July 1, 2007
British regulators are threatening to ban Amway and two of its high-level distributors from the United Kingdom in a legal battle that has the Ada company scrambling to rein in its independent sales force.
The complaint is sealed, but the "objectionable" practices revolve around a persistent problem for Amway's parent company, Alticor: distributors more focused on selling their motivational books, tapes and seminars to salespeople than peddling Amway merchandise.
The complaint also focuses on recruitment tactics that inflate income estimates for new salespeople.
The United Kingdom Department of Trade and Industry moved against Amway and the distributors -- Britt WorldWide in North Carolina and Network TwentyOne in Georgia -- following a yearlong investigation.
The British court will not hear the case until the end of the year, during which time Amway hopes to persuade the government that changes have been made.
If the government wins its case, it could lead to the shutdown of Amway operations in the UK.
While sales there are only a sliver of the company's $6.3 billion globally, the case is an embarrassment for the Grand Rapids area's most famous business and is prompting global action.
"Obviously, when a regulator comes asking questions about your business it's not good," said Mike Mohr, general counsel for Alticor. "We wouldn't wish this on anybody."
Amway said it has acted swiftly, placing a 120-day moratorium on recruitment of new distributors in the UK and a ban on sales of motivational tapes and literature not produced by the company.
Amway said it also is conducting a major review of its practices worldwide and has sped up a planned reorganization of its operations.
"This makes very clear we are deadly serious about establishing a new way to promote the Amway business," Mohr said.
Although one of Amway's oldest international markets, the UK accounts for only about $25 million to $30 million in sales. In contrast, Asian markets account for billions in sales.
British authorities are not talking.
"The (Department of Trade and Industry) does not comment on the affairs of individual companies," said spokeswoman Lorna Dennis.
Distributors are huge
Britt WorldWide and Network TwentyOne are high-level Amway distributors that have grown into huge companies in their own right.
Britt WorldWide, based in Burlington, N.C., is owned by Bill Britt. Network TwentyOne is owned by Jim and Nancy Dornan, of Atlanta.
Neither returned calls for comment.
Motivational tapes are a big business for Bill Britt and Britt WorldWide, which owns tape and CD production house American Multimedia.
American Multimedia has nearly 300 employees and $31 million in sales, according to a Dun & Bradstreet Inc. profile.
Seminars are a major activity for Network TwentyOne. According to the company's Web site, it "coordinates, directs and oversees the planning, marketing and execution of more than 350 business seminars every week around the world."
It organizes everything "from a multi-day, 30,000-attendee sales training seminar in India ... to an audio/video based training program developed in over 20 languages, produced and distributed in 35 countries to over 100,000 clients," the site said.
Motivational tapes problematic
The sale of business support materials, or BSMs, has been a thorny issue for Alticor for a while.
Critics claim many large-scale distributors make more money selling their independently produced motivational tapes than they do selling actual product.
Reining in the distributors will be tricky. If restrictions are placed on the sales and distribution of the promotional materials in other parts of the world, it could rile high-level distributors who have millions invested in their sales.
Ripples from the UK shake-up could be felt globally and has sped up plans for changes.
Last month, Alticor announced to its distributors it would scrap the Quixtar and Alticor names, adopted seven years ago, and return to being known as Amway.
That was the name its founders, Rich DeVos and the late Jay Van Andel, gave the company. Their sons, President Doug DeVos and Chairman Steve Van Andel now run the company.
The name change is part of the "global review" of business practices aimed at restoring consumer confidence in the company, the company's letter said.
In a memo to distributors in the UK and Ireland, Ben Woodward, branch manager of Amway UK said the company has started a "global audit" that will be completed this month.
"Many of you know that for the past 10 years, Amway has been moving to exert more control over the way we do business globally," he wrote.
"In newer markets, that has meant, for example, outright bans or tight restrictions on the sale of non-company BSMs and the requirement of a more consistent, approved messaging and branding by (independent business owners) about the Amway business opportunity."
Alticor spokesman Rob Zeiger said the company is implementing "best practices" around the world.
"We need to bring best practices to bear wherever we can," he said. "It's not easy to do instantaneous changes in 58 markets. It's just a question of getting through it."