Thursday, September 19, 2013

Herbalife's Petition By Omission: CEO Johnson asking members to fudge details with their congressional reps.

In July 2013, Herbalife CEO Michael O. Johnson, after having flown to Washington D.C. and consult with various Hispanic members of congress and other Latino civic groups, realized that he will not be able to convince them to stop pressuring FTC into looking into Herbalife. So he attempted an end-run... he circulated a template, to be given to all Latino distributors of Herbalife, to be customized and mailed to their own representative, to "call off the hounds on Herbalife".

Nothing wrong in rallying your own people, but are the points in the template accurate? Not really. The template, obtained by various media sources, including NY Post and Mr. Robert Fitzpatrick of PyramidSchemeAlert, shows that the letter is a perfect example of fudging details, mainly by claiming things that is in serious doubt even by Herbalife's own materials.

But first, let's go over a few facts. By facts, I mean those that can easily be found and VERIFIED in public. Indeed, many are from Hebalife themselves.

FACT: Herbalife CEO Michael Johnson is one of the highest paid CEO in the US, taking home $89.4 million in 2011, including salary, bonus, cashed stock options and such. (Actual salary is about 8 million) That number fell to $10.3 million in 2012 due to lack of stock options exercised in 2012  (source: CNBC and Bloomberg)

FACT: Herbalife CEO Michael Johnson was also the 2nd largest individual shareholder in Herbalife since 2011. That's over a million shares. At today's rate, that's worth $60-70 million.

When you combine the two, you perhaps can understand why Michael Johnson is fighting so hard... Johnson stands to lose his job and his personal fortune.   He's not merely defending his company, he's also defending his job and his nest egg.

FACT: Herbalife states that 60% of its sales are made through Latino distributors (presumably, to Latino consumers).

FACT: Latinos comprise just 17% of US population.

When you combine these two facts, perhaps you can understand why the Latino community, including various members of the legislature, civil rights and community groups, and such are wondering why is Herbalife so... pervasive in Latino communities vs. in OTHER communities.  You'd expect such a large company to be commonplace through all communities, not concentrated in Latino communities.

FACT: Herbalife CEO Johnson has emailed Herbalife distributors, asking them to email their representatives based on the following form letter. The form letter contains a lot of omissions which will create the wrong impression of Herbalife without any fact checking. The letter is included below, courtesy of PyramidSchemeAlert (where it's available with Mr. Fitzpatrick's commentary):

NOTE: I will include some comments which I will use a different font and red color to indicate it is commentary.

Herbalife’s Pre-Written Letter for Distributors to
Email to Congress
I live in your district and for [NUMBER] years have been
an independent Distributor of Herbalife International of
America. Being an Herbalife independent Distributor, I
know first-hand how well the products work for me, and
how they have helped my family and my customers
lead a healthier lifestyle. I also know first-hand how
selling Herbalife products in my community has helped
me supplement my family's income. 
According to Herbalife's January 2013 rebuttal presentation, 73% of distributors do not expect to make supplemental income. The other 27% expect to but may not have realized any income. Is this letter only for the "less than 27%" that have made some income? 
My family and I need your help: A billionaire New York
hedge fund manager named Bill Ackman is attempting
to use Members of Congress to make him even
wealthier. He has placed a $1 billion bet against
Herbalife by shorting the company's stock. Right now,
Mr. Ackman's swarm of lobbyists are making wild
unfounded accusations that somehow Herbalife is
"preying" on unsophisticated minorities, especially
According to lobbying records via OpenSecrets, Herbalife itself spend just under a million every year on lobbyists between 2010 and 2012.  And it has just hired Podesta group, another lobbyist firm in September 2013, the third firm it had retained. According to NYPost in same article, Herbalife is outspending Ackman's Pershing Capital in lobbying by ratio of 10 to 1 (560K vs 54K) in 2013 thus far.

Herbalife CEO Johnson flew to Washington in July 2013 to head off efforts by Congress to push FTC to investigate Herbalife. And Herbalife itself is worth almost 8 billion in Market Cap. 

Accusing the other side as "billionaire" , while accurate, is misleading by omission. 
I may not live in a billionaire's New York
penthouse like Mr. Ackman, but I know the value of
hard work and honesty. And I know that Herbalife has
made an important and positive difference in my
family's life.
And although I can only speak for myself, I know that I
am not alone. Based on independent research
conducted in the U.S. in 2013 by Nielsen Research,
63% of former Herbalife Distributors would recommend
the business opportunity to a friend or family member
and 87% would recommend the product. That is an
impressive show of consumer confidence!
The Nielsen research was funded by Herbalife.  What's even more interesting to note is the figures are significantly higher than the survey ordered by Herbalife only 6 months ago. Furthermore, if the business opportunity is so good, why would the person have quit in the first place? And why would they recommend a business opportunity if 73% of them do not expect to make a profit? 

Here's Herbalife's own press release, and here's Ackman's rebuttal. Read both before you make your own conclusions. 
I urge you to refrain from joining with billionaire Ackman in writing to the FTC to come after Herbalife. I would also appreciate the opportunity to tell you in person about my experiences with the company and in my
community. I would like to stop by your District office
during the August recess to become better acquainted.
I am proud that as Independent Distributor I am helping
my community improve its nutrition habits while being
able to make some supplemental income so my family
can lead better and more productive lives.
When you think about Herbalife, think about me. I am
proud of what I do.
Hypothetical question... If a victim doesn't know he's being cheated, does his opinion of the scam artist actually count for anything? If you don't know if Herbalife is indeed cheating the distributors, then perhaps you should NOT take into account opinions of its possible victims. (This is one of the cases where democracy is not useful)

There's no doubt Herbalife is in a fight for its life, and the outcome will likely determine MLM's future in the US. If you worry about your future in MLM, you should keep CLOSE attention to all that is going on, and stop relying on press releases and marketing talk for your decisions.
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