by Jonathan Gilliam, Momentum Factor

Any direct selling executive knows that one of the greatest ongoing threats to their company is an action by a governmental regulator based on overblown income or product claims made by distributors. Not only can such actions be a major distraction, in our business they can have the added impact of killing momentum and field morale – and morale is everything.

And it appears the more successful you are, the bigger the target on your back. Just last week, Xango was ordered by Italian officials to “suspend all activities of recruitment and registration of new officers and promote use without any reference to the healthy properties of the product.” (Ouch.)

While the openness of the internet makes compliance incredibly difficult, it cannot be ignored. There are plenty of ways to encourage it, but it needs to be planned and enforced in advance of a government letter.

So how can direct selling companies avoid the regulator’s wrath?

Rein in rogue distributors – Companies often naturally resist admonishing individual distributors as they fear upsetting the sales applecart. However, it is critical to monitor, enforce and document field claim issues. The recent case at Mannatech was a classic example of “distributors gone wild” and nearly put the company out of business.
Act swiftly and decisively when addressing claims issues – No matter the rank or revenue, a distributor making false income claims or health claims must be addressed immediately, up to and including pulling their distributorship. Some companies go further and actually make examples of leaders who blatantly violate claims restrictions.
Prevent re-creation of the wheel – Distributors are natural marketers and tend to create their own websites and materials, especially if those provided by the company are insufficient in their eyes. Your job at corporate is to help them tell a story that is so compelling and personally appealing that they never feel the need to create their own non-compliant versions and thus expose the company. There are great tools and technologies available that allow customization of replicated sites and social web posts, all compliant and approved by your company.
Deputize your field – Your field can be your most valuable ally in enforcement. After all, their business is as much at risk from false claims as anyone’s. Educate your field consistently that it is in their best interest to police and report policy violations as they encounter them.
Restate and repeat – Make it a part of the company’s culture that “we all play by the rules, and we all win.” Make sure the field is clear on what it can and cannot do and what the consequences are.
Forge a strong compliance department – If you agree your compliance department is the only thing standing between you and the abyss, be sure it is staffed appropriately and fully empowered to do its job. If your compliance director is squirreled away in a corner with no real authority, it’s only a matter of time before something hits the fan. One rule of thumb is that no one be allowed to override a compliance decision other than the CEO or GC.
Plan ahead – Jane Fergason, a Partner at Dallas law firm Gardere Wynne Sewell offers a few additional tips to keep regulators at bay. “Don’t open for business until you are fully ready to ship products and pay commissions. Also be sure to have thoroughly written Policies and Procedures and enforce their terms.” Jane also counsels her clients to always be ready and willing to refund product if a distributor wants to leave the business.”
Don’t panic – Unfortunately, occasional inquires and actions are a cost of doing business in our industry. There are financial, economic and political reasons why agencies tend to target network marketing companies. Companies who are truthful and and forthright in their marketing and sales will weather the storm, while the fly-by-nights or solely recruitment-driven companies get hit hard, not only with fines but with a fickle field seeking new pastures.
Should you allow distributors to create their own websites or materials at all? Maybe. In my next post, I will discuss how to protect your company’s brand and trademark from erosion. Stay tuned!

To learn more about compliance monitoring, read this white paper from Momentum Factor Founder & CEO Jonathan Gilliam.

And to find out how Momentum Factor can help protect your company through compliance monitoring with FieldWatch™, contact our team today.