Network marketers, be aware, the answer to this question could be extremely valuable to the future viability of the Company you represent.
Some Direct Selling Company owners believe proactively addressing Compliance issues is too negative to broach with their Distributors. As a result, they shelve the entire subject. Some owners put major emphasis on running a tight ship in their Compliance departments.
Either way, your Company’s Compliance policies might not be enough to avoid regulatory scrutiny.
The top brass at your Company must prepare for that letter from a regulatory agency, or worse when regulators knock on the front door. If the Company leaders have not already established a proactive Compliance department, it’s too late.
Before you get too deep or especially if you already have, it would be smart due diligence to find out if your company has a proactive Compliance department and their efforts are supporting their policies. It is really, really important to know what your Company’s Compliance department is doing. Be proactive, don’t wait until there are rumors about Compliance issues and your Company.
Ask these questions…Who is running the Compliance department and how?
Your sponsor may not know if that is the case reach out to the Company VP of Sales & Marketing.
Ideally, a qualified staff person or outside Compliance Expert Consultant is authorized to handle incoming and outgoing communications with Distributors. If your company is a DSA member, they have a Compliance Officer in place. Either way, the Compliance department should build a culture that complies with regulatory standards.
As a professional Compliance Expert Consultant, I’ve seen a variety of Direct Selling Compliance departments. Each handles their responsibilities differently representing very unique issues.
Some owners are deeply aware of their Compliance responsibilities and some are not.
When Companies take their fiduciary responsibilities seriously, then Distributors can go out and recruit and sell with deep confidence that their Company will be around for years to come.
Let’s take a look at two Companies that did not take Compliance seriously.
One company sold gas cards. The Company owner did not think Compliance was important. He changed their compensation structure time and time again. Finally, they received a letter from a regulator. When the issue was brought to the attention of their MLM Attorney he was surprised to discover they were not operating under the Compensation Plan that he originally reviewed.
When the owner shared the revised plan, it was clear they were paying out recruitment bonuses and not on the sale of the product. The Distributors were out presenting this noncompliant recruitment based, compensation plan over and over.
Their attorney explained to the owner that he would not be able to defend the revised Compensation plan. The owner complained that it was impossible to change the plan back to the original written version because he would lose his Distributors. The attorney was unable to turn this owner around, so he stopped representing this client. That is where the legal problems began for this owner and he was out of business in 6 months.
Next, let us consider a company that offered Nutritionals. The FDA discovered that the ingredients listed on the bottle were not correct. The product included numerous ingredients that boost the effectiveness of the main products but did not properly label the products. When the word got out, the first result was many Distributors resigned, and then the Company was shut down.
So, as you can see, Compliance starts at the top and works its way down to every Distributor.
Shoddy Compliance practices can result in substantial Compliance headaches and can even get a Company shut down. Smooth working Compliance procedures guarantee an atmosphere that maximizes every distributor’s capability. Investigations, inquiries, and suspicion will directly influence the productivity of the Company’s Distributors and staff. Eventually, a full-blown Compliance investigation will negatively impact the company’s bottom line, its ability to provide quality products, and a long-lasting opportunity for years to come.
The goal of Direct Selling companies is to create happy customers who repeatedly buy their products.
One key to generating happy customers is a happy sales team. Distributors must have confidence in their Company to remain happy.
One answer to potentially devastating scenarios is education. It is the education of the owner as he develops his business model. It is the education of the Distributors which begins with providing them with the Policies and Procedures and training sessions describing Compliance requirements. It is this flow of vital information that ensures the protection and confidence necessary for a company to flourish.
Another important factor affecting the running of an effective Compliance department is documentation. In Compliance, it is all about documentation. The Compliance Coordinator must keep impeccable records of contacts and discussions regarding all issues that circulate through the department.
Who spends the time becoming familiar with the regulatory laws and changing specifications AND is adept at communicating this information to a company and its Distributors? Since every company’s Compliance needs are unique to that company, no formula can be applied to every company. A knowledgeable Compliance Expert Consultant who is up to date on the newest and latest changes in regulatory guidelines is invaluable.
Taking the initiative to employ such an expert early on will establish such a solid foundation for a company that the ongoing monitoring will become part of the working fabric of the company. Distributors will understand the procedures they must follow and the standards against which they will be evaluated.
Questions can be more easily addressed and answered. The stability of the company will be strengthened with an effective Compliance department with reliable monitoring from an experienced professional who oversees the department.