Code of Ethics

Direct sellers are once again the target of unfounded accusations by critics and journalists who either don’t understand the direct selling business model or simply choose to ignore the facts.

The headline of MarketWatch’s recent “10 things direct-sales marketers won’t say” column holds more truth than the author (or the copywriter who wrote the headline) probably intended. The reason direct sellers won’t say these 10 things is because they aren’t true – at least not in the cloak and dagger double entendre way that was intended for this article.

Author Kelli Grant spent a great deal of time on the phone with me going over in detail each one of these tired accusations that are bantered about by industry critics with reckless disregard for the truth, so I had some level of hope that the story would be fair and balanced after she learned of the facts the critics conveniently tend to leave out. But not surprisingly even perfectly reasonable activities (like having to work to earn money!) were portrayed as negatives, with key information that clearly illustrates why the critics’ arguments hold no water as an “oh by the way” at the end of each segment.

For example, a professor of marketing at Georgetown (who for all I know has no expertise in direct selling at all) does some quick math (like the critics do) and advises people to divide a company’s revenue by the number of salespeople. That could sound reasonable, but what it doesn’t take into account is the fact that a significant percentage of direct sellers join companies to buy the product at a discount and never try to sell to others or recruit anyone. They aren’t eligible to earn commissions but yet this calculation throws them into the mix, artificially lowering the “average” per consultant. The critics leave out that little glitch in their math. In fact, there are plenty of people who earn nothing – but for most it’s because they don’t even try to sell or recruit! The best advice for anyone considering direct selling is to assess how much time you plan to spend on your direct selling business, identify your income goals and talk to enough people to determine if your expectations are reasonable. No simple math computation will answer those questions for you.

Then there’s the assertion that “this stuff might not sell in stores.” In fact, the products best suited for direct sales are those that can benefit from demonstration so critics who make this assertion might be right – but what’s wrong that? There are plenty of products that don’t sell well on store shelves so smart marketers take them directly to the customers and show them the features and benefits. And don’t forget assertions about the price of direct selling products. The author cites one product that sells for $31 through a direct selling company and a “nearly identical” model for $20 at a discount store. While it’s unclear what “nearly identical” means, anyone who has ever been in a retail store in a free-market economy knows that one can find a wide range in price levels of just about any product. Products that aren’t priced competitively won’t sell – regardless of the sales method.

While each of the “10 things” cited provides an alarming “buyer beware” beginning before reluctantly revealing the truth at the end, one of my favorite examples was from a woman who recalled an experience she had 30 years (yes, that’s three decades) ago. It struck me because most of the critics who malign direct selling haven’t updated their facts for just about that long. Today more than 16 million Americans participate in direct selling for a wide variety of reasons. Some support their families with their income, some pay the cable bill and some buy the products at a discount. It’s just a shame that news outlets like Marketwatch find the negative spin to be preferable to describing the millions of people who have found success in direct selling, but then again, that’s one of the “things they won’t say.”

Tell most people that you work for a trade association, like DSA, and you’ll likely get a blank stare. After more than 15 years working for associations (nearly 13 of them with DSA), I’m used to it – and it’s OK, because what really matters is the work we’re doing on behalf of direct sellers.

But every once in awhile it doesn’t hurt to remind people, friends and critics alike, who it is that DSA’s activities benefit, and what we aim to accomplish.

DSA is supported financially by direct selling companies that choose to uphold the ideals of the DSA Code of Ethics, which speaks to the interests of both sellers and consumers. That doesn’t mean just any company can be a member (some direct selling companies successfully complete the minimum one-year pending period required to display the DSA logo – others don’t, or choose not to), and despite the source of the funds that support DSA’s activities, the focus and impact of DSA’s work extend far beyond just its member companies.

Even given a poor economy, DSA has nearly 250 active and pending member companies, strong revenue figures (which are also indicative of strong industry performance), a growing pool of applicant members and an enthusiastic and active Board of Directors comprised of industry executives who recognize the importance of our business model to the US and world economies, as well as to the millions of individuals who call themselves direct sellers.

So what does DSA actually DO? In short, we call it the “Three Ps” – Protect, Police and Promote.

In its role of protecting direct sellers DSA works with legislators and regulators at the Federal, state and local levels to ensure proposed legislation won’t negatively impact companies OR their sellers. Sometimes we work proactively to update existing laws or implement new ones – all with the goal of keeping the marketplace open and fair for direct sellers. DSA also has a political action committee that, on a scale that by Washington standards is very modest, helps to support candidates for elected office who have been supportive of direct sellers and small business in general. However, DSA’s leaders have always prided themselves on being able to prevail on the merits of our positions. It’s nice to be able to support those who believe in us, but despite what some may believe, the size of one’s PAC is not always an indication of one’s political clout. 

DSA’s second role is that of policing the industry, which is based on the association’s Code of Ethics. The Code sets the standard for the ethical behavior that consumers and independent direct sellers should expect from ALL direct selling companies. It is DSA members, however, that are held accountable to the Code by an independent Code Administrator who receives, investigates and, where necessary, resolves complaints by consumers or sellers. DSA believes the Code promotes honest, ethical behavior, but it also provides a mechanism for relief if there is an occasional lapse. So why doesn’t DSA’s authority extend beyond its membership? The Code is a form of voluntary self-regulation and DSA is not a law enforcement agency. The collective DSA community sets the standard and companies are free to decide if they choose to meet it. In the big picture, though, the mere existence of the Code raises the bar on ethics so even companies that are not members are wise to aim to meet it.

The third role of the DSA is that of promoting the industry. An important phrase to remember here is that a rising tide lifts all boats. DSA members have a vested interest in ensuring the phrase “direct selling” evokes a feeling of goodwill in the marketplace. Companies do their part by upholding the Code of Ethics and ensuring the actions of their sellers are consistent with the ethical bar it sets. DSA works to educate the public about what direct selling is, the benefits it provides to individuals and the economy, and what customers and sellers should expect from a direct selling experience. So how does DSA accomplish this? Well, if we had the budget of the “Got Milk” campaign or the NBA we would pour millions of dollars every year into a national advertising campaign that extols the merits of direct selling. However, DSA’s much more modest level of funding requires a more targeted approach. It involves building relationships with consumer groups (this is done primarily through the work of the Direct Selling Education Foundation), securing earned media placements in print, broadcast and online, and continuously taking the pulse of the public at large to determine what messages resonate and then how best to deliver them. It is true that given the opportunity DSA will seek to highlight member companies as examples of all the good that is embodied in direct selling, but in the end, a job well done will soften the marketplace for ALL direct sellers. It will mean sellers can focus on the unique selling proposition of their particular company, versus having to first debunk myths, negative stereotypes and misunderstandings that can (and should) be addressed at an industry level by the industry’s trade association.

As society is in a constant state of evolution and change, it can seem at times that fulfilling any of the “Three Ps” is a never-ending quest. Just as it has been for the past 40 years and earlier, there will always be new legislation to consider, there will always be bad actors who don’t meet the accepted industry standards and there will always be critics of our industry and those who simply haven’t experienced all the good that direct selling can do for individuals, communities and the economy. But then again, it is the wise who understand that most things in life are journeys and not destinations, and the only alternative to evolution is death, so by that account, I’ll take that blank stare when I tell someone I work for a trade association, because it’s one more person whom I can enlighten about the benefits of direct selling.

During its quarterly meeting in mid-December the DSA Board of Directors approved an amendment to its policies and procedures document that clarifies the actions that will be taken in the case of marketing plan changes by a company as a result of a state or federal action.

Under current procedures, all active direct selling company members are automatically reviewed at least once every five years. This procedure is in place to continually verify that marketing plans approved as part of the initial membership application process have not subsequently been changed in a way that puts it outside of compliance with the Code.

Under the new policy, any company that makes changes to its marketing plan as a result of a state or federal action, and that would fall under the scope of the Code, must notify DSA and will automatically be set for review of the new plan. Actions against a company frequently result in a voluntary change to a marketing plan that satisfies both the law enforcement entity and the company. However, in order to assert that the new plan is in compliance with the DSA Code, a new review must take place.

In the case of any criminal finding or admission, the company’s DSA membership can be terminated by a majority vote of the Board of Directors.

While the DSA Code Administrator has the authority to recommend various actions be taken regarding a company’s membership status as a result of his work, these additions to the Board policies ensure that swift and appropriate action can be taken in cases where it is clear that a plan needs to be reviewed or a company is found to be violating the law.

Many may also be surprised to learn that a significant number of companies that apply for membership do not ultimately make it through the review process. In addition to going out of business, companies often realizes they cannot comply with all of the provisions of the Code. Many companies will voluntarily change their policies when presented with a list of areas of concern by DSA staff,  but others choose instead to withdraw from consideration.

As part of its actions at the recent meeting, the Board also directed DSA staff to evaluate and enhance the membership application review process with additional checks and investigations to ensure all companies admitted into membership are practicing the highest level of business ethics. Additionally, the list of companies pending review will be listed on the DSA Web site and comments from the public will be welcome.

The past year has been a busy one as many new provisions were added to the Code in September, and additional reviews of various Code provisions and possible enhancements are ongoing. These Code enhancements are critical steps in proactively working to make sure DSA member companies represent the best of the best.

Hello 411 readers! It was a busy summer and early fall as I continue to get many inquiries about direct selling in this poor economy from both media outlets and the general public. It’s also been very busy at the Direct Selling Association as we prepare for our 100th anniversary in 2010.

However, some of the most exciting work has been done by the Ethics and Self-Regulation Committee which has spent more than a year carefully reviewing every clause of DSA’s Code of Ethics. For those who aren’t aware, the Code outlines the ethical guidelines DSA member companies must  follow, and guides DSA’s independent Code Administrator in handling any violations of the Code.

The Code is a living document that maintains its strength because it can adapt to a changing marketplace. After review, the Ethics and Self-Regulation Committee recommended substantial changes and additions to the Code. These changes were adopted by the DSA Board of Directors in September and I am pleased to be able to share these with readers of this blog!

Here’s a brief summary of what’s new:

• Statements Regarding Other Companies: Member companies are specifically prohibited from making misleading comparisons of another company’s direct selling opportunity, products or services. All comparisons must be based on objectively substantiated facts. 
• Promotional Materials: Promotional literature, advertisements and mailings may not contain product descriptions or other information that is false, deceptive or misleading. All literature must also contain the address and telephone number of the direct selling company and may include contact information for the independent salesperson. 
• Training and Materials: Independent salespeople may not market supplemental materials that are inconsistent with the member company’s policies and procedures. Further, the materials must be reasonably priced and cannot be a required purchase. The materials must also have a return policy consistent with that of the company itself. 
• Sales Receipts and Cooling Off: In the case of sales made in a non-face-to-face manner, such as via mail, phone or the Internet, a written order or receipt must be provided either in a printable or downloadable form via the Internet or with the initial order. Consumers must also be offered a clearly written description of the cooling-off period permitting cancellation of an order within three days for a full refund of the purchase price. 
• Inventory Loading: Companies must reasonably ensure that sellers who receive compensation for downline sales are consuming, using or reselling the products they purchase. In other words, salespeople should not be purchasing product for the sole purpose of qualifying for their downline commissions. 
• Fees: Any fees charged by a company to become a salesperson must be directly related to the value of materials, products or services provided in return. This provision does not prohibit a company from making a profit on their sales kit or other fees, but it would prohibit, for example, a $300 sales kit that includes nothing more than a set of pamphlets worth $20. 
• Extraterritorial Effect: U.S. DSA member companies operating in a country where they are not a member of the local DSA, or where a DSA does not exist, must comply with the World Code to the extent it is not inconsistent with U.S. law.

These changes address some very important and hotly debated direct selling issues and I’m confident the new provisions will add clarity and strength in these areas. Of course, the Code is only effective when consumers are aware of its existence and take advantage of it if they encounter a problem. The Code doesn’t have the power of law, but DSA member companies are responsible for making sure their corporate policies and the actions of each individual seller are in compliance – otherwise they risk losing their DSA membership or other remedial action. DSA’s job is to set standards and be the first line of protection if there’s a problem.

I encourage everyone to liberally share these changes, and the Code itself, with any one involved in direct selling – whether as a customer of the product or as a seller. You can also find an updated ”plain language” version of the Code online for both consumers and sellers.

As always, anyone is welcome to file a Code complaint if they’ve encountered a problem. 

And don’t think DSA is done yet! There will likely be additional tweaks and changes coming over the next 6-12 months so stay tuned.