Definitions

distributorship

Amway

Amway is a multi-level marketing, or network marketing company founded in 1959 by Jay Van Andel and Rich DeVos. Based in Ada, Michigan, the company and family of companies under Alticor reported sales of US$7.2 billion for the year ending December 31, 2007, marking the company’s sixth straight year of growth. Its product lines include personal care products, jewelry, electronics, Nutrilite dietary supplements, water purifiers, air purifiers, insurance and cosmetics. Amway conducts business through a number of affiliated companies in more than ninety countries and territories around the world. Since 1999 it has operated in the United States and Canada as Quixtar, though the North American organization is to merge into a Amway Global brand.

History

Founding and expansion

Ja-Ri Corporation was the original multi-level marketing distributorship for Nutrilite nutritional products, founded by Jay Van Andel, Richard DeVos and Michael Pacetti in 1949. Ja-Ri's name comes from the founders' first names, Jay and Richard. Friends since childhood, Van Andel and DeVos became business partners in endeavors such as a hamburger stand, air charter service, and a sailing business.

Ja-Ri was incorporated in 1959, and changed its name to "Amway" in 1963 which was a deliberate abbreviation of American Way . The intent of Amway's founders was to create a business using a novel means of product distribution that facilitates entrepreneurship, understanding of economic management, and economic independence among its associates (i.e. distributors; the term currently in use is Independent Business Owners, or IBOs).

Their first product was the cleaner L.O.C. (Liquid Organic Cleaner). Originally sold by its inventor under the name Frisk, it was noticed by Nutrilite distributor Fred Hansen who brought it to Rich DeVos and Jay Van Andel as a product that they could use to launch their own company. Van Andel and DeVos and some of their distributors including Hansen were getting frustrated by the seemingly inconsistent way Nutrilite founder Dr. Rehnborg wanted his products to be sold. DeVos and Van Andel bought the rights to make and distribute Frisk and changed the name to L.O.C. thereby beginning Amway. In 1964 the Amway Sales Corporation, Amway Services Corporation, and Amway Manufacturing Corporation, merged to form a single company.

Amway bought the Mutual Broadcasting System radio network in 1977 and sold it in 1985.

Amway expanded overseas to Australia in 1971, to Europe in 1973, to parts of Asia in 1974, to Japan in 1979, to Latin America in 1985, to China in 1995, to Africa in 1997, to India in 1998, to Russia in 2005, and to Vietnam in 2008.

The product line grew, with a new detergent SA8 added in 1960, and later the hair care range Satinique (1965) and Artistry(1968). Amway bought control of Nutrilite in 1972 and full ownership in 1994.

FTC investigation

Amway and its American online incarnation, Quixtar, have had allegations that these companies are pyramid schemes or cults.

In a 1979 court ruling, the Federal Trade Commission found that Amway does not qualify as an illegal pyramid scheme since the Amway system is based on retail sales to consumers.

It did, however, order Amway to stop retail price fixing and allocating customers among distributors and prohibited the company from misrepresenting the amount of profit, earnings or sales its distributors are likely to achieve with the business. Amway was ordered to accompany any such statements with the actual averages per distributor, pointing out that more than half of the distributors do not make any money, with the average distributor making less than $100 per month. The order was violated with a 1986 ad campaign, resulting in a $100,000 fine.

Amway has avoided the abuses of pyramid schemes by (1) not having a 'headhunting' fee; (2) making product sales a precondition to receiving the performance bonus; (3) buying back excessive inventory (4) requiring that products be sold to consumers. Amway's buy­back, 70% and ten customer rules deter unlawful inventory loading. (5) Amway is not in business to sell distributorships.

In the opinion section Commissioner Pitofsky stated:

"Two other Amway rules serve to prevent inventory loading and encourage the sale of Amway products to consumers. The '70 percent rule' provides that '[every] distributor must sell at wholesale and/or retail at least 70% of the total amount of products he bought during a given month in order to receive the Performance Bonus due on all products bought . . ..' This rule prevents the accumulation of inventory at any level. The '10 customer' rule states that '[i]n order to obtain the right to earn Performance Bonuses on the volume of products sold by him to his sponsored distributors during a given month, a sponsoring distributor must make not less than one sale at retail to each of ten different customers that month and produce proof of such sales to his sponsor and Direct Distributor.' This rule makes retail selling an essential part of being a distributor. The ALJ found that the buy­back rule, the 70 percent rule, and the ten customer rule are enforced, and that they serve to prevent inventory loading and encourage retailing."

In 1986 Amway Corp. agreed, under a consent decree filed in federal court, to pay a $100,000 civil penalty to settle Commission charges it violated a 1979 Commission order that prohibits Amway from misrepresenting the amount of profit, earnings or sales its distributors are likely to achieve. According to a complaint filed with the consent decree, Amway violated the 1979 order by advertising earnings claims without including in it clear and conspicuous disclosures of the average earnings or sales of all distributors in any recent year or the percent of distributors who actually achieved the results claimed.

Other legal cases

In 1983, Amway pleaded guilty to criminal tax evasion and customs fraud in Canada, resulting in a fine of $25 million CAD, the largest fine ever imposed in Canada at the time. In 1989 the company settled the outstanding customs duties for $45 million CAD. In a 1994 interview, Amway co-founder Rich DeVos stated that this incident had been his greatest "moral or spiritual challenge", first in "soul searching as to whether they had done anything wrong" and then for pleading guilty for technical reasons, despite believing they were innocent of the charges. DeVos stated he believed that the case had been motivated by "political reasons".

The Recording Industry Association of America (RIAA), as part of its anti-piracy efforts, sued Amway and several distributors in 1995. The RIAA alleged that copyrighted music was used on "highly profitable" training videotapes. Amway settled the case out of court for $9 million. In a related lawsuit initiated by the distributors involved, the Court established that Mahaleel Lee Luster, who had been contracted to make the videotapes, had violated copyright without the knowledge of three of the five of those distributors.

Amway grew quickly in China starting from 1995. In 1998, after abuses of illegal pyramid schemes led to riots, the Chinese Government enacted a ban on all direct selling companies, including Amway. After negotiations, some companies like Amway, Avon, and Mary Kay continued to operate through a network of retail stores promoted by an independent sales force. Although multi-level payments were still banned, it is alleged that Amway didn't significantly alter its pay scheme, and justified them as payments for services. China introduced new direct selling laws in December 2005, and in December 2006 Amway was one of the first companies to receive a license to resume direct sales. At the time they had a reported 180,000 sales representatives, 140 stores, and $2 billion in annual sales. Multi-level marketing (commissions on sales of new sales persons recruited) is still forbidden under the new laws.

The Andhra Pradesh state high court has declared that Amway's Indian subsidiary is in violation of an act prohibiting "Money Circulation Scheme[s]". After a number of raids and seizures against Amway distributors in the state, the company filed a petition to stop the Andhra Pradesh state police's investigation. On August 14, 2007 the Supreme Court of India ordered the state police to complete the investigation against Amway in 6 months.

Corporate restructuring

In 1999 the founders of the Amway corporation established a new holding company, named Alticor, and launched three new companies, 1) a sister (and separate) Internet-based company named Quixtar, 2) Access Business Group, and 3) Pyxis Innovations. Quixtar replaced the North American business of Amway in 2001, with Amway operating in the rest of the world; however, in June 2007 it was announced that the Quixtar brand would be phased out over an 18 to 24 month period in favor of a unified Amway brand worldwide. The other two companies, Pyxis Innovations (since dissolved) and Access Business Group, were established to help take Alticor into new strategic directions. Amway's internet sales in Europe are conducted via their Amivo website.

Later additions to the core product range included water filters and cookware. The eSpring water filter, introduced in 2000 and developed by Alticor, includes eCoupled wireless power induction technology. Alticor subsidiary Fulton Innovation introduced the technology in other consumer electronic products at the 2007 International Consumer Electronics Show. Companies licensing the technology include General Motors, Motorola and Visteon.

Orlando Arena naming rights

In December 2006, Alticor secured the naming rights for the 17,000-seat basketball arena in Orlando, Florida - home of the Orlando Magic, which are owned by the family of Rich DeVos. The arena, formerly known as the TD Waterhouse Centre, is now called Amway Arena.

Politics and culture

Commentators have identified Amway as supporting the U.S. Republican Party, and its founders contributed $4,000,000 to a conservative 527 group in the 2004 election cycle. Amway states that its business opportunity is open to people regardless of their religious and political beliefs.

Former Amway CEO Richard DeVos has been connected with the dominionist political movement in the U.S.

Multiple high-ranking Amway leaders, including Richard DeVos, Dexter Yager, and others are also owners and members of the board of Gospel Films, a producer of movies and books geared towards conservative Christians as well as co-owner (along with Salem Communications) of Gospel Communications.

One of Amway's most successful distributors, Dexter Yager, has attacked Democratic President Bill Clinton and allowed Republican George W. Bush to send messages to thousands of downline distributors using Yager's voicemail system.

Doug Wead, who was a Special Assistant to former U.S. President George H. W. Bush, is a successful IBO who is a regular speaker at group rallies. In 2000, current President George Bush appointed Timothy Muris, a former anti-trust lawyer whose largest client was Amway to head the FTC, which has direct federal regulatory oversight over multi-level marketing plans.

Amway co-founder, the late Jay Van Andel (in 1980), and later his son Steve Van Andel (in 2001) were elected by the board of directors of the United States Chamber of Commerce as chairman of that organization.

In May 2005, former Amway President Dick DeVos, one of the wealthiest and largest charitable givers in Michigan, announced that he would run against Governor Jennifer Granholm in Michigan's 2006 gubernatorial election. DeVos, running as a Republican, won 42% of the popular vote, while Granholm won 56%.

Amway touts the environmental benefits of many of its products, and in June 1989 the United Nations Environmental Program's Regional Office for North America recognized it for its contributions to the cause of the environment.

Controversy

Amway was involved with an urban legend that the (old) Procter & Gamble service mark was in fact a Satanic symbol or that the CEO of P&G is himself a practicing Satanist. (In some variants of the urban legend, it is also claimed that the CEO of Procter & Gamble donated "satanic tithes" to the Church of Satan.) Procter & Gamble alleged that several Amway distributors were behind a resurgence of the urban legend in the 1990s and sued several independent Amway distributors and the parent company for defamation and slander. The distributors had used Amway's Amvox voice messaging service to send the rumor to their downline distributors in April of 1995. After more than a decade of lawsuits in multiple states, by 2003 all allegations against Amway and Amway distributors had been dismissed. However, in October 2005 a Utah appeals court reversed part of the decision dismissing the case against four Amway distributors, and remanded it to the lower court for further proceedings. On 20 March 2007, Procter & Gamble was awarded $19.25M by a U.S. District Court jury in Salt Lake City, in the lawsuit filed against four Amway distributors in 1995.

Several groups including those associated with the anti-cult movement have expressed concern that tactics of some of the organizations that support Amway IBOs may constitute cult-like activity. Steven Hassan's Freedom of Mind Center lists the practices of some of these groups as potentially abusive according to his "BITE" Model of mind control. Other similar organizations that have expressed concern with the activities of AMOs in practice include FACTnet, Cult Awareness and Information Centre (Australia), and others. The Rick Ross Institute keeps a collection of related material on its website..

A Dateline NBC report from 2004 picked up the criticism against Amway's successor Quixtar and explicitly linked the two companies as being effectively one and the same.

UK BERR v. Amway UK

In 2007, following investigations that lasted more than a year, the United Kingdom's Department of Trade and Industry (DTI) (and its successor, the Department for Business, Enterprise and Regulatory Reform (BERR)) issued petitions against Amway as well as two IBO organizations Britt World Wide (BWW) and Network 21, and initiated civil court proceedings. According to Amway, the DTI's objections include misrepresentation of the financial rewards expected from the Amway business, excessive promotion of BSMs (Business Support Materials like books, tapes, CDs, meetings, websites) and Amway's failure to prevent these abuses.

Subsequently, Amway imposed a ban on sale of BSM in UK that are not authorized and distributed by Amway. It further announced significant price changes for a range of products, modifications to its compensation plan, and an indefinite moratorium on registration of new IBOs in UK. It would also initiate a thorough review of its business practices globally.

The case against BWW was dropped after BWW elected to close their operations in the UK market. BERR also dropped their case against Network 21 however Network 21 remains in operation in the United Kingdom. The case against Amway was dismissed 14 May 2008, after Amway agreed to maintain the changes to their business model implemented in 2007, and to publish statistics on the average incomes and numbers of qualifiers at different levels of the business..

BERR has submitted an appeal in the case alleging procedural irregularities. Justice Norris refused an application by BERR to restrict Amway from resuming sponsorship activity whilst any appeal is pending. Amway UK released statistics on earnings of distributors on July 21, 2008 and sponsoring has been resumed .

References

See also

Books

  • Ain't It Great: A Look Inside Amway published September 1, 2001 by Authorhouse; ISBN 0-75962503-4
  • An Uncommon Freedom, the Amway Experience and Why It Grows published 1982 by Revell; ASIN B000HFJE1Y
  • American Victory: The Real Story of Today's Amway published April, 1997 by Chapel & Croft Publishing; ISBN 0-96451716-7
  • Amway: The Cult of Free Enterprise published December 1, 1985 by South End Press; ISBN 0-96487951-4
  • Amway: The True Story of the Company That Transformed the Lives of Millions published September 1, 1999 by Berkley Publishing Group; ISBN 0-42517040-3
  • Behind the Smoke and Mirrors: Amway Motivational Organizations published September 1, 1999 by Backstreet; ISBN 0-96710702-4
  • Commitment to excellence: The remarkable Amway story published 1986 by Benjamin; ISBN 0-875021360
  • Empire of Freedom: The Amway Story and What It Means to You published September 3, 1997 by Prima Lifestyles; ISBN 0761510885
  • The Possible Dream: A Candid Look At Amway published 1977 by Revell; ISBN 0800708571
  • Promises to Keep: The Amway Phenomenon and How It Works published 1986 by Berkley Books; ISBN 0425098567
  • The Direct Selling Revolution: Understanding the Growth of the Amway Corporation published 1993 by WileyBlackwell; ISBN 978-0631192299

Documentaries

  • Profiles of the American Dream: Rich DeVos and Jay Van Andel and the Remarkable Beginnings of Amway 1997 by PREMIERE FILMS; ASIN: B000OK0YRA

External links

Government documents

Profiles

Media articles

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