Note: This text on these page is exactly how it was on the Sidney Schwartz Web Site, now defunct (although mirrored). I have separated the page into three pages, giving the introductory information and each tape transcript their own pages. I have also added HTML coding for formatting purposes.
To anyone who has makes a serious study of Amway and the problems that have for so long plagued it, one thing becomes overwhelmingly obvious: if there is any one primary cause for almost all those problems, it would have to be the "Systems" developed by a small number of high-level distributors to sell large amounts of motivational "tools" to the thousands or hundreds of thousands of distributors in their downlines.
While each of these Systems claims to be different from and superior to the others, they seem to me mostly indistinguishable from each other, sharing a number of common characteristics:
It's not surprising that these Systems have been the subject of a series of lawsuits, as they are inherently deceptive and fraudulent. Distributors are routinely not informed that their upline may be making as much or more from the sale of motivational tools as they are from the sale of Amway products. Without this vital piece of information, distributors naturally assume that the incomes and lifestyles of their upline are attributable to their Amway businesses, and they buy the motivational tools in the hopes of achieving a similar success. It's an insidious and self-perpetuating cycle: the more motivational tools the masses of downline distributors buy, the more successful the upline distributors appear to be in their Amway businesses, which in turn inspires the downline distributors to buy more motivational tools, and round and round she goes. Lower level distributors are either bled dry and quit, or hang in long enough to make it to the level where they start to get a cut of the tools profits.
Most Amway distributors seem largely ignorant of what Phil Kerns so accurately referred to back in 1982 as a "ghost system of non-Amway produced materials." Many deny that their uplines make any profit at all from the sale of the tools; that their uplines may actually be making most of their money from the tools is inconceivable to them. They are either unaware of the compelling evidence that has been available for years, or have chosen to ignore it.
Amway Corp.'s public reaction to these problems has been to either deny that these problems exist, or to acknowledge them but claim that the culprits are "independent distributors" and that Amway Corp. bears no responsibility for their actions. A glaring example of the former is Amway Vice President Craig Meurlin's recent comment on the proposed settlement in the Hanrahan class action lawsuit: "We're just pleased to move on. Stacy Hanrahan and the other plaintiffs had a very abnormal experience with the company." Keep these words in mind as you read the very revealing court documents that follow.
In 1984 Cairns v. Amway was initiated by a group of Amway distributors; these documents were entered into the court records as evidence by the plaintiffs. These documents indicate that, at some point in the late '70's or early '80's, Amway Corp. became concerned at the increasing attention being focused on them by the FTC and various state attorneys general, and in response conducted one or more internal investigations. The first two documents are Amway Corp. memos concerning the causes and findings of these investigations. Clearly Amway Corp. was very concerned about what it found, and various courses of action were recommended. One of the responses to the findings of the investigations were the two "Directly Speaking" tapes made by Rich DeVos in 1983, in which he addresses a whole laundry list of problems and asks for the help of the Direct Distributors in eliminating them.
It is equally as clear that whatever action Amway undertook to control these problems was ultimately ineffective, as every one of the problems discussed by DeVos are still evident today. We know this from the more recent lawsuits as well as from the hundreds of comments received from current and former Amway distributors. At this point we can only speculate as to whether Amway Corp. was unable to control these problems, or unwilling to, or some combination of both. As Dr. Juth pointed out, by the time the Cairns case was filed, Amway Corp. and the distributor groups had become equally powerful, mutually dependent organizations:
"The entrepreneurs of the Amway Corporation, perhaps unwittingly, created an organizational structure which evolved into two powerful, symbiotic organizations. The survival of the Corporation and the distributor organizations are now dependent on and constrained by the other. The Amway Corporation is constrained in its ability to garner desired profits because of the amount of money it must allow for distributor incentives and the fact that distributors are more inclined to sponsor rather than to sell (retail). Corporate profit levels are also constrained by the legal "wars" it must wage because of the illegal and deviant behavior of some of its distributors. Corporate profits can also be constrained by legal changes, e.g., customs laws. Finally, the Corporation can be constrained in its decisions regarding distributors by actions of the Board of the Amway Distributors Associations.
"The distributor organizations are dependent upon the Amway Corporation for products and visibility (through advertising). The distributors actions are constrained by Amway's Code of Ethics and Rules of Conduct. Distributors are also under pressure by the corporation and its top distributor organizations to sell more and recruit more. Additional sales and recruits however are constrained by uncontrollable external social and market conditions.
"Structural constraints impede the efforts of both entrepreneurial organizations (the corporation and the distributors organizations) in obtaining their goals. As a consequence, each organization adroitly manipulates, often in an illegal and deviant manner, its constraints in order to ensure its success. When the goals of the corporation and the distributor organization coincide, as they do in recruitment and sponsoring efforts, then accommodation and tacit support by the corporation for successful but illegal and deviant practices of the distributor organizations may occur. When the goals of the corporation and the distributor organizations conflict, as in the sales of non-Amway goods, some attempt may be made by the corporation to control such activities but the structure of the Amway organization is such that real enforcement efforts by the corporation would threaten the survival of the total enterprise. The independent contractor status of distributors, the sheer number of distributors involved, and Amway's policies which allow distributors to produce their own materials, combine to make such questionable practices normative. Illegal and deviant behavior exists in the organization because it benefits either directly or indirectly each organization."
One thing is clear: Amway Corp. has long known of the serious abuses being perpetrated on its distributors, and has failed in its moral and ethical responsibility to either protect them, or to sufficiently inform them so they could protect themselves. (The "Directly Speaking" tapes, as the name implies, were sent only to Direct Distributors.)
These documents have been reproduced here as accurately as possible, except where the copies I have were illegible. All emphasis is as it was in the originals. The documents were obtained from District Court in Cincinnati.
The purpose of this memorandum and the attachments is to communicate to Senior Corporate Management - worldwide, as clearly and concisely as possible, Sales Division programs that are currently being carried out in North America to:
Obtain maximum possible compliance by Amway distributors with the Code of Ethics and Rules of Conduct, and
Eliminate the illegalities and abuses inherent in distributor (motivational) "systems" of non-Amway designed/produced audio visuals, literature, rallies and seminars.
Although what follows is particularly applicable to the United States and Canada, the Chief Executives and their Executive Committees in Amway's overseas affiliates are to be alert to similar challenges in their markets and, with approvals from their respective Regional Vice President, initiate similar programs in their markets.
Hopefully, North American Executive Committee members will be able to have a better understanding of our Corporate challenges in the compliance areas, and when hosting Diamond Seminars on board the Enterprise Yachts and at Peter Island, they will be better informed to answer questions and reiterate Amway's position.
This memorandum is also designed to respond to Mr. Van Andel's request for Public Relations and Government Affairs Departments to be briefed on our compliance activities and help them initiate pro-active programs with media and regulatory agencies in the U.S.A. and Canada.
They are in two prime categories:
Widespread illegalities inherent in Amway distributor designed "systems" of tapes, books, and rallies. While most of these "systems" were conceived in the late 1960's and early 1970's as genuine "support" programs to help Amway distributors develop their Amway businesses, entrepreneurial "higher pins" discovered and developed programs for substantial, separate, additional income, under the Amway "umbrella."
Appendix 'A', a confidential memorandum to Policy Committee of August 1982, provides you with all the background as to how these "support systems" escalated to what we believe is now a threat to the future security of Amway Corporation, at least in the United States.
As this document - "Challenge of the '80's" - points out, the escalating profits and pressures of these businesses lead to an alarming rise in violations of the Code of Ethics and Rules of Conduct.
Subsequent legal evaluations disclosed that the disproportionate (to Amway) sales, intensity and solicitation of these "tools/systems" are illegal, per se, under several U.S. federal and state laws.
As items in the Manifesto were not legally enforced by Amway, the Board of Directors of the Amway Distributors Association endorsed Amway's decision to incorporate these three items into the Rules of Conduct.
Appendix 'B' - the Diamond Bulletin released to the U.S. and Canadian Diamond Club in January 1983 (and shortly to be released through the U.S. and Canadian Newsgrams and Amagrams), provides precise details of all Rules mentioned above.
Appendix "C" - Provides precise details of Rule I, Section B, Part II, excerpted from the Amway Career Manual.
Appendix 'D' - Provides you with an excellent "overview" of the challenges, articulated in a memorandum to me from Mr. Halliday.
Getting the attention of the distributor leadership that we have mutual challenges/problems, and that Amway is committed to stop the abuses.
Following and expanding on the strategy proposed in the
Expansion of resources to deal with Rules violators and establishment of Compliance Committee.
Responding to distributor concerns that Amway was tending to "paint everyone with the same brush", Sales Division joined forces with the Legal Division to expand our (already existing) "Special Handling Department" (managed by Paul Burt who reports directly to Randy Preston).
All specific complaints now go directly to this department, whether identified by an Amway distributor, an ex-Amway distributor, member of the general public, or by an Amway employee.
Major complaints are now reviewed weekly by a new "Compliance Committee", jointly chaired by W.J. Halliday and L.S. Mulham and enforcement decisions made more quickly, on the basis of facts, and whether "cease and desist", "censure", and/or "termination" is the appropriate penalty. Appendix 'G' is and example of the weekly violations log.
The Compliance Committee, including Roger Krause, Randy Preston, the appropriate Sales Director and the appropriate Legal Officer, will also review enforcement procedures and recommend rules changes.
While Amway is not initiating investigations without qualified (preferably written) complaints, Policy Committee has directed that Amway Sales Division must follow through quickly and
The "P.A.C" Men Program
While the essentially "re-active" program explained in 'B' above will deal with violations as they arise, the Corporations main objective is to do everything possible to stop them from happening in the first place.
To achieve this objective, a massive, personalized communications program is already underway utilizing essentially persuasive, selling techniques.
With 'yours truly", Roger Krause and the Regional Sales Directors in the forefront, we hope to:
Persuade
get Action from, and
Communicate to
all Direct Distributors, thru Summer 1983, the following:
All meetings are being organized progressively with the cooperation and participation of the "upline influencer" Direct Distributor wherever possible, but are not necessarily restricted to this criteria. At this date, progress is excellent with all Diamond Directs and above, that we have met with, willing to cooperate.
Violating distributor-produced literature is being withdrawn, statements we require under the retraining objectives are being made from the podiums in our presence. Appendix 'I' details the more typical misrepresentations/violations in a retraining "checklist."
The following, important statement from Hogan & Hartson's 28 page legal evaluation of the legal risks inherent in selling and distributing non-consumable "products" through a multi-level system, has helped us greatly in getting the attention of the "systems" entrepreneurs:
[signature illegible]
TO: Jay Van Andel
FROM: Casey Wondergem
DATE: December, 1982
More and more frequently distributor activities are drawing the attention of state authorities and the media toward Amway. The results are more negative publicity for Amway.
In this background memo, I'll sketch the history of this problem in recent years and its current status. There will also be some predictions about where other such problems are likely to flare, a rundown on how Amway now tries to combat such problems, and some possible solutions to a growing problem.
Through the years, various state attornys general have examined Amway. For years, the focus of their attention was on the question of whether Amway was a pyramid. The demise of such schemes as Koscot and Dare to be Great plus the Federal Trade Commission's definitive ruling that Amway isn't a pyramid led to a refocusing of law enforcement interest. That new focus seemed to center upon what prospective distributors were hearing about income opportunities in Amway.
About 2-1/2 years ago, Amway saw one of the original symptoms of this new interest in Wisconsin. That state's attorney general's staff attended meetings of distributors in the Milwaukee area and then expressed their concerns to Amway. It is my understanding Special Handling checked the complaints and found some of them merited. However, no one was terminated as a result of either the state's or Amway's findings. Last summer, two years after the initial complaint, the attorney general's people in Wisconsin attended additional meetings held by the same distributors investigated in 1980. This time, the state filed civil complaints not only against the distributors but also against Amway. The state's action drew nationwide news coverage.
After the filing of Wisconsin's claims, we have detected a widespread emphasis among reporters questioning exactly how Amway polices distributors and prevents violations of Amway rules. You saw it personally from Mike Wallace during the 60 Minutes interview and again in the interview with Chicago's
The same types of questions are at the heart of this months two Amway programs by New York's WABC-TV. That station claims it became interested in Amway because of a letter from one viewer. They traced down three former distributors on Staten Island and interviewed them about their complaints. Basically, all three contended they couldn't make as much money in Amway as they had been led to believe.
Their story is an old one and tempting to ignore. However, the first
We now have attorneys general in two
In addition, PR is aware of contacts from the California Attorney General's office (Deputy AG Albert Norman Shelden), the San Diego City Attorney's office (apparently over newspaper ads and presentations of the Plan), and an apparently unconfirmed report in August that a distributor overheard members of the Minnesota Attorney General's staff discussing "looking at Amway."
California, aside from the two contacts with legal officials noted already, offers added potential for publicity unfavorable to Amway because of a problem the Southern California Better Business Bureau in Bakersfield perceives with the Champions organization there. We know the BBB's manager has attended meetings organized by Champions and has been complaining about them for more than a year.
Another fertile field for problems with the state or local law enforcement officials in Oregon. We've had two specific complaints from that state in the past two months about the curiosity approach [unreadable] a mysterious and unfollowed up telephone call from someone claiming to be a psychiatrist "deprogramming" former Amway distributors, and a self published anti-Amway book "Fake It 'Til You Make It" being featured in Oregon newspaper reviews and on broadcast talk shows.
At this point, we don't know if New Jersey authorities are following up on the
Certainly the name of Amway is being bandied about on the circuit linking the nation's attorney's general and it seems [unreadable] more and more of them will be looking at Amway.
Currently, the situation is unclear. As many as five separate departments or divisions may be involved in the case of a complaint reaching an Attorney General's office. They are Legal, Sales, Special Handling, Government Affairs and Public Relations.
To illustrate the problems with so many involved, consider what happens if a distributor has a complaint about activities seemingly in violation of Amway's rules. Presumably, that distributor's complaint would go to his or her regional sales team. However, many of these come directly in letters to you or Rich. On the other hand, a complaint from a member of the general public could come to your offices or to Public Relations. Complaints about Amway being checked by reporters normally come to Public Relations. A complaint serious enough for the offended party to seek legal help probably goes directly to Legal. In virtually all these cases, the original complaint winds up being turned over to Special Handling for investigation and any of the other groups may be called upon to help. A complaint that is filed directly with the offices of a state's Attorney General presumably is turned over to Legal or Government Affairs.
Because Amway has been blitzed by Canadian provincial authorities, that issue is preoccupying us all. However, that is not the only "war" that Amway currently is waging. We're fighting on many
There are a number of steps Amway can take to reduce the danger. They include:
Events of the past three months demonstrate clearly that need for planning prompt action if Amway is to respond to challenges of this type. The same persons or group doing the actual investigating should be the ones involved in dealing with law enforcement officials checking into distributor activities. Amway simply doesn't have much margin for error any more in dealing with investigating, and publicly responding to improper distributor activities.
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