a more compliant model which was based on cross-border e-commerce but having the downline or the affiliates in China actually owning service companies and then being paid based on the number of people they service.

This model stood the test of at least 12 months.

Prior to instituting it, the client was having major problems with the Chinese authorities on a monthly basis, people being arrested, etc. And now we actually have not had any issues since we did that.

Yes, You Can Pay Chinese Sales Leaders Without Breaking the Law

Nancy Tobler: I think that the SOSO model, as you call it, is very interesting. So, people are paid to provide service on products that have been sold rather than being paid down many levels. They’re just paid for additional activities beyond the actual sale of the product.

Mark Schaub: Some of the MLM companies who are doing it more like a distributor basis. So, the more you buy, the cheaper the products. This actually isn’t that way, structured. So, basically the affiliates will have their own companies. So that’s another layer of protection for the MLM company.

Nancy Tobler: Right.

Mark Schaub: And the concept is, the more people you have in your downstream the more services you provide. So, there’s things like the social media aspect, providing these people with education on how to do it…

And, you know, we had devised a way that there would be perhaps… if you have more people in the downstream, and then they have people in the downstream, it could be argued that you would also have to provide services to those people.

But that actually has not arisen. So, in practice it actually has stuck at one level of commission. And the affiliates… I mean, this was not like a brand-new thing. What we had was a client that—obviously I won’t say who the company was—but the really bad day was in 2013, where the police came, raided a rally, arrested 53 people and put most of them in jail, seized all the computers. There what we had to do was stop the bleeding. We had to get a PR firm to help with reputational damage. And then we had to recalibrate the model.

So, it’s not easy.

They had a very big business in China. They had a lot of affiliates who were working that way, were familiar with the business. And, you know, we were able to implement this new model and that was back in 2013. Now, 2019, it’s actually been running for six years without any hiccups. And even the affiliates seem very happy.

Nancy Tobler: Yeah. That’s fascinating. I think our listeners will be very interested to know of this different approach and they certainly, I assume, can contact you if they want more information.

Three Powerful Reasons Why Network Marketing Thrives in China

Nancy Tobler: You talked just a little bit about this in your in your opening, but let’s talk just a little bit about culture and why direct selling does so well in China.

Mark Schaub: At the moment, the Chinese consumers—especially for anything you ingest or put on your skin—there’s still quite a large preference or a strong preference for imported goods. So, you know, typically, most of the MLM goods are either imported or they may be just the packaging or the bottling of the cosmetic companies like the last stage of it. So, I think that’s one cultural thing that people may not be aware of is that there’s a lot of cachet in having imported goods.

Secondly, I think the Chinese social system, now over many generations, is a relatively low trust society. People have a network of their friends, their family, and, you know, it’s interlinked communities. And people really trust each other rather than perhaps, outside sources. So, I think if somebody was going to buy something, it’s not that they would go on and check a consumer choice magazine and the ratings. They will ask people they know what they think of the product. We call it “guanxi.” It’s connection. And so, I think this is something which has been culturally there for a long time. They like to have these communities and reach out within their networks.

And I guess the other thing, which is not really a cultural thing—well, it’s a new cultural thing—is how the Internet and mobile devices have exploded here. And so, I’m spending a little bit more time overseas now and so I’ve come up across this “WhatsApp.” In China, everybody uses WeChat. And the only thing I have to say about WeChat is it’s 100 times better than WhatsApp. So, you know, it’s the statistics on it are crazy. WeChat is basically… you communicate, text people, you do 100 different things on WeChat. And there’s 880 million people using it. And I think the average hours of use per day—and you’ve got to think, “Well, this can’t be right,” but it is—6.5 hours.

Nancy Tobler: Wow.

Mark Schaub: So, people are constantly on their WeChat. And so, WeChat has just instituted this WeChat sells, which is an application that allows users to sell via WeChat with a commission base. So, I think these are the three things. Firstly, having a network and using your network is a very normal thing in China. Secondly, the fact that people want imported goods. And then thirdly, this ability to connect to more people quicker.

Nancy Tobler: People trust that social media, WeChat? Is that working in their favor?

Mark Schaub: Well, I think the thing is they probably don’t trust talking heads. Even though KOLs are very important—key opinion leaders are important—they’re probably less important than in the west.

So, I think very often, people will have focus groups… So, we had one client that was targeting pregnant women or women who just gave birth—supplements for women who just had given birth. And there it was more important to them to actually have mothers who were actually just experiencing it. So, I think the real experience is more important.

Nancy Tobler: Yeah. That’s fascinating.

Lost in Translation—the Objectives Behind Chinese MLM Laws

Nancy Tobler: I’d love for you to talk about the crackdown that happened in 2017. And maybe you’ve really already discussed it, but what kinds of things got companies in trouble in 2017? And is that sort of waning now and not happening as much? What’s your opinion on that?

Mark Schaub: That 2017 crackdown was a total… was totally unrelated to US MLM companies. You know, the media picked it up. And it did affect some of these MLM companies’ share prices. But it was actually very unfair.

What it was targeting was that these Chinese [MLMs]—and I would use the term MLM very loosely. They were more like cults. And they were doing things that were absolutely illegal, much more Illegal than just pyramid schemes. They were basically kidnapping people, sleep depriving them, and making them sell product this way.

It really was something totally beyond, you know, even perhaps the most vehement opponent of MLM. Nobody would actually categorize what they were doing as “being MLM.” They were basically criminal gangs.

And so, I think the western media either knowingly—or just didn’t understand the context—misunderstood what the crackdown was about. So, I don’t think it was really something that was directed at foreign MLM companies at all.

Nancy Tobler: Okay, great. Well, I think that’s—that will clear it up a lot. In fact, I still see, periodically, a news article that will talk about the crackdown on pyramid schemes. That’s usually what they call it. But people in the US equate pyramid schemes with MLMs a lot. Whether or not that’s… It’s not a good comparison obviously.

Mark Schaub: Well, I think that’s not fair.

Nancy Tobler: Yeah. It’s not fair.

Mark Schaub: I would say that’s not fair. But, I think, you know, legitimate network marketing companies in America, I think the short of it is, as far as I know, none of the major ones who were here were involved in the crackdown or suffered. And I think their share prices recovered quite well. So, I think it was misinformation, misunderstood.

Nancy Tobler: Yeah.

Yes, You Can Operate Your MLM in China Without Breaking the Law

Mark Schaub: I think legitimate MLM companies, they just have to realize it’s a different system in China, and you’ve got to work out how you want to act in a compliant fashion. Because otherwise you might do great business here but someone might destroy it very quickly. So you probably want a compliant, long-term business rather than something that just won’t work, you know, in the long term.

Nancy Tobler: Well, I want to thank you for spending some time with us this morning. Well, it’s afternoon there, but it’s morning for us still. I haven’t had enough caffeine yet, really. Anything else you want to share with us this morning?

Mark Schaub: No… China is a big opportunity. But I think most of the risks can be mitigated with just some commonsense measures. And, we’re very happy with any of your listeners… we’re happy to have a chat or send them some information. You know we just want to make people… demystify China and let them think about it. And they may decide not to come here or not to come right now. But, you know, it’s probably better to have an informed decision rather than rely on media or other reports which may you know paint a, you know, inaccurate situation.

Nancy Tobler: Good. Well, I think you’ve dispelled a couple of myths today as well as enhanced our understanding. I think your SOSO model is very interesting. I think our listeners will be very interested in how you’ve put together this, as you say, sort of a middle approach. And again, thank you for your expertise. We appreciate you and we appreciate your articles, there are a couple of them on MLM.com and we look forward to future work with you.

Mark Schaub: Right. Well, thanks very much!

Nancy Tobler: All right. Thank you so much. Goodbye.

Mark Schaub: Thanks Nancy. Bye!

Nancy Tobler: This has been the MLM.com Podcast. Today’s guest has been Mark Schaub. His offices are in London and he works in China. And he has explained to us some fascinating things about culture there as well as the legal climate and their model and how they approach direct selling in China. And it’s been a fascinating lesson. I hope you enjoyed it. If you like what you hear here we want you to share it. And we’d love to have you comment. And we’d love to know topics that you’d be interested in. We’ll try to find an expert to interview. Thanks again for joining us at MLM.com Podcast.


Did we get to the topics you wanted to hear about? If you have questions you’d like us to ask Mark—or his colleagues—in a later episode, please let us know!

The post What This Shanghai-Based Lawyer Wants American MLMs to Know About China appeared first on MLM.com.

Spencer Reese Weighs in on MLM Law, Civil Suits, and Public Perceptions

It’s no secret that MLMs exist in a bit of a grey area. There
is no federal definition of a pyramid scheme. Over the years, regulators’
objectives and strategies change—sometimes in a major way. But have you noticed
all’s quiet on that front?

There hasn’t been a major government action against a
well-established MLM since 2016. No doubt, some of you are holding your breath
and biting your nails.

The simple truth is things are changing. Independent MLM
distributors have growing reach. So do
the anti-MLM crowd
.

Your ability to do business is all about the public’s
perception of your brand. If a reputable source calls you a pyramid scheme, the
label itself can cause lasting damage. And right now, that allegation is
cropping up everywhere. What can you do about it?

We’re here with another podcast aimed at helping you as you
make good choices as you think through your current strategy. We sat down with
Spencer Reese to talk it out. Spencer gave us his insights on current trends,
common mistakes, and best practices. Listen in to learn:

  • What you can do to avoid the reputational harm
    of class action pyramid suits
  • Why it’s deadly to change terminology without
    changing practices
  • How to tackle pricing problems that drive bad
    behavior
  • Where you can find your real competitor (hint: it’s not an MLM)
  • What it means today to have an
    opportunity-driven or customer-driven MLM model

Full transcript

Nancy Tobler: Welcome
to MLM.com Podcast. This is Nancy Tobler. I’m guest hosting for Kenny Rawlins.

Today we have Spencer Reese, who is a lawyer with the law
firm of Reese, Poyfair, and Richards. He has been in the direct selling space,
multi-level marketing space, since 1986. He’s been a regular participant on
MLM.com as well as on our podcast and we’re very grateful to have him here with
us today.

What’s the MLM legal climate like today?

Nancy Tobler: Spencer,
you always get a great response. It’s been a year, I think, since we talked to
you last—so, thought we should check in and see what the legal climate is like.
Now, tell us what you know.

Spencer Reese: Sure.
Well, I certainly will. And, Nancy, thanks as always for having me on the
podcast here. It’s always truly my pleasure.

We’ve been seeing actually a lot going on in the civil arena
with the class actions in the last year or so. Certainly, the civil actions
have been more active than the regulatory climate. We have seen some state
actions, but at the federal level we aren’t seeing a lot in the pyramid claims.

What we are seeing is that the FTC has shifted their focus.
I think I spoke about this last time. The FTC has shifted their focus somewhat
from pursuing pyramid claims against network marketing businesses to pursuing
claims just based on deceptive income representations. The FTC has figured out
that that’s much lower hanging fruit and those cases are much easier to bring—far,
far, less complicated than pyramid actions.

Pyramids the standard of proof—since the Burn
Lounge case
was decided by the 9th Circuit Court of Appeals—the standard of
proof that the FTC has to meet is considerably higher than it used to be. And
consequently, the FTC has figured out that, “You know what, we can get the
relief we’re after simply by being in a deceptive income claim case and that’s
much easier to prove.” So that’s the avenue that they’ve been pursuing.

But on the civil side, in the class actions, we’re still
seeing the pyramid cases where pyramid claims are being alleged. And more
traditional pyramid and RICO
claims
those are still certainly front and center. Now what’s driving that
is the plaintiff’s bar.

Why are class action pyramid cases on the rise?

Spencer Reese: There’s
just one or two law firms that are primarily responsible for filing a number of
class action cases. I
wish I knew how they were financing them. Class actions are not easy. They’re
not cheap.

You know, what a plaintiff’s lawyer hopes for is to get a
quick settlement so they can move on to the next.

Now, I don’t know how they’re financing these cases. It’s
smaller firms that have been bringing them. So, they’re not well bankrolled. I
know that. But I know they’ve settled one or two and maybe they’re using those
funds to bankroll the other cases that they’ve brought.

Nancy Tobler: So,
in a civil case they allege they’re a pyramid.

Spencer Reese: Correct.

Nancy Tobler: And
they just try to get a lot of plaintiffs on one case. Isn’t that how that
works?

Spencer Reese: Yeah.
What happens in a class action case is that you have to have a large number of
people that are purportedly similarly situated. And then you file your claim
and say, “Hey, these people are similarly situated. They’ve all been
damaged, relatively the same. And by the same conduct.” One plaintiff, one
individual or a small group of individuals will be the designated plaintiffs on
behalf of an entire class.

Spencer Reese: Now,
the way that they work in and the leverage that they have is that they make
these allegations of a pyramid scheme which is obviously highly illegal.

They make these allegations but then because it’s a class
they’ll try to get the class certified. That is if the court says, “Yes,
this is a class of individuals that are similarly situated.” And then you
have to send notice out to the entire
class
.

So, for example, they say a class consists of “all
individuals who recruited and became a distributor for Company X during the
year 2015 through 2019.” That could be a lot of people.

Nancy Tobler: Right.

Spencer Reese: Just
depends on how much the company has grown. And chances are it’s going to be a
company that’s been a fast grower because a small company, is not a viable
target for a class action.

Nancy Tobler: Right.

Spencer Reese: They
just don’t have the resources.

Why is the pressure to settle so powerful?

Spencer Reese: But
that’s what we see, they bring these class cases and notice goes out to the
class. That is, they have to be issued notice of this allegation that there is
a claim against the company that it’s a pyramid scheme. And, of course, once
the notice goes out to the class with a claim like that, it really damages the company’s
reputation
.

Nancy Tobler: Absolutely.

Spencer Reese: And
so, the companies don’t want that notice to go out. So, what happens is that
gives the plaintiffs’ attorneys considerable leverage to settle the case and
get their money and move on.

Nancy Tobler: Right.

Spencer Reese: That’s
the lay of the land. Nobody ever wants to litigate—actually take one of these
things to trial. I mean, they’re extremely expensive, very cumbersome and the negative
publicity and the damage to the business that can occur from notice going out
to the class is huge. So, there’s a lot of pressure to settle. And that’s what
happens.

Nancy Tobler: Yeah.
Whether there’s anything legitimate in the claim or not. Right?

Spencer Reese: Exactly.

Nancy Tobler: You’re
gonna settle. You just want to keep your name out of paper.

Spencer Reese: Exactly.

Nancy Tobler: Well
and keep your name from being sent to every distributor that you may be a
pyramid. That was a problem.

Spencer Reese: That’s
exactly right. I mean, the stakes are so incredibly high that the pressure to
settle is enormous on companies. And that’s what the plaintiffs’ lawyers are
banking on.

Spencer Reese: So,
they just want to get a quick settlement and then move on.

Warning: are you putting lipstick on a pig?

Nancy Tobler: Yeah.
That’s interesting. I had noticed in the last couple of years we’ve had more
class action. I hadn’t thought of that as a way to shut down a company, but I
think it certainly has a way to damage a company’s reputation. Maybe not shut
it down like the FTC can, but certainly a serious problem, public relations
problem.

Spencer Reese: Absolutely.
Absolutely. And anymore… I mean it’s we certainly have legal battles but
anymore the real battle is in the court of public opinion.

Nancy Tobler: Right.

Spencer Reese: And
that’s where if a company’s reputation is damaged in that regard then it’s over
for them.

Nancy Tobler: Yeah,
I think that’s interesting. I think it’s interesting that companies, since the
Herbalife case, really should be moving towards more customers and more
documentation of training. Have you seen that sort of shift since the Herbalife
case?

Spencer Reese: You
know, it’s interesting that you asked that. I have not seen a greater emphasis
on that from a legal/regulatory perspective but that was a very very strong
pull prior to Herbalife. That’s been the attitude of the FTC since 2004. They
issued their advisory opinion and it was highly, highly, focused on driving
customers. In fact, that actually came out in the Omnitrition case back in
1996.

And so, we’ve had that heavy focus on being customer-oriented
and customer-driven. Essentially that dates back to 1996 rather than just
Herbalife. But it certainly became a focus of the Herbalife case.

Nancy Tobler: Have
you seen companies move more in that direction or it’s not something really
that you end up dealing with?

Spencer Reese: You
know what’s interesting? Everybody is trying to figure out how to crack that. I
have seen several that have taken really true material measures to drive their
customer sales.

Most of what I have seen, however, is companies simply
trying to repackage what they’re already doing. They really don’t want to
change much, just change their nomenclature, but do business the same way.
Which, you know, in my opinion, that’s just putting lipstick on a pig.

Nancy Tobler: Yeah. [laughter]

Spencer Reese: You’re
not gonna change the fundamental nature of it. But there have been several
sizable companies that I’ve seen make material changes trying to become more
customer-oriented. I always tell clients, “Look, you can do it voluntarily
or you can have it shoved down your throat like Vemma and Herbalife did.”

Nancy Tobler: Right.
Well, you and Kenny talked a little bit about this last time, so we don’t have
to go into too much depth, but I think it just makes so much sense to have
people sign up as customers if they’re not sure that they want to do the
business opportunity. Later on, then
transfer them to be a distributor if they find themselves recruiting people
because they’re so passionate about the product. Then, yeah, become a
distributor, do it. But if you’re not sure, don’t do it.

Why not give customers the best price?

Spencer Reese: Absolutely,
I agree with that. The challenge we have comes in in pricing strategies.

Nancy Tobler: Right.

Spencer Reese: And
so many companies want to price their products on a tiered structure so that
distributors get the lowest price and then distributors, if they’re on autoship
get the next lowest price. But, so everybody, you know, they they say that,
“Well, these people are distributors. They signed up to get the lowest
price.” But if they have to convert them to customers, well then they have
to raise the price. And, of course, you know, people know that the real price
is the lowest price, that’s the distributor price.

Nancy Tobler: Right.

Spencer Reese: They
have to fight that fight.

I mean, honestly, I think that that the best strategy is to
have your preferred customer price being the lowest price.

Nancy Tobler: Yeah.

Spencer Reese: And
that way, if somebody wants to be a preferred customer, great, they get the
best price. If they want to be a distributor, they, you know, they still would
have to be a preferred customer to get the lowest price. But then they would
also have to pay some other additional fees such as your replicated website, back
office, and technology fee or something like that. A starter kit…

Nancy Tobler: Yeah,
that makes sense to me. I think I’ve only heard of one company that actually
does that that I know of. But it makes sense to me. I think it really helps
solve sort of the income claims problem that we talked about earlier. Right?
That you have a clear distinction between what’s a customer and what’s a
distributor, so the income can be an average of people who actually run the
business, not people who are customers.

Are they joining because of pricing or income claims?

Spencer Reese: You
know in my opinion, it all comes back to income claims again.

Why is everybody enrolling as a distributor in the first
place? Is it really to get the lowest price or is it because they were enticed
to join by virtue of income claims?

I have an opinion on that and my opinion is that most people
join because they’re induced to do so based on the income claims. If that were
not the case, then it would be a lot easier to have your lowest price be the
preferred customer price and more people would be motivated to buy the products
based on the lowest price.

Nancy Tobler: Yeah.

Spencer Reese: We
just don’t see that.

Nancy Tobler: Yeah,
I think you’re right. Back to where we started on this call, the FTC is going
after income claims. Do you think part of the reason for that shift is because
it makes it so easy to catch them because of technology? They’re on social
media, and their they have their blogs and they’re making these claims out in
the open, or where it’s recorded? Is that why the FTC is going after income
claims?

Spencer Reese: Well,
I think there’s a variety of reasons.

One, they’ve been going after income claims forever. Any
time you have a pyramid claim there’s also been a fraudulent income claim
allegation in the complaint as well.

But in addition to that, yes, they’re very easy to find.
They’re extremely easy to find. They just log into some distributor’s social
media page. And there are the income claims right there. They print the page
off, they got the evidence they need.

Do you have an accurate picture of the field?

Nancy Tobler: Yeah,
yeah. Do you think companies—you talked about this last time—do you think
companies are doing a better job at training, or it’s still an issue?

Spencer Reese: Oh,
I think they’re overall doing a relatively poor job of training. You know, I
think that there’s the desire to do
so. But the unfortunate reality, from what I’ve seen, is that too many
executives sit in their offices and dictate what they think should be policy.
But they don’t get out in the field and see actually how the business is done.
They’re removed from reality or have become removed from reality in that
regard. They’d like to think that the products are driving the sales but
they’re kidding themselves. That’s my opinion!

Nancy Tobler: Yeah.

Spencer Reese: And
I said, too, they need to get an accurate picture. They need to get out in the
field and then actually attend the distributor meetings and see what’s actually
going on.

Nancy Tobler: Yeah.
Well, I mean, I think they certainly can do a better job of monitoring what
happens on the internet through technology. But I think, like you say, just to
get out into the field and find out what happens, I think could be quite eye
opening.

I think there are things we can do better as an industry. I
think having more customers is… it just makes total sense to me. I must shake
my head about that on a regular basis. Why not just make them customers? That’s
what they are. Well then you can be more transparent in your reporting and your
income claims can be more realistic. But I think we can do a better job of
training too. Technology makes training so easy now. And it also makes it easy
to keep track of who’s been trained.

Spencer Reese: Yeah,
ultimately, I think it goes beyond training. We have to identify, “What do
we need to train on?” And that means we have to identify, “What are
the fundamental issues that we’re dealing with?” That’s what I think the
real issue is.

Who are you really competing with?

Spencer Reese: And
so, what am I talking about? I’m talking about, well, let’s define ourselves
and figure out who our competitors are.

Nancy Tobler: Right.

Spencer Reese: So,
what are we going to train on? I mean, if we need to train people on getting
more customers, well, who are we competing against? Well, in my opinion, from a
customer perspective, if you’re product-oriented, your biggest competitor is
Amazon.

Nancy Tobler: Yeah.

Spencer Reese: Let’s
face it. Amazon, you can get anything you want. You can get next-day shipping,
if you’re a Prime member. You can get the best price. I mean, they’ve got
stainless steel precision when it comes to operations.

Nancy Tobler: Yeah.

Spencer Reese: So,
you’re competing against Amazon!

If your program is primarily opportunity-driven, your main
competitors are the gig economy. You know, your Ubers, the Lyfts, the Airbnbs,
I mean, they will generate immediate cash. You won’t necessarily be profitable.
I question the profitability of those business models. But you can certainly
get some cash flow going and get it going quickly.

Nancy Tobler: Right.
I think it’s interesting, Uber drivers, 50 percent of them drive one to five
hours a week and on average they make about twenty-five dollars an hour. And
you think about—well, at least what Mark Rawlins has always said—people want to
make $200 to $500 a month. Well, that gig economy model is proving that. Right?
“How do you get distributors to $200 to $500 dollars a month?” is, I think, a
big question that companies should be asking themselves.

Spencer Reese: Yeah.
Yeah. But, you know, the reality of the gig economy is, okay, you made 500
bucks a month, you have cash flow, but, you know, by the time you depreciate
your car, holy smokes, you’re in the hole.

Nancy Tobler: Yeah.

Spencer Reese: Anyway,
that’s that’s a whole different story.

Nancy Tobler: Yeah.
That is. It is an interesting topic too.

How can you defend against class action suits?

Nancy Tobler: Well,
thank you, Spencer. I appreciate you taking time out of your busy day. I know
you’re busy and we always appreciate your expertise. And I think the class
action information, I’m gonna go and do a little reading on it, in fact, based
on your insight here today. I think that is an issue. And I don’t know what
companies can do for that. Do you? Maybe our final thought could be what can
companies do to sort of protect themselves against class action.

Spencer Reese: Well,
there’s there are actually things you can do. The best protection is also
completely unpalatable and that is not to be financially successful. Don’t make
yourself a target.

Nancy Tobler: [laughter].

Spencer Reese: That
doesn’t work. What plaintiff’s lawyer is going to file a class action case
against a company that can’t afford to pay anything anyway?

Nancy Tobler: Right.

Spencer Reese: That
would be stupid.

Nancy Tobler: Yeah.

Spencer Reese: But
you can have an effective class action waiver in your contract. You gotta do it
right. It’s not easy. But you can do it and the courts have upheld them. So
that would be, I think, your first line of defense. Have a class action waiver—whether
you have an arbitration provision (which I encourage), or you allow people to
file a mitigation in court. Either way, you can put an effective class action
waiver in the agreement. And that would be your first line of defense.

Nancy Tobler: Yeah.
You see it everywhere. Right? When you go into your doctor’s office you sign a
waiver. You say you’ll first do arbitration. So, there are not very many places
where we don’t sign something upfront that says we won’t we won’t go to court.
So. Okay!

Closing

Spencer Reese: All
right, Nancy, well, you have a wonderful day.

Nancy Tobler: You
too!

This has been the MLM.com Podcast. I’m Nancy Tobler, your
guest host. We are very grateful to Spencer Reese for spending some time with
us today. He’s enlightened us on the use of class action suits as a way to get
at companies and ruin reputations. Essentially that’s the way a class action
lawsuit works. And his information is very useful as to how you might avoid or
at least minimize the potential of class action. And we appreciate you also as
listeners. And we’d love to hear from you. Make a comment. Tell us what you
want to hear more about. Like us, share us. We appreciate you as listeners.
Thank you.

The post Spencer Reese Weighs in on MLM Law, Civil Suits, and Public Perceptions appeared first on MLM.com.

Usana’s Giving Mindset: Are We Doing Enough?

Wouldn’t it be amazing to put an end to world hunger? Of course, it would. No one wants children to go hungry. Why do so few people try to make a change? We don’t do anything because deep down we know one person can’t do enough. Global problems can’t be solved at the level of the individual. Big change comes from the actions and policies of big organizations.

Brian Paul, President of the Usana True Health Foundation, joins us on this episode of the MLM.com podcast to talk corporate social responsibility (CSR).

The Usana True Health Foundation works to feed children around the world. They’ve distributed more than 25 million meals. And they work to create sustainable programs—programs with the objective of getting people out of dependency.

Listen in to learn more about Usana’s philanthropic efforts and philosophy.

Full Transcript

Nancy Tobler: Welcome to The MLM.com Podcast. I’m Nancy Tobler, your guest host. Today we have Brian Paul from Usana. He is the president of the Usana True Health Foundation, which is their philanthropy project that they do. He’s been there for over 20 years. He’s been deeply involved with their charitable efforts. He is committed to helping impoverished children—I like this, I’m going to read it right from his bio—”Impoverished children and families reach their full potential by providing them with food and nutrition.”

He has an extensive background in film and television, digital communication, and hosting live events for global audiences. Brian uses his expertise to share the foundation’s stories.

Before joining the foundation, Brian worked as Usana’s Creative Media Director, inspiring others to achieve their health and financial goals by helping others. So, welcome, Brian.

Brian Paul: Wow, thank you!

Nancy Tobler: Yeah.

Brian Paul: How are you?

Nancy Tobler: Good. I’m really good. Thanks so much for joining us.

The Usana Story

Nancy Tobler: Just in case people don’t know what Usana is, in terms of the company, would you give people just a little background on Usana?

Brian Paul: Yeah. Usana the company started in 1992 and it was founded by a scientist, a cellular microbiologist, basically looking for a way to fight degenerative disease. He spent many years trying to help people get over their sicknesses rather than preventing the sicknesses. So, that’s when kind of Usana was born. And it’s a health supplement company that creates some of the highest rated nutritional supplements in the world. It’s a network marketing company. So, we have distributors all over the world, 26 different countries who build businesses with our products to help people achieve their optimal health. So, that is the company in a nutshell.

You Can’t Improve People’s Lives If They’re Hungry at Home

Nancy Tobler: Great, great. So, tell me about how your corporate social responsibility program got started at Usana.

Brian Paul: Yeah. So, from the beginning… Dr. Wentz, who was the founder of Usana, he is very much a philanthropist. He’s always been looking for ways to help people get healthy, here and abroad. So, from the beginning we partnered with an organization called Children’s Hunger Fund and their whole mission is feeding children around the world.

And so, what happened was after many years of soliciting donations from our distributors and working with that partner and helping, we decided to start our own charity so that we could reach people in the countries we do business in. So, Children’s Hunger Fund was unable to reach all of the areas. And so, that’s when we decided to create the True Health Foundation so that we can reach those people.

We kind of call our distributors part of the Usana family. So, it’s one big family. And the foundation is here to help the Usana family help others who are in desperate need for hunger and who are very malnourished around the world. And that started in 2012.

Nancy Tobler: Oh, great. I’m sure you can tell the audience a lot more than I can, but when you think about what can make a difference—food and nutrition is basic. Right? You can’t go improving people’s lives in other ways if people are hungry at home. It’s just it’s such a foundational effort to make a change in the world. So, I applaud that. What are some of your most successful or memorable projects that you’ve worked on?

Wow. We still work with our partner, Children’s Hunger Fund. We help deliver these food packs which are basically boxes that contain 48 meals that are really custom to the area of the world that they’re being sent. And they have rice, beans, non-perishables. There’s proteins, there’s vegetables. And it’s kind of tailored for different things for that area of the world.

And so, we, Usana and Children’s Hunger Fund, just a couple of years ago we surpassed over 25 million meals distributed worldwide. And we’re pretty proud of that. And that’s just the beginning. We’re just getting warmed up and we’re hoping to double that in the near future here.

What’s the Plan to Get People Out of Dependency?

Brian Paul: So, we’re very proud of just feeding children and you know all of what the foundation does is we really try to come up with solutions.

So, we’re not just passing out meals and hoping for the best—that these people figure it out for the future. But we work with different partners around the world to, you know, create sustainable projects that are built on agriculture, that are built on children being fed at school so they come to school and we have meals provided for them so that they’re incentivized—the children themselves and for the parents—to send their kids to school.

And so, we try to come up with ways where we can really reach the children. They’re the future. It’s not their fault, the situation they’re in. And so, you know, we focus on getting them fed and then we look for ways to make it so we don’t have to keep bringing them that box. What’s the plan to get out of the dependency of the box?

Nancy Tobler: I think that’s huge. Right? It’s a two-punch solution. Right?

Brian Paul: Right.

Nancy Tobler: You can’t really get people to work out of poverty if they’re still hungry because their primary focus is to get food. So, that two-punch system, I like it.

Donating Is One Thing, But Giving Your Time Is A Whole Other Level

Nancy Tobler: Do your distributors or employees go help with those projects or is that—you really turn it over to another organization?

Brian Paul: No, yes! That’s what I’m very passionate about. I mean when you think of a charity, you think of the side of the people receiving the benefit from the donations from the service. But we’re really providing something for both sides. You know, we have over a half a million distributors that are working to build a business. They’re focused on achieving their own financial freedom and improving their health. And we’re here to also help them give back. We’re there to break their hearts, show them that there are people in the world that aren’t receiving the basic elements of life. And so, we look at kind of making them better and all of us better, so we really get our employees and our associates involved.

Donating is one thing, but giving your time is a whole other level. And that’s what we focus on.

So, we have programs here in our corporate offices where we feed children and in different school districts here in Utah around the corporate office. And our employees go and volunteer and deliver these bags, they pack these bags and take them to schools every week. We have other partners here just around the corporate office where employees can go teach about health, where they can go serve meals to the homeless.

We’ve really turned up the gas on just doing more activities here as a corporation.

And then on our associate side, like you said, we have an ambassador program where we have leaders. It doesn’t matter how long you’ve been with the company. If you want to be a leader in philanthropy you can be a part of that. And so, all you’ve got to do really is just, you know, donate to the foundation, any amount. There’s no required amount. And to serve at least once a quarter with your teams.

So, you know, we’ve got these leaders with big teams that can go show up at the partners that need help. And, you know, it really is leveraging thousands and thousands of people to do good in the world.

Does Corporate Philanthropy Improve Employee Engagement?

Nancy Tobler: Yeah. I think it’s wonderful. The next question I think we’ve already answered is: what is your focus? I think you’ve already talked about that. Right? To bring nutrition to children and then to change their lives. I think we’ve really hit on that one already.

But the other thing I wanted to know is we’ve talked a lot in the last month or so here at MLM.com about employee engagement and distributor engagement. Right? How do you get companies or employees and distributors to feel connected to you? And I was just thinking that CSR and philanthropy are one way to do that. And I thought maybe you could share how you think that works for your company? Or maybe it doesn’t work for your company?

Brian Paul: Yeah, I think, as far as just employee engagement… I mean, you really have to show where their efforts are going and how they’re making a difference. You can never tell the story enough.

People are very focused on, you know, their lives and bettering their families. And so, it’s just kind of a natural thing, it happens to me sometimes, you get in this mode of like, “Oh, I’ve got so many troubles in my own little world.” You know, and I need to be reminded that I’m very blessed. I have an abundance of blessings in my life and there are other people that are struggling with way less. So, we try to really share that in a positive way.

So, we’re not just engaging with our employees and associates with terrible images of malnutrition and suffering. We know that happens. We want to show them that we’re solving it. We’re making a difference. And so, that is a constant effort.

Don’t Just Talk About Poverty—Give People A Chance to Do Something

Brian Paul: And having them involved in the service where they get to be hands-on and deliver food to the actual people who are in need—I mean, that’s the best way. I mean, it’s sweet. We take our associates on service trips around the world.

And one thing about service trips is, you know, it’s easy to take a group of people and sort of take them on a field trip of how poor people live. You know? It’s like, here’s poverty, it’s terrible. Now let’s move on and go back home and hopefully you guys take some action.

We like to go and pre set up projects where we ask the people in the areas we’re going, “What is the need? How can we actually be of help? How can we leave this place better than when we came?” And we bring our associates out to help really connect them to that work. We ask them to support it. They lead the charge, a lot these leaders, they’ll donate, they’ll start these awesome projects. And then we go back to these large events where we have five, ten, thousand people and we ask them to help out as well.

And it’s a formula that’s working and it’s helping a lot of people.

Nancy Tobler: Yeah. The thing that the research really tells us is that if you involve people in these events and they get a chance to do instead of just, like you say, watch.

It used to be called slumming. That’s where the word comes from. Rich people used to just tour poor parts of town to see how they lived. They did. They didn’t want to change anything.

But having them do is so good for your organization and the connection that both employees and distributors will feel.

Creating Programs in the Places Where Distributors Live

Nancy Tobler: I love that you do so much locally in Utah. I didn’t see that on your web page, but I think that’s also a key to your program that we’ll want to highlight is that you’ve really worked hard to have the programs be in the places where the distributors live.

Brian Paul: Yeah. We’re in a funny place of you know in the last couple of years, I always say we keep biting off more than we can chew. We keep just starting things in action and going and we haven’t done a great job of telling our story.

Two years ago, we started with one project like that. And now we have 26 active projects, feeding projects, sustainability projects going right now.

Nancy Tobler: Wow.

Brian Paul: And so, now, this year we got to do a good job of telling the story.

Nancy Tobler: Yeah, right. We haven’t even hit on this, but if your company gets known for particular service and it also makes selling your product easier, people want to buy it because they know in the end it’s going to support values that they have as well. So, it’s a whole other aspect of how corporate social responsibility helps the company.

Why Big Organizations Have the Greatest Responsibility

Brian Paul: For sure. I mean, if you’re going to start a company and you’re going to start employing thousands of people, I think you have a responsibility to really put those people to work giving back to the community that’s giving to them.

I mean, why not?

We have so many associates, distributors, employees—it’s like, we have a way of leveraging their efforts. We do a thing every year called World Service Week where for seven days, around the world, associates just go give back to their communities.

So, they serve multiple days. These service projects that they send back to us just excite me so much. It just blows my mind how giving these people are.

They’ll send a photo with 30 people that go clean up neighborhoods or they go serve at the hospital or they go pack meals for the homeless and deliver them, and it’s just like, that’s what it’s all about. You’ve got these people. Let’s make a difference. You know, we can focus them on one thing that they can really do something for the good in all of their communities.

Nancy Tobler: Yeah, that’s wonderful. That’s a wonderful connection point. As well as it’s a tradition and traditions help bond your people to you. And it’s good for the people, I don’t want to sound one sided, that it’s just good for Usana, what you’re doing, it’s good for the other side. Right? They get to feel good about themselves. They have a chance to do something they know is safe to do. Right? Cause you’ve already vetted the situation and… just all around is a way that everybody gets to win.

What Are We Doing? Are We Doing Enough?

Brian Paul: For sure. And it does benefit the company as far as you know people that come to work here, people that decide to start a Usana business, we make it more meaningful. We add more to it.

And you know it’s really very important, a huge priority from the top down. I go to an executive management meeting every month and I stand before all of our executives and they’re like, “What are we doing? Are we doing enough?” And they put so much pressure on and it’s because it’s very important to them. So, it makes me feel good. I walk out of that room so overwhelmed but I’m also like, “I’m in the right place.”

Nancy Tobler: Well, that’s really nice. That’s a really nice thing to hear. Right? That you don’t have to justify your program. They already see the benefit. It’s very clear to everyone that this benefits all parties involved.

Well those were all my questions, is there anything else you want to tell us about your program?

Brian Paul: That covered a lot. I mean, we’re very passionate. One thing that’s very neat is the True Health Foundation staff is a team of five people in the hundreds that we have here at Usana. But what’s so awesome is all of our employees are so involved. We get support from our corporate office here and from all of our offices of countries that we’re registered in. So, there’s a lot of marketing managers who take on double roles of organizing teams to go serve on the weekends and then they come to work on Monday, and they do their normal job. And it’s pretty humbling that they’re so involved in it and willing to give that kind of time.

A Culture of Giving

Nancy Tobler: Yeah. That’s wonderful. Well, it’s a culture of giving. Right?

Brian Paul: It is.

Nancy Tobler: It’s impossible to boil it down to a simple phrase but it really is a culture of giving and that’s fantastic.

Well, I want to thank you, Brian, for taking the time today to meet with us here at MLM.com. And again, good wishes in what you’re doing. I’ll have my eye on your web page to see what stories you’re telling. And again, thank you very much.

Brian Paul: Thank you very much, Nancy.

Nancy Tobler: Thank you so much for joining us today on our MLM.com Podcast with Brian Paul. He is the president of the foundation at Usana. He shared with us some wonderful programs that they do locally and around the world in all 26 countries that they are in where their distributors are located.

I like their focus. Right? They focus on children and bringing nutrition and food to children but also on providing sustainable programs that will provide food for those children over time.

It’s a great episode, I hope you enjoyed it.

And if you like the episode, we’d love for you to have you share it with others. You can also join our newsletter. We send out a newsletter, every Monday, that tells either about the podcast or the article we have for the week that we’re focusing on. You can also comment in the comments section. We’d love to hear about topics that you might be interested in. And again, I want to thank you for joining us here on the MLM.com Podcast.

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