Herbalife Reborn: Business Ethics

1
HERBALIFE REBORN
BUSINESS ETHICS
2 TABLE OF CONTENTS
• Introduction
• Q.1 Why has Herbalife multilevel compensation model been confused with a pyramid
scheme
• Q.2 Describe the differences between a legitimate business model and a pyramid scheme?
• Q.3 How has Herbalife demonstrated social responsibility?
• Conclusion
• References
3 INTRODUCTION
• Herbalife is the direct selling company of nutrition products formed in 1980 to

serve people in terms of their health, weight management, sports and fitness, and
personal care products.
• Products related to weight management and nutrition are the main products of it.
These products are not available at retail stores, but customers contact with
independent contractors to purchase the products.
• At the start company has only one product for weight management and
expanded its products to becomes the third-largest nutrition company in the
world.
4 CONTINUE…
• There are some ethical issues in the way of Herbalife as they are their products
quoted to addictive ephedra. The company also linked to sophisticated pyramid
scheme.
• In 2014, the company is under investigation of US FTC (Federal Trade
Commission). Their image is not good in public due to these cases, but they are
continuously serving lots of people to live a healthy and good lifestyle.
• Herbalife is continuously trying to recraft its value in view of public by
developing a campaign which acknowledges the people about Herbalife efforts
for health issues.
5 Q.1 WHY HAS HERBALIFE MULTILEVEL COMPENSATION
MODEL BEEN CONFUSED WITH A PYRAMID SCHEME?
• Herbalife’ business has raised a question of whether it is pyramid scheme or

legitimate multilevel marketing.
• Focus on the competition between enclosing fund managers and focus or impact
of the company business model on lower-income holding individuals that are
attracted in this type of business opportunity.
• . This direct sales business is a low-cost flat-rate organization based on contractor
network of sales contractors who make the product available to end consumers.
Herbalife has defended itself against accusations of being a pyramid scheme.
6 CONTINUE…
• To approach the higher levels according to the pyramid, consistent buying of inventory on
monthly basis from the distributors.
• At this condition, it has created a challenge of selling the products. This thing put
distributors in danger as they are wasting money and that’s the reason 90% of them quit in
the same year.
• Many customers and organizations consider Herbalife best quality products selling
company.
• Herbalife supporters claim that they cannot run a pyramid scheme. It supports the fact that
Herbalife uses a successful and successful business model, generating profits directly
related to product sales and expanding its worldwide.
7 Q.2 DESCRIBE THE DIFFERENCES BETWEEN A LEGITIMATE
BUSINESS MODEL AND A PYRAMID SCHEME?
Legitimate business model

• A legitimate business model is a type of strategy used by direct selling companies
to motivate their current distributors for recruiting new members with the paying
percentage of recruit’ sales.
• It is the process of selling the products to consumers by giving sales presentation
to people at home or online basis.
Reasons for choosing this business model are
• Passion of employees
• Desire for promotion
8 CONTINUE…
• Discounts on purchasing
• Part time opportunity
• Flexible job nature
• Social touch
Types of legitimate business model
1.Single level marketing
2.Multilevel marketing
9 PYRAMID SCHEME
• A pyramid scheme is a type of investment that depends upon a hierarchal system.

In this concept, new recruits are the makers of the pyramid because they give
funds or returns to early investors.
• This scheme is started from those companies or individuals who effectively
recruit those investors who have guarantee of more returns.
• Characteristics of pyramid scheme
• FTC agreement
• SEC agreement
• FBI warnings
10 CONTINUE…
• The California Department of Justice

Illegal nature of pyramid scheme
• When it is an illegal pyramid scheme the top position holder investors in pyramid
get finances due to the recruitment of new members.
FTC two red flags
• Inventory loading,
• A lower number of retail stores.
11 CONTINUE…
• Federal Trade Commission gave some legitimate multilevel marketing points.

• This difference is related to below to products level. For example, the main
source of money of the company and the distributors are through product’ sales to
consumers and stored in garage then it is a legitimate business model.
• Whereas a pyramid scheme gives relaxation to the top position holder of pyramid
scheme with a fee of participation, their recruitment fee, and rewards
12 Q.3 HOW HAS HERBALIFE DEMONSTRATED
SOCIAL RESPONSIBILITY?
• Herbalife has an excellent concept of corporate social responsibility and considers it best and
valuable thing for the goodwill of a company.
• The company has strong belief of doing or caring for society and environment as an ethical
value.
• Herbalife has developed high ethical values and standards in its organization’ culture and
business activities. T
• Michael Johnson the CEO of the company claims that their progress or goodwill is the
greatest asset which is showed and proved by its CSR program and ethical standards in the
company.
13 CONTINUE…
• The company has effectively managed and developed policies and guidelines for the
interaction of employees and contractors with the business partners, suppliers, rival
parties, and government agencies.
• Those persons who do not follow or disobey the rules, the company train, suspend and
terminate them. The company also involves in annual ethics training program for the
employees and people across the world.
• In 1994, two famous CSR programmes as HFF and CH
• Employee wellness and Live Green programme
• GAIN’s programme
14 CONCLUSION
• After analysing the case of Herbalife, it can be said that Herbalife is doing a great job to take acre
the health issues of the whole world. They want to create and make healthy communities and
societies through their products.
• Their business model is very effective because they concern for both employees and consumers.
They are training and providing better environment for the employees to work in ethical way. They
are providing many incentives to their contractors.
• The company is a good example of multilevel marketing business model. It develops a better way
for other companies to grow and approach success. They work as a social obligation and concerns
for environment.
• Herbalife knows that some views are against them, but they are serving more and trying to develop
a campaign for the recovery of their values and rebranding .
15 REFERENCES
• Diana, C. & Vanessa, F.-T., 2018. Is multi level marketing of nutrition supplements a legal and an ethical practice?. Clinical
nutrition ESPEN , Volume 25, pp. 133-138.
• Gareth, T., 2018. Social gains from the public realtions voice of activist investors: The case of Herbalife and Pershing square
capital managemnet. Public relations review, 44(4), pp. 481-489.
• , J., B, S. & S, S., 2015. Motivational factors in multolevel marketing business: A confirmatory approach. Managment
sciences letters , 5(10), pp. 903-914.
• Stacie , B. & Maggie, K., 2018. Pyramids, ponzis and fraud prevention: lessons from a case study. Journal of financial crimes,
25(1), pp. 81-94.
• Stacie, B. & Kim, K. M., 2015. Multilevel marketing diffusion and the risk of pyramid cheme activity: The case of fortune hi-
tech marketing in Montana. Journal of public policy and marketing, 34(1), pp. 84-102.
• Tom, B., 2016. Phenomonology of the pyramid scheme. Annalen der Physik 528, 1(2), pp. 193-197.
• Andress, R., Mette, M., Jeremy, M. & J, M., 2017. The chnaging role of business in global society: CSR and beyond. CSR:
Startgey, communication and governance, pp. 1-28.
16

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1

• Herbalife is the direct selling company of nutrition products formed in 1980 to

• Herbalife’ business has raised a question of whether it is pyramid scheme or

Legitimate business model

• A pyramid scheme is a type of investment that depends upon a hierarchal system.

• The California Department of Justice

• Federal Trade Commission gave some legitimate multilevel marketing points.

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