This presentation discusses the concept of business ethics and social responsibility, focusing on the case study of Herbalife. It explores the difference between pyramid schemes and legitimate business models, and highlights the corporate social responsibility initiatives undertaken by Herbalife.
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Business Ethics & Social Responsibility
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INTRODUCTION •Business ethics and social responsibility is termed as the contribution of the business organisationtowardssocietyandforits welfare. •Multilevel marketing (MLM) is defined as the direct selling approach in which profits andcommissionsareearnedbydirect selling of products as well as encouraging the recruitments of new distributors as they also made sales.
CASE STUDY HERBALIFE •Herbalife is one of the well known and successfulmultilevelmarketing organisation. It deals in the personal care, weightmanagementandnutritionalcare products. •Despite great success and popularity all overtheworldtheorganisationfaced allegationsofhavingpyramidscheme instead of MLM operations.
Misinterpreting multilevel compensation model with pyramid scheme •Multilevel marketing has been adopted as legitimate business model but still there are several countries and organisation which consider this direct selling approach as pyramid scheme. •One of the reason for strong resemblance and association of pyramid scheme and MLM is that they both involves the recruitment of new participants for selling the products. •The MLM model ofHerbalife is also misinterpreted as pyramid scheme and these accusations were claimed by one of the potential investor of the organisation, William Ackman.
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CONTINUE.... As compare to the overall product sales the major source of profits for the top level contractors was claimed to be from the sales made by down line commissions in recruitment chain. •In addition to this for supporting strong claimsagainstHerbalifeaspyramid scheme it was also claimed that at the top levelorbyrecruitmentprocesshuge profits can be earned.
CONTINUE... Another critical factor which gave strong support to Ackman and other critics was internal consumption. It has been observed that manycontractorsandstakeholdersofHerbalifepurchase products for self use. Thus there is high percentage of internal consumption. Though high rates of internal consumption does not assure or certified pyramid scheme but for MLM it can be an alarming situation. There have been evidences of practices similar to inventory loading which makes MLM suspicious of pyramid scheme.
Difference between pyramid scheme and legitimate business model •A legitimate business model incorporates the profits by selling their products with highly quality and all participants gets fair share of return against their investments. •Contrarytothispyramidschemeisconsideredasthe fraudulent business model in which there are high probability that investors may not get their profits and only few members of thepyramidmaygetbenefits.Thebusinessesbasedupon pyramid scheme may gradually collapse.
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CONTINUE... •Another significant difference observed in both of these models is that the fundamental approach or strategy to gain profits in legitimate modelistousemarketingstrategyandnetworkingwhichcan increase the sales. •However in case of pyramid marketing the key source for earning profit is to offer franchise or contractor-ship to others. •It has been also analysed that pyramid schemes are highly unstable becauseaftercertainperiodorlengthofexpansionofpyramid schemetheavailabilityofnewparticipantbecomeshortand investment return for the lower level of pyramid reduces.
CONTINUE... •The inventory loading of pyramid scheme is compulsory and in order to becomedirectsellerorthedistributoritiscompulsivelypractised. However legitimate internal consumption is voluntary and does not serve as requirement for getting authority for direct selling. •Another difference between pyramid scheme and legitimate business model is that legitimate models always have some sort of retail or selling exterior to their network. For instance in the given case study of Herbalife though organisation has multilevel marketing but it also allows online platform to purchase the products by retain customers.
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CONTINUE... •Legitimate business mode is the process of selling product or services in direct manner. On the same side, Pyramid scheme model is the another major effective model which helps to attract business proposition to many people. •As compare to Legitimate business model pyramid is work on the low quality goals which somehow impact the business product or services. However, this gives the negative impact on the company outcomes and performance. Besides, that it also affect the customer expectation to the company.
Corporate social responsibility of Herbalife •Herbalife is one of the leading company across the world who provides nutrition products and services to their target audience. The main focus of thecompanyistoavailthebestqualitynutritionproducts,weight management and personal care services. •It has been analysed from the study that Herbalife actively engaged with the programs related to the social responsibility around the world like Russian programs demonstrate the company philosophy of contributing the positively to the communities in which it operates its business activities.
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CONTINUE.... •Company also run the Herbalife family foundation which is an non profit corporation dedicated to improving children lives byhelpingthemtowardstheorganizationwhichprovides healthy and nutrition to the required people. •Another contribution of Herbalife towards corporate social responsibility is to build a one year partnership relationship with global health strategies institute to enhance the nutritional intake of over 10,000 children in India.
CONTINUE.... •Likewise, Herbalife also engaging with the activities which is related to the philanthropic. The main purpose of this program is to provide needful services and support to the disaster relief peoples. •CompanyalsoworkontheprojectslikeHerbalifeFamily Foundation which was founded in 1994 by mark Hughes. Such programs helps people who got hurt or destroyed by any natural disaster. •On the other hand, HFF main focus is to provide support to the families, women and children.
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CONTINUE... •CSR provides distinct opportunities to the company like boosts value and profitability. In order to support society and people in revert they support company too. CSR policies demonstrate energy efficiency strategies and build the good image in front of their customers and clients worldwide. •As results, it increases the brand value to across the different competitors as well. Therefore, it has been identified that corporate social responsibility is the most important concern for the business organizationtodevelopthebusinessgrowthandprofitability opportunity.
CONCLUSION •It has been concluded from the study that for the companyLegitimatebusinessmodelismore effective and legally applicable on the business practice rather than Pyramid scheme. •Along with that, study also discussed about the Corporate social responsibility in the context of the study and covered the important initiatives taken by the organisation company in order to gain the business success and growth opportunity.
REFERENCES Agoglia, C. P. and et.al., 2017. Can Corporate Social Responsibility Counteract Managers' Incentives to Manage Earnings?. Available at SSRN 2984083. Antler, Y., 2018. Multilevel Marketing: Pyramid-Shaped Schemes or Exploitative Scams?. Bosley, S. and McKeage, K.K., 2015. Multilevel marketing diffusion and the risk of pyramid scheme activity: The case of fortune hi-tech marketing in Montana. Journal of Public Policy & Marketing. 34(1). pp.84-102. Bosley, S.A. and et.al., 2019. Decision-making and vulnerability in a pyramid scheme fraud. Journal of Behavioral and Experimental Economics. 80. pp.1-13. Ciongradi, I.M., 2017. Multilevel Marketing for everybody is not forever. Bulletin of the Transilvania University of Brasov. Economic Sciences. Series V. 10(2). pp.11-16. Good, W.S. and Hassay, D.N., 2015. Multilevel marketing plans: A new channel of distribution.In Proceedingsofthe1995WorldMarketingCongress (pp.294-300). Springer, Cham.
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CONTINUE... Ward,. S., 2019. The Difference Between MLM and Pyramid Schemes. [Online]. Accessed through<https://www.thebalancesmb.com/is-it-multilevel-marketing-or-a-pyramid- scheme-2947159> Schäfer, H., 2016. 26 Corporate Social Responsibility Rating. A Handbook of Corporate Governance and Social Responsibility, p.449. Strand, R., Freeman, R.E. and Hockerts, K., 2015. Corporate social responsibility and sustainability in Scandinavia: An overview. Journal of Business Ethics. 127(1). pp.1-15. Schiffauer, L., 2018. Dangerous speculation: The appeal of pyramid schemes in rural Siberia. Focaal, 2018(81). pp.58-71. Walsh, J., 2016. Tis the Time's Plague when Madmen Lead the Blind: How the IRS Can Prevent Pyramid-Scheme Formation (and Why It Should). Case W. Res. L. Rev.. 67. p.577. Watkins,D.,2016.Behindthepyramidschemes:Brokenfamiliesinstruggling communities. Williams,R.,2018.StrategiesforBuildingandRetainingaProductiveMultilevel Marketing Downline.