Amway UK case – further information and some comments

The UK’s TimesOnline, High Court dismisses claims against Amway, has provided some further insights into today’s dismissal of the BERR’s case against Amway UK. Here’s a few interesting quotes –

Amway (UK) was cleared at the High Court of “dream selling”, of operating an unlawful lottery and of being an unlawful trading scheme.

This sets an excellent precedence for similar businesses in the UK, and those who recognize the British legal system. Similar charges have been filed against Amway India by police in the Indian district of Andra Pradesh, and this UK case may prove to be helpful.

However, the company had to give several legal undertakings including not to recruit further sales agents until it had publishing details of their average earnings and to scrap its annual charge to register as a distributor.

A year or two ago I spent some months trying to get average “pin” incomes from Amway Europe, so I could be sure I wasn’t misleading people. Despite a number of assurances it was on the way, I never received it. Amway will hopefully implement this throughout Europe. It’s interesting that the court required the undertaking to scrap annual membership fees. Not long after the story of this case broke I wrote Amway UK & Ireland – Is this the problem? I had read through applicable UK laws and it appeared to me that some changes made in 1997 actually made it illegal to promise any benefit through recruiting people into a scheme where there was a membership fee. Personally I think the law is poorly worded, but as it stood “any benefit” is very widely applicable, and could easily fit any MLM business. It’s possible my hypothesis was correct. Amway has of couse already dropped the membership fee, so this undertaking is not a further burden, but it has implications for other companies in the industry.

One of the common criticism of Amway and MLMs by anti-mlm zealots is that few people who register actually make any money. Those who understand the business model and have experience in it know this is entirely expected – most folk who register don’t actually do much to earn an income. Robert FitzPatrick, Dean Van Druff, Jon Taylor and other self-proclaimed “experts” all ignore this and argue that it’s evidence of MLM’s inherent flaws. The DTI apparently fell for this argument. Justice Norris however, did not.

But Mr Justice Norris said: “Amway is openly selling a proposition to prospective IBOs, not providing careers advice.”

He did however add some provisions to this –

“In inviting people to make a modest financial but significant personal commitment, it has a legal duty not to misstate the facts on which the decision to commit will be made,” said Mr Justice Norris. “By a fine margin, it has complied with that duty.”

Clearly this speaks not only to Amway itself, but also directly to Amway Business Owners. Honesty, full disclosure, and no hype. If folk don’t like what Amway is when given the facts, then they shouldn’t join, simple as that. Of course, thanks to the anti-Amway zealots on the internet, getting them the real facts can be a challenge!

However, the High Court heard that in Britain the company had faced “serious and sustained financial difficulties” in recent years. Between October 2 and December 25 it made an annual average losses of £2.9million. The firm was dependent on the support of its European parent company which in turn derived most of its income from its shareholder in Amway Korea, the court was told.

This is a rare insight into Amway’s internal operations. With the market openings of Amway Ukraine, Amway Russia , and to a lesser extent Amway Scandinavia, as well as substantial investments in infrastructure, it’s understandable that Amway Europe may have required external investment. Amway UK is however an old market and was clearly hemorrhaging money. This raises a very serious question. What steps had Amway UK been taking to alleviate this problem before the DTI brought the case against them? Apart from the launch of Amivo early on, which clearly had little impact, I’m not aware of any significant changes to Amway’s approach in the UK prior to the recent changes. Can any UK ABOs’s enlighten us further?

It’s been my opinion for some time that Amway as a whole has tended to rely too much on the loyalty of it’s core business owner/distributors/consumers and as a result has tended not to respond to market forces as rapidly (if at all) as traditional businesses would have to. This loyalty is both a strength and weakness of the MLM business model, and if it’s influence becomes too pervasive, then I believe it quite rightly puts a company at risk of legal challenges.

I look forward to seeing Rob Zeiger’s statement this morning put in to practice around the world –

“We are determined not to leave things in the future to the courts to tell us to change the way we do business. We need to listen better to what the market wants.”

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