Herbalife Ltd. (NYSE:HLF) has been under fire since Bill Ackman called it a pyramid scheme, and now, the company seems to be saying that it’s making changes. Or is it really? The transcript from an analyst meeting back in 2007 suggests these aren’t new initiatives.
ABC News investigates Herbalife
Recently ABC News investigated Herbalife Ltd. (NYSE:HLF) and found that many independent distributors were touting the company’s products as potential treatments for medical problems and also boasting about how much money they could make selling the products.
On Monday, Herbalife Ltd. (NYSE:HLF) responded to ABC News saying that it was beginning a “significant re-training initiative” in “direct response to the interview in which Brian Ross brought to light instances of members making unauthorized product claims.”
The nutritional supplements company said it will ship a guide book with every product order stating what distributors are allowed to say about its products and what they aren’t allowed to say. The company also said it established a hotline through which members and consumers can report potential violations of these rules.
In addition, Herbalife Ltd. (NYSE:HLF) said it was considering more options like additional technology which would enable it to randomly record some of the testimonials at the meetings it supports. The spokesperson said another option they were considering was member meetings to identify violations and “assist in speedy application of sanctions up to and including termination.”
Herbalife already distributes materials
As ABC News noted in the article, Herbalife Ltd. (NYSE:HLF) was already distributing training materials which told members to avoid making medical claims about the products. Those materials state that Herbalife products “are not intended to diagnose, treat, prevent or cure and disease or medical condition, and under no circumstances should there be any statements, advertising or implications to the contrary.”
Herbalife already had a hotline, at least as of 2007
The report seems to suggest that Herbalife Ltd. (NYSE:HLF) has also just now established a hotline to take reports of violations regarding claims made by distributors. But the transcript from the company’s analyst meeting in November 2007 indicates that the company already had a hotline—or at least did at that time—where people could report false or misleading claims made by distributors. Herbalife CEO Michael Johnson talked about the hotline at that meeting:
“We have invested in staff and other resources to strengthen our internal controls policies and procedures. We have a corporate whistleblower hotline, which among other things handles complaints by and against our distributors, and we deal with that every single month in this Company. The number of incoming complaints in the hotline is very low, but we deal with them all every single month. Complaints are investigated by our ethics and business practice staff, they are well trained this Company — this group has been around for a long time in this Company. It’s not always the most popular thing we do, but it is necessary to protect the long term business interest of this Company and of our distributors who do things right.”
Then-Chief Operating Officer Gregory Probert also made comments about this hotline at that same analyst meeting:
“And it’s something Michael talked about, our ethics hotline, adverse events on our products, hotline is there, and worldwide EBP. As Michael said, the purpose of that is really to ensure compliance with regulations and laws, make sure our distributors are making correct product claims, correct business opportunity claims, and that is really to ensure that our growth is based on a solid foundation of retailing, product consumption, and ethical business practice.”
Is really Herbalife doing anything “significant”?
The third item on the list was something the Herbalife Ltd. (NYSE:HLF) spokesperson said they were thinking about doing. So if they do move forward with that initiative, it would be new or significant—if they follow through and do something about the distributors who make false claims about their products.
So if Herbalife Ltd. (NYSE:HLF) was already doing two of the three things and is only considering the third one, then does this “re-training” currently involve anything “significant”?
Re-training an ongoing problem for Herbalife
At this same analyst meeting, Herbalife Ltd. (NYSE:HLF) management noted that they were then having problems similar to what they have now with distributors making misleading claims about their products. The reason they originally set up that hotline was to find out about distributors who were making those claims.
Specifically, Probert talked about Mexico and said they needed to “improve compliance” there. At that time, he mentioned not only the hotline but also “doing a field audit and getting our leadership to audit their own club.” He also said they would offer re-training to their downlines and basically said that distributors were “opening clubs at a tremendous rate” without learning the business. He also said then that they would continue doing the leadership audits and that they were seeing “a higher level of compliance.”
This time around though, there’s no mention of an audit of clubs and whether or not that’s part of Herbalife Ltd. (NYSE:HLF)’s initiatives to drive compliance.
