EDITORIAL: Herbalife And Polarization In The Latino Community

The PP Blog’s take on Bill Ackman’s take on Herbalife is that the Los Angeles-based MLM firm dupes prospects into believing they’re boarding the bus to Disneyland, but it’s really the bus to Jurassic Park. Latinos, African Americans and other vulnerable populations pile on bus after bus and become financial protein for the pyramid scheme of a voracious Tyrannosaurus rex.

Our take on Herbalife’s take on Ackman, meanwhile, is that if anybody’s a T.rex with a ferocious financial jaw, it’s Ackman. Herbalife, in business since 1980, is no pyramid scheme, it says.

Nearly a year has passed since Ackman showed the world photos of several purported Herbalife “nutrition clubs,” including one in which at least four trash cans and a discarded mattress were lined up outside a less-than-welcoming entrance. Through these clubs, Ackman suggests, Herbalife reps operate unlicensed restaurants by calling them places at which “social gatherings” occur, skirt local sanitation requirements and lure neighbors into becoming reps for the supplement manufacturer by offering “complimentary beverages” served in unbranded, disposable cups.

The clubs, Ackman suggests, symbolize the surreal point at which the Disneyland dream ends and the Jurassic Park nightmare with elements of black comedy begins. No legitimate business would describe these food-serving clubs with drawn blinds, seating and blenders as nonrestaurants. And a legitimate business certainly wouldn’t provide rules for their continued operation.

But that’s exactly what Herbalife did — and it did it while claiming it was an MLM company that not only wanted to tackle MLM competitors such as Nature’s Sunshine and traditional-retail competitors such as Jenny Craig, but also wanted to “go after” restaurants such as McDonald’s and KFC, Ackman contends.

If a nutrition club was located in a residential neighborhood, it was not permitted to “use exterior signage of any kind” under the Herbalife rules, Ackman says, quoting from the rules. Nonresidential sites could have a sign, but the sign must “ensure” that the “location is not perceived as a store, restaurant, franchise or similar operation.”

Say what?

Did Herbalife really signal to distributors that restaurants fit nicely within its business model as long as they weren’t called restaurants — and, in any event, to make sure they were well-hidden from the food-service police?

Ackman broadly asks his audience to ponder what would happen if McDonald’s pretended not to be in the restaurant business and published Herbalife-like talking points that operators actually were charging a “daily, weekly or monthly membership fee” to recover costs, not a fee that represented “the price or cost of products.” He specifically asks what would happen if McDonald’s instructed franchisees to go light on the signage and to pull down the blinds to fend off claims that a restaurant was operating in the shadows.

The nutrition clubs, among other Herbalife-related matters, caught the attention of the League of United Latin American Citizens (LULAC), which was none too pleased. LULAC says Herbalife needs to get a handle on its “bizarre” rules as they pertain to nutrition clubs and require them “to come into compliance with the law.”

From an Oct. 18 letter to Herbalife distributors from LULAC (italics added):

Herbalife’s nutrition clubs are required to follow a bizarre set of rules that prohibit club owners from displaying the Herbalife logo on the outside of the store, posting prices for their products, having an open/closed sign and advertising. Clubs are required to cover their windows, sell only Herbalife products, destroy used containers, and keep products hidden until they are sold. These bizarre rules appear to be designed to bolster Herbalife’s contention that nutrition clubs are not retail stores, restaurants or food establishments when in fact that is exactly what they are because they are selling food at fixed retail locations. Herbalife distributors should demand that the company ensure its nutrition clubs are in compliance with local, state & federal health and business codes that apply to retail food outlets. Better yet the company should franchise the nutrition clubs as most other national brands have done when selling food at fixed retail locations. The “future of the company” shouldn’t depend on hiding from the law.

LULAC National Executive Director Brent A. Wilkes followed up with a Nov. 11 editorial in the Huffington Post in which he contends Herbalife engages in “predatory business practices” and “targets the Latino community in a methodical and calculated manner.”

“Somewhere between 60 to 83 percent of them are Latino,” Wilkes’ Nov. 11 editorial contends. “300,000 to 400,000 Latino distributors will quit this year alone only to be replaced by another 300,000 to 400,000 new Latino distributors. If left unchecked, Herbalife could recruit, defraud and dispose of as many as 4 million Latino distributors over the next 10 years.”

It seems that Herbalife is Jurassic Park to Wilkes, too.

The Nov. 11 editorial followed a Nov. 4 column on Fox News Latino by Rafael A. Fantauzzi, who spoke out in favor of Herbalife. Fantauzzi, according to his bio line in the piece, is president & CEO of the National Puerto Rican Coalition (NPRC) and a board member of the Hispanic Association on Corporate Responsibility (HACR).

This is among Fantauzzi’s contentions (italics added):

Herbalife has succeeded at something that quite a few companies, and the Federal government for that manner, have failed, and that is to achieve real Hispanic inclusion. Hispanics make up at least 60 percent of Herbalife’s direct selling workforce – better known as distributors.

Fantauzzi goes on to contend that “critics of Herbalife and multi-level marketing companies are confusing business ventures with a welfare program.”

Say what?

Fantauzzi explains on Fox News Latino:

Critics “assume that everyone must have equal outcomes, not just equal opportunity,” he writes. “If individuals want to become distributors/salesmen for these companies, their compensation and reward is based on the results of their effort. A worker that dedicated time and sweat and achieved high sales and promotions should be rewarded. His/her compensation should not be equal to that of an individual who did not put much effort or thought into this venture. Plain and simple, this is a business, not a charity.”

Earlier, on Oct. 29, NPRC congratulated Herbalife for appointing former U.S. Surgeon General Richard Carmona to its board. Carmona’s appointment occurred on the heels of Herbalife’s Sept. 5 announcement that it had hired former Los Angeles Mayor Antonio Villaraigosa as a senior adviser to chairman and CEO Michael O. Johnson.

In its news release introducing Carmona, Herbalife apparently felt the need to describe him in part as “[b]orn to a poor Hispanic family in New York City.” Villaraigosa, in an Herbalife-released statement about his appointment, noted that the firm has a “strong presence within the Latino community.”

It’s no secret why Herbalife is recruiting such prominent and influential Latinos for its team: The firm is under attack from Latino groups or politicians representing them, including LULAC and MANA, a national Latina organization. On Sept. 5, Tito Jackson, a Boston city councillor who said last year that children who speak Spanish as their first language or are of Latino/Hispanic descent make up 43 percent of the student body of the Boston Public School District, asked FTC Chairwoman Edith Ramirez to open an investigation into Herbalife’s business practices.

Among Jackson’s fears, according to his letter to Ramirez, is that Herbalife is a pyramid scheme that “pr[e]ys on disadvantaged populations.”

Ackman is a Harvard-educated billionaire who runs a hedge fund and is famous for upsetting Wall Street suits. He’s also an Herbalife short-seller who’d benefit if the stock price craters. Herbalife naturally detests him.

But if Bill Ackman is right — if Herbalife is Jurassic Park — it will be the greatest call since Harry Markopolos called Bernard Madoff a Ponzi schemer and federal prosecutors later called him an affinity fraudster with enough hubris to chomp down on human souls for decades.

If Ackman is wrong — if Herbalife is Disneyland or the government comes to believe it would create too much market uproar by even bringing a case or could lose any case it did bring  — Herbalife might emerge as a category creator: an MLM company deemed too bizarre to fail.