It is not surprising that Amway being such a large company, ($US11.3 billion in sales, 108+ countries) and having been in existence for over 50 years, that there would be some controversies.
- Canada Class Action
- Andra Pradesh Police vs Amway India
- California Class Action
- TEAM vs Quixtar
- BERR vs Amway UK
- TIF vs Quixtar
- Dateline NBC
- Internet Critics
- Sidney Schwartz
When the public interaction with the web was in its infancy in 1996, Schwartz set up a web site titled "Amway: The Untold Story". He did this to bring to light some of the issues that he perceived around the Amway business. These were mainly centered about tool issues. However as the aim was clearly anti Amway it degenerated into criticism anything that Schwartz disagreed with, ranging from personal religious beliefs of senior pins to non core products that are more expensive through Amway.
Clearly Amway did not take kindly to having its name dragged through the mud. There was multiple legal actions against Schwartz by Amway, including three subpoenas and adding him as a defendant in a lawsuit. After this Schwartz "choose" to shut down his web site in 1999. In a clever marketing move he claimed that he as a little guy didn't have the ability to stand up to the big company with the deep pockets.
Now the perception of "big and powerful company" shutting down "the little guy" created an uproar in some parts of the web community who perceived this as a suppression of free speech. Therefore before his removal of his own web site it was mirrored around the world in multiple different sites around the world. Thus effectively allowing the web site to stay active.
- Proctor & Gamble
Proctor and Gamble sued Haugen, Randy & Valorie, and other diamonds for spreading urban myth in 1995 that P & G were involved in satanic worship, see full blog comment. It would appear at this stage that the 12 year court battle would be over. And Randy and Haugen are no longer associated with the Amway business.
- Amway Korea
For more information, read the article Amway Finds It's Washed Over In a South Korean Soap Drama
- Canadian Case
The Canadian case was in court in 1983. However to understand the case, the corporate history going back over 20 years must be understood. When Amway begin exporting into Canada in 1962 it was in fact two separate corporations. Amway Manufacturing Corporation and Amway Sales Corporation. In effect the manufacturing looked after the manufacturing and the sales looked after distribution of the goods to the end distributors. In 1964 both of these companies were merged into one company.
Now when Amway first exported the goods the duty was set basically at a wholesale level. Because the goods where sold to the Amway Sales Corporation based in Canada. However with the merger, the goods were sold directly to the distributors, thus the level would be set on the retail level, not wholesale level. However this effectively meant that Amway of Canada would not be able to make a profit. As Amway Canada would have to import the goods at wholesale, but pay tax based upon retail level, then on the goods to distributors at wholesale, thus the higher import tax would be make it uneconomic. This is a rather simplified version, with the additional complexity of the sliding scale of discount to the distributors being the true sticking point. Amway argued that the level of discount for the distributors was different to that argued by the Canadian authorities. This difference was the key issue.
To get around this problem the created paper based warehouses. Corporations that existed on paper, but didn't actually exist, and being fully controlled by Amway. In 1983 criminal indictments against four Amway executives and two Amway cooperations was laid by the Canadian Government. The individual did not respond, so that Canadian Government started an extrication process. However the individuals then entered a plea bargain where the charges against them would be dropped if the companies pleaded guilty, which they did.
Amway's attitude to this is best summed up by one of their court statements: "Amway felt that the marketing plan was noel in that, by company policy, the manufactured good were only sold to Direct Distributors employing a sliding scale of discount ot establish the price. Amway felt that the Customer ACt did not 'fit'... this novel direct sales operation. Nevertheless, Amway felt that the 'transfer price' was still a fair value for duty purposes, but since it did not sell to outsiders at this price, although fair, it did not comply with the Act.... As time went on sales by Amway of Canada Limited increased dramatically and the little problem became one of some considerable magnitude... Blinded by our belief t in the 'fairness' of the 'transfer price' concept we allowed ourselves and the companies to enter into a scheme that was illegal" (Ragin v. Amway, 1983, Exhibit 2).
The court fined Amway $Canadian 25 million and ordered them to back pay C$148 million in customer duties, taxes and penalties. Amway paid the fine, but disputed the level of duties, taxes and penalties. Thus going back to court. In 1989 a Canadian Court settled the case for C$45 million which the Amway corporation paid. Amway was again back in court in 1996 as Amway had claimed the fine for $25 million as a tax expense. With the Canadian government successfully argued that fines paid for tax evasion was not a tax deductible expense.
- Directly Speaking
In the early 1980's tapes was the simplest and easiest way to disseminate information to a large group of people. And Amway distributors were in the habit of listening to them on a regular basis. Therefore DeVos, Rich made a tape titled Directly Speaking, that was given to Diamond and above in the US market in 1983.
The tape was made in part to a 60 minutes documentary which like any good TV documentary had some controversial parts. Rich wanted to make sure that Amway did all the little things right, so that they maintained a positive reputation in the market place. And so he made 10 statements about things to make sure that they were done right, and HAD to be done right, these were:
1. Respect the line of Sponsorship [LOS]. Basicly only deal with your team, and don't mess with other peoples team. Today this is known today as no cross lining. And is held almost as a mantra
2. Only use Amway approved literature and numbers in showing the plan. This stopped people making unrealistic claims about income earning potential
3. That you need to work with any sponsored distrubtor irrespective of if they purchase tapes. Rich states "It is a sponsor's responsibility to train, motivate and supply their people. That's for the privilege of being the sponsor; not whether they buy some extra things you've decided to sell."
4. That [Professional Development Programs] are optional. "If I offer tapes, books and rallies, they will always be presented on a voluntary basis. No strings, no pressure, and no force. And by 'force' I mean such as.... You must subscribe to Tape of the Week, or I won't work with you.
5.If the curiosity approach is to be used, it must be done appropriately. "you must tell them they are coming to a business-type opportunity meeting. You may not tell 'em it's a social event or a coffee or a church event or a fund-raising event or a how-to-save-money-on-taxes event. All that is deception. You must tell 'em it's a business opportunity meeting. If they ask you if it's Amway, you say 'yes.'"
6. That no distributor is to make tapes about the plan or the products. That is all plan material, and all product material is the responsibility of the company.
7. Not allowed to hid behind the group names. That is no saying "Oh, we're in X-Y-Z organization. We're not in Amway."
8. Treat people with respect, and truely care about each person. "making sure we do not diminish those who choose to do less or make them feel like losers.... There's winners and losers. Are you a winner? Are you a loser?" Almost insulting people who don't sign up. You even got bad terminology. "We're the winners. Over here are the losers in life." They're not losers. They may have a richer, fuller life than those of you that got fancy cars and new clothes or big rings have got. You know, they -- Life is not geared by materialism. You do not decide who's a winner or a loser. There's too -- Life is too complicated for that. We must make sure we always speak of everybody being a winner, even though they may have different goals."
9. Money is the not the end point. Again quoting the tape "While recognizing the importance of financial goals, we will attempt to use tact... so as not to create an image of just money, money, money. Together we will create an organization, which loves and cares for each distributor, regardless of level, and an organization which will be of service in our communities."
And quoting at length "I don't mind you're making money. I don't mind your enjoying the things that money will buy. But I do have a problem of presenting an image of an organization that has nothing in it but greed, that has no concern for the poor or the hungry or for what's going an in their community. It is time, folks, we changed our image and showed an image of a company and of individuals who care about other people, no matter where they are economically. And that while you may want to quietly talk about your new cars or your fancy rings, you also talk to people about the other values that the Amway business brings, such as the wonderful idea of being associated with people who are positive, the great and good things that happen by"
10. No excessive product purchases. That is purchasing large volumes to make a pin or promotion. that is "that you will not inventory load, that you will not push a bunch of stuff on somebody to win a pin or to earn a trip; but that they will, indeed, have not only bought the Amway products, but have, in turn, sold them so that they got retail and the money came back in."
Therefore these 10 points were about respecting and caring for other people. And making sure that people are honest and have others best interest at heart. It is classed as a controversy as it is the first acknowledgment by Amway that there were issues with the tool business, and some people were not operating in the market place in the most honorable way.
A full script of the tape, and down loadable MP3 is found here
1950's and before
The concept of Amway grew out of problems that occurred between the distributor organization of Nutrilite and the company that produced this product.
Ongoing controversies would include the tools business, the profit, if any, in the tools, and what proportion of larger pins' income is generated by them. The debate on this issue was kick started by a memo in the early 1980's titled Directly Speaking, above. It continues today with the business restructure in the Amway UK & ROI market.