From Wikipedia, the free encyclopedia

Amway (short for American Way) is an American multinational direct-selling company that sell a variety of products, primarily in the health, beauty, and home care markets to consumers and independent business owners.[3][4][5] Amway was founded in 1959 by Jay Van Andel and Richard DeVos. Based in Ada, Michigan, the company and family of companies under Alticor reported sales of USD$11.3 billion for the year ended December 31, 2012 – the seventh consecutive year of growth for the company.[1] Its product lines include home care products, 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 a hundred countries and territories around the world.[6] Amway was ranked No.114 among the largest global retailers by Deloitte in 2006, and No.25 among the largest private companies in the U.S. by Forbes in 2012.[7]

Founding

Jay Van Andel and Richard DeVos, friends since school days, had been business partners in various endeavors including a hamburger stand, air charter service, and a sailing business. In 1949 they were introduced by Neil Maaskant (Van Andel’s second cousin) to the Nutrilite Products Corporation. Nutrilite was a California-based direct sales company founded by Dr. Carl Rehnborg, developer of the first multivitamin marketed in the United States. In August 1949, after a night-long talk, DeVos and Van Andel signed up to become distributors for Nutrilite food supplements.[8][page needed] They sold their first box the next day for $19.50, but lost interest for the next two weeks. Shortly thereafter, at the urging of Maaskant, who had become their sponsor, they traveled to Chicago to attend a Nutrilite seminar. The meeting was at a downtown hotel, with over a hundred people in attendance. After seeing promotional filmstrips and listening to talks by company representatives and successful distributors, they decided to pursue the Nutrilite business opportunity with enthusiasm. They sold their second box of supplements on their return trip to Michigan, and rapidly proceeded to develop their new business further.[8][page needed]

In 1949, DeVos and Van Andel had formed Ja-Ri Corporation (abbreviated from their respective first names) for importing wooden goods from South American countries. After their trip to the Nutrilite seminar, they dropped[clarification needed] this business and Ja-Ri became their Nutrilite distributorship.[9] In addition to profits on each product sold, Nutrilite also offered commission on the sales of products by new distributors introduced to the company by existing distributors—a system today known as multi-level marketing or network marketing. By 1958, DeVos and Van Andel had built an organization of over 5,000 distributors. However, following concerns about the stability of Nutrilite, in April 1959 they and some of their top distributors formed The American Way Association to represent the distributors and look for additional products to market.[10]

Their first product was called Frisk, a concentrated organic cleaner developed by a scientist in Ohio. DeVos and Van Andel bought the rights to manufacture and distribute Frisk, and later changed the name to LOC (Liquid Organic Cleaner).[11] They subsequently formed Amway Sales Corporation to procure and inventory products and to handle the sales and marketing plan, and Amway Services Corporation to handle insurance and other benefits for distributors (Amway being an abbreviation of “American Way”).[12] In 1960 they purchased a 50% share in Atco Manufacturing Company in Detroit, the original manufacturers of LOC, and changed its name to Amway Manufacturing Corporation.[13] In 1964 the Amway Sales Corporation, Amway Services Corporation, and Amway Manufacturing Corporation merged to form a single entity, Amway Corporation[14] Amway bought control of Nutrilite in 1972 and full ownership in 1994.[15]

Quixtar

In 1999 the founders of the Amway corporation established a new holding company, named Alticor, and launched three new companies: a sister (and separate) Internet-focused company named Quixtar, Access Business Group, and Pyxis Innovations. Pyxis, later replaced by Fulton Innovation, pursued research and development and Access Business Group handled manufacturing and logistics for Amway, Quixtar, and third party clients.[16]

The main difference was that all “Independent Business Owners” (IBO) could order directly from Amway on the Internet, rather than from their upline “direct distributor,” and have products shipped directly to their home. The Amway name continued being used in the rest of the world. After virtually all Amway distributors in North America switched to Quixtar, Alticor elected to close Amway North America after 2001. 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 (Amway Global) worldwide.

In 2006, Quixtar published The Quixtar Independent Business Owner Compensation Plan, in which the company reported that the average monthly gross income for “Active” IBOs was $115

Household cleaners

Amway is best known in North America for its original multi-purpose cleaning product LOC, SA8 laundry detergent, and Dish Drops dishwashing liquid. In the January 2007 issue of Consumer Reports, SA8 with Bioquest was rated the best-performing laundry detergent, scoring 99 out of a possible 100 points.[26] Consumer Reports did, however, criticise SA8′s pricing, a situation which was disputed by Amway.[27] Consumer Reports conducted blind testing of detergents in 2010 and ranked versions of Amway’s Legacy of Clean detergents 9th and 18th of 20 detergents tested. Consumer Reports program manager Pat Slaven recommended against buying the products because consumers can “go to the grocery store and get something that performs a whole lot better for a whole lot less money.”[28][29]

Health and beauty

Amway’s health and beauty brands include Artistry, Beautycycle, Time Defiance, Artistry Essentials, Pure White, Satinique, Tolsom, Body Series, Glister, Moiskin (South America),[30]Nutrilite, Nutriway (Scandinavia and Australia/New Zealand), eSpring, Attitude (India), Atmosphere and iCook as well as XL and XS Energy drinks.

Political causes

In the 1990s, the Amway organization was a major contributor to the Republican Party (GOP) and to the election campaigns of various GOP candidates. Amway and its sales force contributed a substantial amount (up to half) of the total funds ($669,525) for the 1994 political campaign of Republican congresswoman and Amway distributor Sue Myrick (N.C.).[49] According to two reports by Mother Jones magazine, Amway distributor Dexter Yager “used the company’s extensive voice-mail system to rally hundreds of Amway distributors into giving a total of $295,871” to Myrick’s campaign.[49][50] According to a campaign staffer quoted by the magazine, Myrick had appeared regularly on the Amway circuit, speaking at hundreds of rallies and selling $5 and $10 audiotapes.[49] Following the 1994 election, Myrick maintained “close ties to Amway and Yager”, and raised $100,000 from Amway sources, “most notably through fundraisers at the homes of big distributors”, in the 1997–98 election cycle.[50]

In October 1994, Amway gave the biggest corporate contribution recorded to that date to a political party for a single election – $2.5 million to the Republican National Committee – and was the number one corporate political donor in the U.S.[49] In the 2004 election cycle, the organization contributed a total of $4 million to a conservative 527 group, Progress for America.[51]

In July 1996, Amway co-founder Richard DeVos was honored at a $3 million fundraiser for the Republican Party, and a week later, it was reported that Amway had tried to donate $1.3 million to pay for Republican “infomercials” and televising of the GOP convention on Pat Robertson‘s Family Channel, but backed off when Democrats criticized the donation as a ploy to avoid campaign-finance restrictions.[49][52]

In April 1997 Richard DeVos and his wife, Helen, gave $1 million to the Republican National Committee,[50][52] which at the time was the second-largest soft-money donation ever, behind Amway’s 1994 gift of $2.5 million to the RNC.[50] In July 1997, Senate Majority leader Trent Lott and House Speaker Newt Gingrich slipped a last-minute provision into a hotly contested compromise tax bill that granted Amway a tax break on its Asian branches, saving it $19 million.[50]

In a column published in the Fort Worth Star-Telegram newspaper in August 1997,[53] reporter Molly Ivins wrote that Amway had “its own caucus in Congress…Five Republican House members are also Amway distributors: Reps. Sue Myrick of North Carolina, Jon Christensen of Nebraska, Dick Chrysler of Michigan, Richard Rombo of California, and John Ensign of Nevada. Their informal caucus meets several times a year with Amway bigwigs to discuss policy matters affecting the company, including China’s trade status.”[54]

A 1998 analysis of campaign contributions conducted by Businessweek found that Amway, along with the founding families and some top distributors, had donated at least $7 million to GOP causes in the preceding decade.[52] Political candidates who received campaign funding from Amway in 1998 included Representatives Bill Redmond (R-N.M.), Heather Wilson (R-N.M.), and Jon Christensen (R-Neb).[50]

According to a report by the Center for Public Integrity, in the 2004 election cycle, members of the Van Andel and DeVos families were the second, third and fifth largest donors to the Republican party.[54]

Dick DeVos, son of Amway founder Richard DeVos and past president of the company, served as Finance Chairman of the Republican National Committee,[55] and his wife Betsy DeVos served as chair of the Michigan Republican Party from 1996 to 2000 and 2003 to 2005.[56]

In May 2005, Dick DeVos ran against incumbent Governor Jennifer Granholm in Michigan’s 2006 gubernatorial election. DeVos was defeated by Granholm, who won 56% of the popular vote to Devos’ 42%.[57]

In August 2012, gay rights activist Fred Karger began a movement to boycott Amway in protest of the contribution from a private foundation of Amway President Doug Devos to the National Organization for Marriage, a political organization which opposes legalization of same-sex marriage in the United States.[58]

Religion

Several sources have commented on the promotion of Christian conservative ideology within the Amway organization.[50][59][60][61]Mother Jones magazine described the Amway distributor force as “heavily influenced by the company’s dual themes of Christian morality and free enterprise” and operating “like a private political army.”[50] In The Cult of Free Enterprise, author (and former Amway distributor) Stephen Butterfield wrote “[Amway] sells a marketing and motivational system, a cause, a way of life, in a fervid emotional atmosphere of rallies and political religious revivalism.”[59]Philadelphia City Paper correspondent Maryam Henein stated that “The language used in motivational tools for Amway frequently echoes or directly quotes the Bible, with the unstated assumption of a shared Christian perspective.”[60]

Businessweek correspondents Bill Vlasic and Beth Regan characterized the founding families of Amway as “fervently conservative, fervently Christian, and hugely influential in the Republican Party”, noting that “Rich DeVos charged up the troops with a message of Christian beliefs and rock-ribbed conservatism.”[52]

High-ranking Amway leaders such as Richard DeVos and Dexter Yager were owners and members of the board of Gospel Films, a producer of movies and books geared towards conservative Christians, as well as co-owners (along with Salem Communications) of a right-wing, Christian non-profit entity called Gospel Communications International.[50][60][62][63][64]

Rolling Stone‘s Bob Moser reported that former Amway CEO and co-founder Richard DeVos is connected with the Dominionist political movement in the United States. Moser states that DeVos was a supporter of the late D. James Kennedy, giving more than $5 million to Kennedy’s Coral Ridge Ministries.[65][66][66] DeVos was also a founding member and two-time president of the Council for National Policy, a right-wing Christian-focused organization.[67]

Sociologist David G. Bromley calls Amway a “quasi-religious corporation” having sectarian characteristics.[68][69] Bromley and Anson Shupe view Amway as preaching the Gospel of Prosperity.[70] Patralekha Bhattacharya and Krishna Kumar Mehta, of the consulting firm Thinkalytics, LLC, reasoned that although some critics have referred to organizations such as Amway as “cults” and have speculated that they engage in “mind control”, there are other explanations that could account for the behavior of distributors. Namely, continued involvement of distributors despite minimal economic return may result from social satisfaction compensating for diminished economic satisfaction.[71]

Chamber of Commerce

Amway co-founder, 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 the private American lobbying organization.[72]

Environmental initiatives

Amway emphasizes 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.[73]

Controversy

Pyramid scheme accusations

Amway has several times been accused of being a pyramid scheme.

Harvard Business School of Leadership, which described Amway as “one of the most profitable direct selling companies in the world”, noted that Amway founders Van Andel and DeVos:

“…accomplished their success through the use of an elaborate pyramid-like distribution system in which independent distributors of Amway products received a percentage of the merchandise they sold and also a percentage of the merchandise sold by recruited distributors. DeVos was an extremely charismatic speaker and used this ability to mobilize and motivate Amway distributors.”[74]

DeVos responded to the pyramid scheme accusations about Amway in a 2009 interview with Grand Rapids Press reporter Chris Knape.[75]

Knape: “Amway has been accused of being a pyramid scheme, of tax evasion and a host of other things. How much of the problems Amway has had over the years can you attribute to the decisions that you made or Jay Van Andel made?”
DeVos: “We failed to come down hard enough, quick enough, to stamp that sort of thing out. That was a sin of omission. We failed to discipline the organization.”

FTC investigation

Main article: In re Amway Corp.

In a 1979 ruling,[14][76] the Federal Trade Commission found that Amway does not qualify as a pyramid scheme because distributors were not paid to recruit people and had to sell products to get bonus checks, and the company was committed to buying back its distributors’ excess inventory.[77]

The FTC did, however, find Amway “guilty of price-fixing and making exaggerated income claims”;[78] the company was ordered to stop retail price fixing and allocating customers among distributors and was prohibited 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.[79][80]

Amway India (Andhra Pradesh and Kerala)

In September 2006, following a public complaint, Andhra Pradesh state police (CID) initiated raids and seizures against Amway distributors in the state, and submitted a petition against them, claiming the company violated the Prize Chits and Money Circulation Schemes (banning) Act.[81] They shut down all corporate offices associated with the Amway organization including the offices of some Amway distributors. The enforcement said that the business model of the company is illegal.[82][83] The Reserve Bank of India (RBI) had notified the police that Amway in India may be violating certain laws regarding a “money circulation scheme” and the IB Times article writes that “some say … Amway is really more about making money from recruiting people to become distributors, as opposed to selling products.”[83] The complaint was initiated following a dowry dispute between a local man and his wife, an Amway distributor.[84]

Following a petition by Amway, the state High Court issued an injunction against the CID and stated the Act did not prima facie apply,[85] however after Amway requested the CID petition be dismissed the High Court declared that if police allegations were true, Amway’s Indian subsidiary would be in violation of the act and the investigation should continue. On August 14, 2007, the Supreme Court of India ordered the state police to complete the investigation against Amway in 6 months.[86] In 2008, citing the High Court decision, the Andhra Pradesh state government enacted a ban on Amway media advertisements.[81] Amway challenged the ban and in July 2009 the AP High Court refused a petition the ban should be enforced.[87] As of June 2009 the original 2006 CID case was still pending at the Chief Metropolitan Magistrate Court in Hyderabad.[88]

On August 6, 2011 Kerala Police sealed the offices of Amway at Kozhikode, Kannur, Kochi, Kottayam, Thrissur, Kollam and Thiruvananthapuram following complaints.[89][90][91] Amway stated that “it had been receiving complaints from distributors over the past one month that they were being called to police stations and being ‘harassed’ to give complaints against the company”. The distributors faced tough time because of the lack of proactive steps and slow actions from the company management.

The Kerala High Court on November 9 directed the DGP, Kerala Police to file a statement regarding the status of the investigation initiated against the multi-level marketing companies.A Division Bench comprising Acting Chief Justice Manjula Chellur and Justice C N Ramachandran Nair issued the directive while considering a petition challenging the government order regarding the Kerala direct selling regulations.[92]

On Novermber 2012, The Economic Offences Wing of Kerala Police, conducted searches at the offices of Amway at Kozhikode, Thrissur and Kannur as part of its crackdown on money chain activities and closed down the firm’s godowns at these centres. Products valued at Rs.2.14 crore were also seized.[93] Later, Area manager of Amway, P.M. Rajkumar, who was arrested following searches was remanded in judicial custody for 14 days by the Judicial First Class Magistrate, Thamarassery.[94]

Class action settlement

On November 3, 2010, Amway announced that it had agreed to pay $56 million – $34 million in cash and $22 million in products – to settle a class action that had been filed in Federal District Court in California in 2007.[95] The class action, which had been brought against Quixtar and several of its top-level distributors, alleged fraud, racketeering, and that the defendants operated as an illegal pyramid scheme.

While noting that the settlement is not an admission of wrongdoing or liability, Amway acknowledged that it had made changes to its business operations as a result of the lawsuit. The settlement is subject to approval by the court, which is expected in early 2011.[96] The economic value of the settlement, including the changes Amway made to its business model, totals $100 million.[97]

Canadian tax case

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.[98][99] 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”.[100]

RIAA lawsuit

The Recording Industry Association of America (RIAA), as part of its anti-piracy efforts, sued Amway and several distributors in 1996, alleging that copyrighted music was used on “highly profitable” training videotapes.[101] Amway denied wrongdoing, blaming the case on a misunderstanding by distributors, and settled the case out of court for $9 million.[102] 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.[103]

Procter & Gamble

Some Amway distributors were 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.)[104] 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 company for defamation and slander.[105] The distributors had used Amway’s Amvox voice messaging service to send the rumor[citation needed] to their downline distributors in April 1995. After more than a decade of lawsuits in multiple states, by 2003 all allegations against Amway and Amway distributors had been dismissed. In October 2005 a Utah appeals court reversed part of the decision dismissing the case against the four Amway distributors, and remanded it to the lower court for further proceedings.[106] On March 20, 2007, Procter & Gamble was awarded $19.25M by a U.S. District Court jury in Salt Lake City, in the lawsuit against the four former Amway distributors.[107][108] On November 24, 2008, the case was officially settled.[109]

Amway UK

In May 2007, the UK Department of Trade and Industry (DTI) accused Amway and distributor organizations Britt WorldWide and Network TwentyOne UK of “objectionable practices” and petitioned to wind up the companies.[110] The case against Amway was dismissed in 2008[111] on the condition that a full earnings disclosure[dead link] is published publicly, no registration or renewal fees are charged and that the sale of business support materials are prohibited. The case against Network 21 was dismissed in 2009.[112]

Welcome to Life (Poland)

In 1997, Amway Poland and Network TwentyOne separately sued the makers of a Polish film Welcome to Life for defamation and copyright violations. The director and producer were later acquitted on the charge of disseminating false information.[113][114] The film, banned for 12 years, was one of the highly anticipated movies of 2009′s Warsaw Film Festival and was dubbed by the promoters as a “scary movie about brainwashing”[113] that depicts hard-sell “pep rallies” and distributors stating meetings were operated similar to the Communist Party and methods of recruitment that confusingly resembled those of a sect.[115] A best-seller on the local video black market,[116] the film was banned while the suit proceeded.

In 2001 a regional court ruled in favor of Network 21; however, in 2004 the Warsaw Regional Court dismissed Amway’s civil lawsuit. On appeal Amway won the case and the producers were ordered to pay a fine to a children’s charity and publish a public apology.[117][118] As of 2009 the film was still banned due to an ongoing case brought by “private individuals” ridiculed in the film.[119]

On 18 December 2012 the court ruled that film can be screened, but the makers have to remove “untrue informations”, as the screen near the end of the movie stated that 30% of company income is generated by sales of training materials and that the vast majority of its profits are shared only by the tiny fraction of top distributors.[120] This is not the only court case, so the film is still banned on other grounds.[121]

Dr. Phil and Shape Up

In March 2004, TV personality Phil McGraw (aka Dr. Phil) pulled his “Shape Up” line of supplements off the market in the face of an investigation by the U.S. Federal Trade Commission (FTC). The supplements were manufactured by CSA Nutraceuticals, a subsidiary of Alticor’s Access Business Group.[122] The FTC later dropped the probe; however, in October 2005, a class-action lawsuit was filed against McGraw by several people who used the products and claimed that the supplements, which cost $120 per month, did not stimulate weight loss.[123] In September 2006, a $10.5 million settlement was reached, in which Alticor agreed to provide $4.5 million in cash and $6 million in Nutrilite products to disgruntled users of Shape Up.[124][125][126][127]

Dateline NBC

In 2004, Dateline NBC featured a critical report based on a yearlong undercover investigation of business practices within the Amway organization.[128] The report noted that the average distributor makes only about $1,400 per year and that many of the “high level distributors singing the praises of Quixtar [Amway]” are actually “making most of their money by selling motivational books, tapes and seminars; not Quixtar’s cosmetics, soaps, and electronics.”

“In fact, about twenty high level distributors are part of an exclusive club; one that those hundreds of thousands of other distributors don’t get to join. For years only a privileged few, including Bill Britt, have run hugely profitable businesses selling all those books tapes and seminars; things the rank and file distributors can’t sell themselves but, are told over and over again, they need to buy in order to succeed.”

It was also revealed that an Amway recruiter featured in the report (Greg Fredericks) made misleading and inconsistent statements about Amway earnings during a recruitment meeting and had an outstanding arrest warrant for drug dealing.[128]

Other issues

Some Amway distributor groups have been accused of using cult-like tactics to attract new distributors and keep them involved and committed.[59][129][130][131] Allegations include resemblance to a Big Brother organization with paranoid attitude to insiders critical of the organization,[131] seminars and rallies resembling religious revival meetings[59][131] and enormous involvement of distributors despite minimal incomes.[59][130][131] An examination of the 1979–1980 tax records in the state of Wisconsin showed that the Direct Distributors, reported a net loss of $918 on average.[68][130]

Original article can be found at http://en.wikipedia.org/wiki/Amway